Commissioner v Hypermix Feeds
However, the Regional Trial Court dismiss the
Facts: The Commissioner of Customs issued CM 27-2003 classifying wheat as
(1) importer or consignee; (2) country of origin; and (3) port of discharge and
depending on these factors, wheat would be classified further as either food
grade with a tariff rate of 3% or feed grade with a tariff rate of 7%. The
regulation also provides for an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. On December 19,
2003, the respondent filed a Petition for Declaratory Relief with the Regional
Trial Court of Las Pinas contending the following: (1) the regulation was
issued without following the mandate of the Revised Administrative Code, (2)
that the regulation classified them to be a feed grade supplier without prior
assessment and examination, (3) the equal protection clause of the Constitution
was violated when the regulation treated the non-flour millers differently from
flour millers for no reason at all, and (4) the retroactive application of the
regulation is confiscatory.
ISSUE: Was the issuance of CMO 27-2003 within the powers of the
Commissioner of Customs?
Ruling: A legislative rule a court is free to make three inquiries: (i) whether the
rule is within the delegated authority of the administrative agency; (ii) whether
it is reasonable; and (iii) whether it was issued pursuant to proper procedure.
In summary, petitioners violated respondents right to due process in the
issuance of CMO 27-2003 when they failed to observe the requirements under
the Revised Administrative Code. Petitioners likewise violated respondents
right to equal protection of laws when they provided for an unreasonable
classification in the application of the regulation. Finally, petitioner
Commissioner of Customs went beyond his powers of delegated authority
when the regulation limited the powers of the customs officer to examine and
assess imported articles.
CIR vs Leal
Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on
dealers in securities and lending investors, the Commissioner of Internal
Revenue issued Memorandum Order (RMO) No. 15-91 dated March 11, 1991,
imposing five percent (5%) lending investor’s tax on pawnshops based on their
gross income and requiring all investigating units of the Bureau to investigate
and assess the lending investor’s tax due from them. The issuance of RMO No.
15-91 was an offshoot of petitioner’s evaluation that the nature of pawnshop
business is akin to that of lending investors.Subsequently, petitioner issued
Revenue Memorandum Circular No. 43-91 dated Josefina Leal, owner and
operator of Josefina Pawnshop in San Mateo, Rizal, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-91 but the same was
denied with finality by petitioner in October 30, 1991.
Consequently, on March 18, 1992, respondent filed with the RTC a petition for
prohibition seeking to prohibit petitioner from implementing the revenue
orders.
Issue: Whether RTC has jurisdiction to review rulings of the Commissioner
implementing the Tax Code.
Ruling: No.The subject matter thereof clearly falls within the scope of cases
now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7
of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax
Appeals exclusive appellate jurisdiction to review by appeal, among others,
decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of
Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction
over all cases involving said assessments previously cognizable by Courts of
First Instance, and even those already pending in said courts.
British American Tobacco v Camacho
Facts: Petitioner British American Tobacco introduced and sold Lucky Strike,
Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes w/ SRP P
9.90/pack - Initial assessed excise tax was P 8.96/pack (Sec. 145 [c]) On
August 8, 2003 RR 22-2003 implement the revised tax classification of
certain new brands introduced in the market after January 1, 1997 based on the
survey of their current net retail prices. This increased the excise tax to P13.44
since the average net retail price is above P 10/pack. This cause petitioner to
file before the RTC of Makati a petition for injunction with prayer for issuance
of a Temporary Restraining Order and/or Writ of Preliminary Injunction
sought to enjoin the implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-
2003, 22-2003 and 6-2003.
same on the ground of lack of jurisdiction.
Issue: Whether the dismissal was proper
Ruling No. Petitions involving the validity of a regulation or other
administrative issuance must be filed with the regular courts and not with the
CTA.
United Cadiz Sugar v Commissioner, CTA Case No. 7995
(Full text cannot be found)
Main point: Where the petitioner assailed the validity of Revenue Regulations
No. 13-2008, which provides for instances where withdrawal of sugar is
exempt from VAT, the CTA chose not to rule on the legal issue, for lack of
jurisdiction being a court of special jurisdiction.
Smart Communications v NTC
Facts: The NTC issued Billing Circular 13-6-2000 which promulgated rules
and regulations on the billing of telecommunications services. Petitioners filed
with the RTC a petition to declare the circular as unconstitutional. A motion to
dismiss was filed by the NTC on the ground of petitioner’s to exhaust
administrative remedies. The RTC denied the motion to dismiss but on
certiorari, the CA reversed RTC
Issue: Whether the CA erred in reversing the decision rendered by the RTC
Ruling: The determination of whether a specific rule or set of rules issued by
an administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts.[25] This is within the scope of
judicial power, which includes the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments.
Roxas vs CTA
Facts: Antonio, Eduardo and Jose Roxas, brothers and at the same time
partners of the Roxas y Compania, inherited from their grandparents several
properties which included farmlands. The tenants expressed their desire to
purchase the farmland. The tenants, however, did not have enough funds, so
the Roxases agreed to a purchase by installment. Subsequently, the CIR
demanded from the brothers the payment of deficiency income taxes resulting
from the sale, 100% of the profits derived therefrom was taxed. The brothers
protested the assessment but the same was denied. On appeal, the Court of Tax
Appeals sustained the assessment. Hence, this petition
Issue: Is Roxas liable?
Ruling: 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.
Collector vs Bohol Land
Facts: The Bohol Land Transportation Co. is a domestic corporation engaged
in the land transportation business with main office at Tagbilaran,
Bohol. From 1945 to 1951 it had consistently filed its income tax returns and
paid the corresponding incame taxes due thereon as per said returns.
Subsequently, a verification of its income tax returns was conducted by an
examiner of the Bureau of Internal Revenue and as a result the following
deficiency assessments were issued against it.
Issue: Whether the assessment made by the agency is prima facie presumed
correct
Ruling. Yes. For reasons of public policy and based on the lifeblood theory,
the assessment made by the commissioner is prima facie presumed correct.
The burden of proof to show the incorrectness or inaccuracy of such
assessment or its details lies on the taxpayer, contrary to the usual
presumptions of good faith and innocence. The revenue officers are also
presumed to have taken into consideration all the facts to which their attention
was called.
Commissioner vs Avelino
Facts: The Commissioner of Internal Revenue seeks a review of the decision
of the Court of Tax Appeals in the above entitled case, which reversed that of
said officer requiring Enrique Avelino to pay the sum of P22,123.55, as
deficiency income tax. The corresponding assessment, made on the networth
method, was based upon an investment in the sum of P60,000 made by
Enrique Avelino in the National Livestock Produce Corporation, organized in
June 1947. He having filed no income tax return for such year, said amount
was considered as his unreported income therefor.
Issue: Whether the assessment made by the agency is prima facie presumed
correct
Ruling. Yes. For reasons of public policy and based on the lifeblood theory,
the assessment made by the commissioner is prima facie presumed correct.
The burden of proof to show the incorrectness or inaccuracy of such
assessment or its details lies on the taxpayer, contrary to the usual
presumptions of good faith and innocence. The revenue officers are also
presumed to have taken into consideration all the facts to which their attention
was called.
Collector vs Benipayo
Facts: Alberto Benipayo is the owner of the Lucena Theater in Lucena,
Quezon. In 1953, the internal revenue agent investigated Benipayo’s tax
liability for the period of August 1952 to September 1953. The examiner
recommended a deficiency tax assessment in the sum of P11,193.45 inclusive
of 25% surcharge plus a suggested compromise penalty of P900.00 based on
the conclusion that Benipayo sold 2 tax-free 20c tickets fraudulently in order
to avoid payment of amusement tax prescribed by Section 260 of the Tax Code
.Benipayo protested, claiming that the findings of the examiners are mere
presumptions and conclusions, devoid of findings of fact of alleged fraudulent
practices by him.
Issue: Whether there is evidence in the record to show Benipayo committed
the alleged act to cheat or defraud the Government
Ruling: No. An assessment fixes and determines the tax liability of a
taxpayer. In order to stand the test of judicial scrutiny, the assessment must be
based on actual facts. The presumption of correctness of assessment, being a
mere presumption, cannot be made to rest on another presumption, no matter
how reasonable or logical such may be.
CIR vs Filinvest(P.539)
Facts: BIR issued income tax assessment for 1997 against Filinvest
Development Corporation, by imputing interest on advances made to its
affiliates, based on Section 50 of the Tax Code, authorizing the CIR distribute,
allocate or apportion gross income or deductions between or among related
taxpayers in order to determine their true income. In its protest, FDC
contended that interests cannot be demanded that interests cannot be demanded
in the absence of a stipulation to that effect
Issue: Whether the CIR has the power to impute theoretical interest to the
taxpayer’s transactions
Ruling: Despite the broad parameters provided, however, we find that the
CIR's powers of distribution, apportionment or allocation of gross income and
deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue
Regulation No. 2 does not include the power to impute "theoretical interests"
to the controlled taxpayer's transactions. Pursuant to Section 28 of the 1993
NIRC,[42] after all, the term gross income is understood to mean all income
from whatever source derived, including, but not limited to the following
items: compensation for services, including fees, commissions, and similar
items; gross income derived from business; gains derived from dealings in
property; interest; rents; royalties; dividends; annuities; prizes and winnings;
pensions; and partners distributive share of the gross income of general
professional partnership.[43] While it has been held that the phrase "from
whatever source derived" indicates a legislative policy to include all income
not expressly exempted within the class of taxable income under our laws, the
term "income" has been variously interpreted to mean "cash received or its
equivalent", "the amount of money coming to a person within a specific time"
or "something distinct from principal or capital." Otherwise stated, there must
be proof of the actual or, at the very least, probable receipt or realization by the
controlled taxpayer of the item of gross income sought to be distributed,
apportioned or allocated by the CIR. Even if we were, therefore, to accord
precipitate credulity to the CIR's bare assertion that FDC had deducted
substantial interest expense from its gross income, there would still be no
factual basis for the imputation of theoretical interests on the subject advances
and assess deficiency income taxes thereon. More so, when it is borne in mind
that, pursuant to Article 1956 of the Civil Code of the Philippines, no interest
shall be due unless it has been expressly stipulated in writing.
CIR vs Citicorp CA-GR SP No, 6855
(Full text cannot be found despite earnest effort)
Main point: There is no provision in the 1997 Tax Code prohibiting the
amendment of a return once a claim for refund has been filed. It is prohibited
only if a notice for audit or investigation of such return, statement or
declaration has, in the meantime, been actually served upon the taxpayer.
Director vs Munoz
Facts: The controversy in the these cases began on April 11, 1964, when
Acting Director of Forestry Apolonio F. Rivera issued an order cancelling
PWR No. 2065-New. He required Piadeco to surrender the original certificate
to him. Ground for this cancellation was that Piadeco had violated forestry
rules and regulations for cutting trees within the Angat and Marikina
Watershed Reservations, expressly excluded from the said certificate.5
On April 14, 1964, Forest Station Warden Reinaldo B. Marquez, District 13,
Bureau of Forestry, wrote Piadeco requesting the latter to desist, effective the
same day, April 14, 1964, from conducting its logging operation inside or
outside the area covered by PWR 2065-New, and to refrain from removing
logs already cut unless they have been scaled and properly invoiced by forestry
officers
Issue: Does the Director of Forestry have the power to issue regulations?
Ruling: Yes. The rationale for the grant of power to issue regulations was
explained by the court. Thus, administrative agencies are clothed with rule-
making powers because the lawmaking body finds it impracticable, if not
impossible, to anticipate and provide for the multifarious and complex
situations that may be encountered in enforcing the law. All that is required is
that the regulation should be germane to the objects and purposes of the law
and that it should conform to the standards that law prescribes.
Calalang vs Williams
Facts: Maximo Calalang, in his capacity as a private citizen and as a taxpayer
of Manila alleged in the petition that the National Traffic Commission, in its
resolution of July 17, 1940, resolved to recommend to the Director of Public
Works and to the Secretary of Public Works and Communications that animal-
drawn vehicles be prohibited from passing along Rosario Street extending
from Plaza Calderon de la Barca to Dasmariñas Street, from 7:30 a.m. to 12:30
p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal Avenue extending from
the railroad crossing at Antipolo Street to Echague Street, from 7 a.m. to 11
p.m., from a period of one year from the date of the opening of the Colgante
Bridge to traffic; that the Chairman of the National Traffic Commission, on
July 18, 1940 recommended to the Director of Public Works the adoption of
the measure proposed in the resolution aforementioned, in pursuance of the
provisions of Commonwealth Act No. 548 which authorizes said Director of
Public Works, with the approval of the Secretary of Public Works and
Communications, to promulgate rules and regulations to regulate and control
the use of and traffic on national roads
Issue: WHETHER COMMONWEALTH ACT NO. 548 IS
UNCONSTITUTIONALRuling: No. The grant of the rule-making power to
administrative agencies is a relaxation of the principle of separation of powers
and is an exception to the non-delegation of legislative powers. Administrative
regulations or subordinate legislation calculated to promote the public interest
are necessary because of the growing complexity of modern life, the
multiplication of the subjects of governmental regulations, and the increased
difficulty of administering law.
Del Mar v. Philippine Veterans Administration
Facts: Quirico del Mar served as chief judge advocate of the Cebu Area
Command during World War II as a major. He obtained an honorable
discharge from the service on October 20, 1946 on a certificate of permanent
total physical disability. The Philippine Veterans Board (PVA’s predecessor)
granted him a monthly life pension of Php50 effective January 28, 1947. In
March 1950, however, the said Board discontinued payment of his pension.
This was because del Mar is receiving a similar pension from the United States
Government through the US Veterans Administration because he served in the
US Army in the Far East during WWII. The discontinuation of the pension
was based on Section 9 of RA 65,
Issue: WHETHER THE DISCONTINUATION OF THE PENSION WAS
PROPER
Ruling: No. The rule-making power must be confined to details for regulating
the mode or proceeding to carry into effect the law as it has been enacted. The
power cannot be extended to amending or expanding the statutory
requirements or to embrace matters not covered by the statute. Rules that
subvert the statute cannot be sanctioned.
Commissioner vs Bishop of the Missionary
Facts: Respondent Bishop of the Missionary District of the Philippines Islands
of the Protestant, Episcopal Church in the U.S.A. is a corporation sole duly
registered with the Securities and Exchange Commission. On different dates
the Missionary District in the Philippines received from the Missionary
Society in the United States various shipments of materials, supplies,
equipment and other articles intended for use in the construction and operation
of the new St. Luke's Hospital in Quezon City and the Brent Hospital and St.
Stephen's High School. The Missionary District also received from a certain
William Minnis of Canada a stove for the use of the Brent Hospital.
On these shipments, the Commissioner of Internal Revenue levied and
collected the total amount of P118,847 as compensating tax. The Bishop of the
Missionary District filed claims for refund of the amount he had paid on the
ground that under Republic Act No. 1916, the materials and articles received
by him were exempt from the payment of compensating tax.
Issue: WHETHER OR NOT THE ARTICLES RECEIVED BY THE BISHOP
OF THE MISSIONARY IS EXEMPT FROM TAX
Ruling. Yes. It is settled law that regulations promulgated by authority of law
and not in conflict with the statute are binding upon everyone falling under any
of their provisions.
Interprovincial Autobus v Collector
Facts: Plaintiff is a common carrier engaged in transporting passengers and
freight by means of TPU buses in Misamis Occidental and Northern
Zamboanga. Sometime in the year 1941 the provincial revenue agent for
Misamis Occidental examined the stubs of the freight receipts that had been
issued by the Plaintiff. He found that the stubs of the receipts issued during the
years 1936 to 1938 were not preserved; but those for the years 1939 to 1940
were available. Pursuant, however, to sections 121 and 127 of the Revised
Documentary Stamp Tax Regulations of the Department of Finance
promulgated on September 16, 1924, he assumed that the value of the goods
covered by each of the above- mentioned freight receipts amounted to more
than P5, and assessed a documentary stamp tax of P0.04 on each of the
194,406 receipts. The tax thus assessed amounted to P7,776.24, which was
collected from the deposit of the Plaintiff in the Misamis Occidental branch of
the Philippine National Bank. Plaintiff demanded the refund of the amount,
and upon refusal of the Defendant, Plaintiff filed the action.
Issue: Did the Secretary of Finance infringe or violate any right of the taxpayer
when he directed that the tax is to be collected in all cases where the bill of
lading or receipt does not state that the shipment is worth P5 or less, or, in the
language of the Petitioner-Appellant, when he (Secretary) created a
presumption of liability to the tax if the receipt fails to state such value
Ruling: The regulation above quoted falls within the scope of the
administrative power of the Secretary of Finance, as authorized in Section 79
(B) of the Revised Administrative Code, because it is essential to the strict
enforcement and proper execution of the law which it seeks to implement. Said
regulations have the force and effect of law.
“In the very nature of things in many cases it becomes impracticable for the
legislative department of the Government to provide general regulations for
the various and varying details for the management of a particular department
of the Government. It therefore becomes convenient for the legislative
department of the Government, by Law, in a most general way, to provide for
the conduct, control and management of the work of the particular department
of the Government; to authorize certain persons, in charge of the management,
control, and direction of the particular department, to adopt certain rules and
regulations providing for the detail of the management and control of such
department. Such regulations have uniformly been held to have the force of
law, whenever they are found to be in consonance and in harmony with the
general purposes and objects of the law.
BPI Leasing Corporation v CA
Facts: BLC is a corporation engaged in the business of leasing properties. For
the
calendar year 1986, it paid Commissioner of Internal Revenue a total of P1,13
9,041.49 representing 4% contractor’s percentage tax as imposed by the
National Internal Revenue Code. The CIR issued Revenue Regulation 19-86.
Section 6.2 thereof provided that finance and leasing companies registered
under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on
actual income earned. This means that companies registered under Republic
Act 5980, such as BLC, are not liable for contractors percentage tax under
Section 205 but are, instead, subject to gross receipts tax under Section 260
(now Section 122) of the NIRC
Issue: WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS
LEGISLATIVE OR INTERPRETATIVE IN NATURE.
Ruling: Administrative issuances may be distinguished according to their
nature and substance: legislative and interpretative. A legislative rule is in the
matter of subordinate legislation, designed to implement a primary legislation
by providing the details thereof. An interpretative rule, on the other hand, is
designed to provide guidelines to the law which the administrative agency is in
charge of enforcing. when an administrative rule goes beyond merely
providing for the means that can facilitate or render less cumbersome the
implementation of the law and substantially increases the burden of those
governed, it behooves the agency to accord at least to those directly affected a
chance to be heard and, thereafter, to be duly informed, before the issuance is
given the force and effect of law.
Commissioner v Ledesma
Facts: The petitioner and the intervenors are all public utilities engaged in the
operation of auto truck services for the transportation of passengers and freight
over practically the same territory. The certificates of public convenience first
issued authorized operation without stated hours or routes. Subsequently,
however, Francis J. Cooper and the Negros Transportation Co. changed their
methods of operation with the approval of the Public Utility Commission from
ones without fixed hours or routes to services with fixed hours and routes. The
petitioner Alejandra Mejica has preferred to operate her vehicles upon
irregular schedules. By means of two cases presented to the Public Utility
Commission by Francis J. Cooper and the Negros Transportation Co.,
Alejandra Mejica was forbidden, when operating on the same line with Francis
J. Cooper and the Negros Transportation Co. or either of them, to do so from
any point within less than two hours before or one hour after the scheduled
hours of departure of their trucks.
Thus remained the situation, until Alejandra Mejica asked the Public
Utility Commission for authority to increase her equipment by seven auto
trucks with a capacity of twenty-eight passengers each, and to operate them on
the same route and under the same conditions prescribed in her previous
certificate of conveyance. To this application, Francis J. Cooper and the
Negros Transportation Co. filed opposition. After hearing; the Assistant Public
Utility Commissioner, Honorable M. V. del Rosario, rendered his decision.
Issue: Whether the decision rendered by Commissioner del Rosario binds the
parties
Ruling. Yes. The interpretation given by the administrative officer charged by
reason of his office to carry out the provisions of a statute should be respected
whenever such interpretation is assailed by someone who alleges no reasons of
weight to contradict or weaken it.
Begosa vs Philippine Veterans
Facts: Plaintiff sought the aid of the judiciary to obtain the benefits to which he
believed he was entitled under the Veterans’ Bill of Rights. He filed his
claim for disability pension on March 4, 1955 but was erroneously
disapproved on June 21, 1955 due to his dishonorable discharge from the
army. The Board of Administrators of PVA finally approved his claim on
September 2, 1964,entitling him with a pension of P30 a month, to take effect
on October 5 of that year. Believing that his pension should have taken effect
back in 1955 when his claim was disapproved, and that he is entitled to a
higher pension of P50 (RA No. 1362 amending Section 9 of RA No. 65) as a
permanently incapacitated person, which was increased to P100 a month when
RP 1362 was amended by RA No. 1920 on June 22, 1957, Begosa filed a case
against PVA in the Court of First Instance.
CFI ruled in favor plaintiff. Defendants claim that the plaintiff has not
exhausted all administrative remedies before resorting to court action and that
the plaintiff’s claim is in reality a suit against
the Government which cannot be entertained by this Court for lack of jurisdicti
on because the Government has not given its consent.
Issue: WHETHER THE SUPREME COURT CAN ENTERTAIN THE SUIT
AGAINST PVA.
Ruling: Yes. It has often been announced, and rightly so, that as much as
possible the findings of regulatory agencies which are expected to acquire
expertise by their jurisdiction being confined to specific matters, deserve to be
accorded respect and finality. There is a limit, however, to such a deference
paid to the actuations of such bodies. Clearly, where there has been a failure to
interpret and apply the statutory provisions in question, judicial power should
assert itself. Under the theory of separation of powers, it is to the judiciary, and
to the judiciary alone, that the final say on questions of law in appropriate
cases coming before it is vested.
ABS-CBN BROADCASTING CORPORATION v. CTA, GR No. L-
52306, 1981-10-12
Facts: The ABS-CBN Broadcasting Corporation (herein shall be called the
“Company”) was engaged in the business of telecasting local as well as foreign
films acquired from foreign corporations not engaged in trade or business with
the Philippines. Under Section 24 (b) of the National Revenue Code, a
withholding tax of 30% (RA 2343). It was implemented through Circular No.
V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and turned
over to the BIR the amount of 30% of one-half of the film rentals paid by it to
foreign corporations not engaged in trade or business within the Philippines.
The last year that ABS-CBN withheld taxes pursuant to the foregoing Circular
was in 1968.
RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from
30 % to 35 % and revising the tax basis from “such amount” referring to rents,
etc. to “gross income.” The following was implemented by Circular No. 4-71.
Petitioner requested for a reconsideration and withdrawal of the assessment.
Issue: Whether or not respondent can apply General Circular No. 4-71
retroactively and issue a deficiency assessment against petitioner.
Ruling: Any rulings or circulars promulgated by the CIR have no retroactive
application when it would be prejudicial to taxpayers. The retroactive
application of Memorandum Circular No. 4-71 prejudices ABS-CBN. The
principle of legislative approval of administrative interpretation of a statute is
to the effect that the re-enactment of a statute substantially unchanged is
persuasive indication of the adoption by Congress of a prior executive
construction. The principle applies with more cogency in a case where what is
involved is not a mere opinion of the Commissioner of Internal Revenue or
ruling rendered on a mere query, but a Revenue Memorandum Circular issued
to “all internal revenue officials” by the Commissioner.
21. Republic v Marsman Development Company, 44 SCRA 418, No.
L-18956 April 27, 1972 (546) Dissolution of corporation
FACTS: Defendant Corporation was a timber licensee. Sometime before
October 15, 1953 investigations were conducted and led to the discovery that
certain taxes were due from the logs produced from its concession and
surcharge for discharging lumber without permit. BIR assessed Marsman
3 times for unpaid taxes conducted on the business operation and
activities of the corporation. Atty. Moya, in behalf of the corporation,
received the first 2 assessments. He requested for reinvestigation. As a
result, corporation failed to pay within the prescribed period. Numerous
BIR warnings were given. After 3 years of futile notifications, BIR sued
the corporation.
ISSUE: Whether the present action is barred by prescription, in light of the
fact that the corporation law allows corporations to continue only for 3
years after its dissolution, for the purpose of presenting or defending suits
by or against it, and to settle its affairs.
RULING: NO. Where prescription is an affirmative defense set up by the
taxpayer, it is incumbent upon him to prove that he submitted his tax
returns, and if he fails to do so, the conclusion must be that no such
returns had been filed and that the government has ten years within
which to make the corresponding assessment.
Although Marsman was extra-judicially dissolved, with the 3-year rule,
nothing however bars an action for recovery of corporate debts against
the liquidators. In fact, the 1st assessment was given before dissolution,
while the 2nd and 3rd assessments were given just 6 months after
dissolution (within the 3-year rule). Such facts definitely established that the
Government was a creditor of the corporation for whom the liquidator
was supposed to hold assets of the corporation.
22. Tan Guan v Court of Tax Appeals, 19 SCRA 903, No. L-23676
April 27, 1967 Re general partnership
FACTS: In 1947 Tan Guan and Sia Lin, Chinese nationals, organized and
registered the Philippine Surplus Company, a general partnership. For the
same year the partners and the partnership filed separate income tax
returns. Tan Guan who filed his return on April 18, 1949, reported net income
of P20,987.14 and paid P2,577.81 as income tax thereon. The partnership paid
no income tax.
The Bureau of Internal Revenue investigated in 1954 the books and papers of
said partnership and disallowed the expense deduction as for the year 1948
for being fictitious. The BIR investigators discovered that the expenses were
not supported by receipts; that the names of the payees in the aforesaid
entries were erased; and that the said payees did not report the sums in
question in their income tax returns for 1948.
ISSUE: Whether CIR assessment was correct
RULING: YES. Tan Guan presented no evidence to disprove such finding. In
appeals to the Court of Tax Appeals, the determination of the Commissioner
of Internal Revenue is presumed to be correct. It behooves the taxpayer to
rebut such presumption. Where the taxpayer failed to rebut the
Commissioner’s findings that the business expenses claimed as deductions
in his 1948 income tax return were fictitious, such finding must be
sustained. The Commissioner's finding on the facts constituting fraud, proved
in, and found established by, the Court of Tax Appeals, was not rebutted by
the taxpayer. Hence, we are not inclined to disturb the finding of falsity or
fraudulence in Tan Guan's return.
23. Collector v Avelino
FACTS: This is an appeal from a decision of the Court of Tax Appeals
confirming substantially the assessment of Income tax deficiencies of the
petitioner Jose Avelino for the years 1946, 1947 and 1948. It is contended
under this assignment of error that p Included in the opening net worth as of
January 1, 1946, both according to the petitioner as well as to the
Commissioner of Internal Revenue, are P700.00 and P5,500.00, representing
cash in bank, PNB savings account and PNB current account, respectively. But
petitioner claims that the cash on hand in the opening net worth should be, on
December 31, 1945 (or January 1, 1946), not P100.00 as estimated by
respondent but P47,300.00, for the reason that in an income tax return
submitted by the wife of the petitioner, Mrs. Enriqueta Avelino, she made it
appear that the netted a profit of P55,000.00 from her business of importation
of shoes, operation of a bar, and of a restaurant, shortly after liberation. The
income tax return submitted by her for the year 1946 was submitted in the year
1949 and was presented at the hearing as Exhibit "A". Petitioner asserts that
his wife made a gain of P55,000.00 during the year 1946, but the supposed
copy of the income tax return that she has submitted as evidence does not
show how that amount had been earned.
ISSUE: Whether the CTA erred in not holding that the net worth method used
by respondent in determining petitioner's taxable income is without justifiable
basis
RULING: NO. The agents of BIR will also be presumed to have taken into
consideration all the facts to which their attention was called. If she did
actually earn that amount Exhibit "A" would have contained the details
indicating the transactions in which the big sum was earned. Why none of that
amount or the greater part thereof appears to have been deposited in a bank has
not been explained. Apparently the court below considered the return as a self-
serving statement, and We agree that on the basis of that income tax return,
without any other explanation how the gains were used or invested or
deposited, there is no reason to disturb the action of the court below in giving
no credence to the said alleged existence of the cash net worth existing at the
beginning of the year 1946. We therefore declare that the alleged error has not
been committed.
24. Cyanamid Philippines, Inc. vs. Court of Appeals, 322 SCRA 639,
G.R. No. 108067 January 20, 2000
FACTS: Petitioner, Cyanamid Philippines, Inc., a corporation organized under
Philippine laws, is a wholly owned subsidiary of American Cyanamid Co.
based in Maine, USA. It is engaged in the manufacture of pharmaceutical
products and chemicals, a wholesaler of imported finished goods, and an
importer/indentor.
February 7, 1985, the CIR sent an assessment letter to petitioner and demanded
the payment of deficiency income tax of P119,817 for taxable year 1981 which
the petitioner on March 4, 1985, protested particularly (1) 25% surtax
assessment of P3,774,867.50; (2) 1981 deficiency income tax assessment of
P119,817; (3) 1981 deficiency percentage assessment of P3,346.72. CIR
refused to allow the cancellation of the assessment notices.
During the pendency of the case on appeal to the CTA, both parties agreed to
compromise the 1981 deficiency income assessment of P119,817 and reduced
to P26,577 as compromise settlement. But the surtax on improperly
accumulated profits remained unresolved. Petitioner claimed that the
assessment representing the 25% surtax had no legal basis. Another point
raised by the petitioner in objecting to the assessment, is that increase of
working capital by a corporation justifies accumulating income. Petitioner
asserts that respondent court erred in concluding that Cyanamid need not
infuse additional working capital reserve because it had considerable liquid
funds based on the 2.21:1 ratio of current assets to current liabilities. Petitioner
relies on the so-called "Bardahl" formula, which allowed retention, as working
capital reserve, sufficient amounts of liquid assets to carry the company
through one operating cycle. The "Bardahl" formula was developed to measure
corporate liquidity. The formula requires an examination of whether the
taxpayer has sufficient liquid assets to pay all of its current liabilities and any
extraordinary expenses reasonably anticipated, plus enough to operate the
business during one operating cycle. Operating cycle is the period of time it
takes to convert cash into raw materials, raw materials into inventory, and
inventory into sales, including the time it takes to collect payment for the sales
ISSUE: Whether petitioner assertions are correct
RULING: NO. The Tax Court opted to determine the working capital
sufficiency by using the ratio between current assets to current liabilities. The
working capital needs of a business depend upon the nature of the business, its
credit policies, the amount of inventories, the rate of turnover, the amount of
accounts receivable, the collection rate, the availability of credit to the
business, and similar factors. Petitioner, by adhering to the “Bardahl” formula,
failed to impress the tax court with the required definiteness envisioned by the
statute. We agree with the tax court that the burden of proof to establish that
the profits accumulated were not beyond the reasonable needs of the company,
remained on the taxpayer. This Court will not set aside lightly the conclusion
reached by the Court of Tax Appeals which, by the very nature of its function,
is dedicated exclusively to the consideration of tax problems and has
necessarily developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority. Unless rebutted, all presumptions
generally are indulged in favor of the correctness of the CIR’s assessment
against the taxpayer. With petitioner’s failure to prove the CIR incorrect,
clearly and conclusively, this Court is constrained to uphold the correctness of
tax court’s ruling as affirmed by the Court of Appeals.
25. Commissioner of Internal Revenue vs. Court of Appeals, 298
SCRA 83, G.R. No. 124043 October 14, 1998
FACTS: Private Respondent YMCA is a non-stock, non-profit institution,
which conducts various programs and activities that are beneficial to the
public, especially the young people, pursuant to its religious, educational and
charitable objectives. Private respondent contends that the February 16, 1994
CA Decision reversed the factual findings of the CTA. On the other hand,
petitioner argues that the CA merely reversed the ruling of the CTA that the
leasing of private respondents facilities to small shop owners, to restaurant and
canteen operators and the operation of parking lots are reasonably incidental to
and reasonably necessary for the accomplishment of the objectives of the
private respondent and that the income derived therefrom are tax exempt.
Petitioner insists that what the appellate court reversed was the legal
conclusion, not the factual finding, of the CTA.
ISSUE: Whether Court of Appeals erred in holding that it had departed from
the findings of fact of Respondent Court of Tax Appeals when it rendered its
Decision dated February 16, 1994
RULING: NO. The distinction between a question of law and a question of
fact is clear-cut. It has been held that “[t]here is a question of law in a given
case when the doubt or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or difference arises as to the
truth or falsehood of alleged facts.” In the present case, the CA did not doubt,
much less change, the facts narrated by the CTA. It merely applied the law to
the facts. That its interpretation or conclusion is different from that of the CTA
is not irregular or abnormal.
In the present case, this Court finds that the February 16, 1994 Decision of the
CA did not deviate from this rule. The latter merely applied the law to the facts
as found by the CTA and ruled on the issue raised by the CIR: Whether or not
the collection or earnings of rental income from the lease of certain premises
and income earned from parking fees shall fall under the last paragraph of
Section 27 of the National Internal Revenue Code of 1977, as amended.
Clearly, the CA did not alter any fact or evidence. It merely resolved the
aforementioned issue, as indeed it was expected to. That it did so in a manner
different from that of the CTA did not necessarily imply a reversal of factual
findings.
26. Fortich v Corona
FACTS: On March 29, 1996, the Office of the President (OP) issued a
decision converting a large parcel of land from agricultural land to agro-
industrial/institutional area. Because of this, a group of farmer-beneficiaries
staged a hunger strike in front of the Department of Agrarian Reform (DAR)
Compound in Quezon City in October 9, 1997. The strike generated a lot of
publicity and even a number of Presidential Candidates (for the upcoming
1998 elections) intervened on behalf of the farmers. Because of this
“blackmail”, the OP re-opened the case and through Deputy Executive
Secretary Renato C. Corona issued the so-called, “politically motivated”,
“win-win” resolution on November 7, 1997, substantially modifying its 1996
decision after it had become final and executory.
ISSUE: Whether the “win-win” resolution, issued after the original decision
had become final and executory, had any legal effect.
RULING: NO. The orderly administration of justice requires that the
judgments/resolutions of a court or quasi-judicial body must reach a point
of finality set by the law, rules and regulations. The noble purpose is to
write finis to disputes once and for all. Factual findings of administrative
agencies which have acquired expertise in their field are binding and
conclusive on the Supreme Court.
When the OP issued the Order dated June 23,1997 declaring the Decision of
March 29, 1996 final and executory, as no one has seasonably filed a motion
for reconsideration thereto, the said Office had lost its jurisdiction to re-open
the case, more so modify its Decision. Having lost its jurisdiction, the Office
of the President has no more authority to entertain the second motion for
reconsideration filed by respondent DAR Secretary, which second motion
became the basis of the assailed “Win-Win” Resolution. Section 7 of
Administrative Order No. 18 and Section 4, Rule 43 of the Revised Rules of
Court mandate that only one (1) motion for reconsideration is allowed to be
taken from the Decision of March 29, 1996. And even if a second motion for
reconsideration was permitted to be filed in “exceptionally meritorious cases,”
as provided in the second paragraph of Section 7 of AO 18, still the said
motion should not have been entertained considering that the first motion for
reconsideration was not seasonably filed, thereby allowing the Decision of
March 29, 1996 to lapse into finality. Thus, the act of the Office of the
President in re-opening the case and substantially modifying its March
29,1996 Decision which had already become final and executory, was in
gross disregard of the rules and basic legal precept that accord finality to
administrative determinations.
27. Collector v Avelino (549)
FACTS: This is an appeal from a decision of the Court of Tax Appeals
confirming substantially the assessment of Income tax deficiencies of the
petitioner Jose Avelino for the years 1946, 1947 and 1948. It is contended
under this assignment of error that there is no reasonable certainty of the
amount taken as an opening net worth, there being no sufficient basis for
establishing such opening net worth. Included in the opening net worth as of
January 1, 1946, both according to the petitioner as well as to the
Commissioner of Internal Revenue, are P700.00 and P5,500.00, representing
cash in bank, PNB savings account and PNB current account, respectively. But
petitioner claims that the cash on hand in the opening net worth should be, on
December 31, 1945 (or January 1, 1946), not P100.00 as estimated by
respondent but P47,300.00, for the reason that in an income tax return
submitted by the wife of the petitioner, Mrs. Enriqueta Avelino, she made it
appear that the netted a profit of P55,000.00 from her business of importation
of shoes, operation of a bar, and of a restaurant, shortly after liberation. The
income tax return submitted by her for the year 1946 was submitted in the year
1949 and was presented at the hearing as Exhibit "A". Petitioner asserts that
his wife made a gain of P55,000.00 during the year 1946, but the supposed
copy of the income tax return that she has submitted as evidence does not
show how that amount had been earned.
ISSUE: Whether the use of net worth method was proper
RULING: YES. Where the Commissioner of Internal Revenue used as part of
the opening net worth the small bank deposit of petitioner at the beginning
of the year 1946; and the petitioner presents in Court an income tax
return for the year 1946 of petitioner’s wife to show that his wife made a
gain prior to that period, and that therefore he had an opening net worth
bigger than that used by the said Commissioner, but said return does not
contain any details to indicate how the alleged gain was used, invested or
deposited, it is held that the lower court was correct in considering said return
as a self-serving statement and in giving no credence to the alleged existence
of a bigger opening net worth corresponding to said supposed gain of the wife.
The lower court correctly deducted from the increase in net worth one-half of
the capital gain realized from the sale of capital assets made in the period
covered and the depreciation on the rental properties. It also correctly took into
account the improvements made on the four buildings of the petitioner.
28. CSC v Lucas
FACTS: Raquel P. Linatok, filed with the office of the Secretary,
Department of Agriculture, an affidavit-complaint against respondent
Jose J. Lucas, a photographer of the same agency, for misconduct. The
Board of Personnel Inquiry, DA, issued a summons requiring respondent to
answer the complaint. Respondent Lucas submitted a letter to Jose P.
Nitullano, assistant head, BOPI, denying the charges. According to Lucas,
he did not touch the thigh of complainant Linatok, that what transpired was
that he accidentally brushed Linatoks leg when he reached for his shoes and
that the same was merely accidental and he did not intend nor was there malice
when his hand got in contact with Linatoks leg. After a formal investigation by
the BOPI, DA, the board issued a resolution finding respondent guilty of
simple misconduct and recommending a penalty of suspension for one (1)
month and one (1) day.
Respondent appealed the decision to the CSC. The CSC issued a resolution
finding respondent guilty of grave misconduct and imposing on him the
penalty of dismissal from the service. Respondent moved for reconsideration
but the CSC denied the motion. Then, respondent appealed to the CA. The CA
set aside the resolution of the CSC and reinstated the resolution of the BOPI,
DA. The CA further ruled that a basic requirement of due process on the other
hand is that a person must be duly informed of the charges against him. In the
instant case however, Lucas came to know of the modification of the charge
against him only when he received notice of the resolution dismissing him
from the service.
ISSUE: Whether respondent Lucas was denied due process when the CSC
found him guilty of grave misconduct on a charge of simple misconduct
RULING: YES. It is sufficient that he is apprised of the substance of the
charge against him; what is controlling is the allegation of the acts complained
of, and not the designation of the offense. We sustain the ruling of the Court of
Appeals that: (a) a basic requirement of due process is that a person must be
duly informed of the charges against him and that (b) a person cannot be
convicted of a crime with which he was not charged. Administrative
proceedings are not exempt from basic and fundamental procedural principles,
such as the right to due process in investigations and hearings. The right to
substantive and procedural due process is applicable in administrative
proceedings.
29. Padilla v Sto. Tomas, 243 SCRA 155, G.R. No. 109444 March 31,
1995 (550)
FACTS: An administrative complaint for gross dishonesty, gross neglect of
duty, inefficiency and incompetence in the performance of official duties and
gross violation of the law, rules and reasonable office regulations was filed
against petitioner Delano Padilla, former officer-in-charge of the LTO of
Bacolod City. It was alleged that petitioner succeeded in having caused and
approved the registration and/or transfer of ownership of 12 carnapped and
stolen vehicles despite prior knowledge that existing laws, rules and
regulations were violated in the registration and transfer thereof.
Petitioner was given five (5) days from receipt thereof to answer the charges
filed against him. Petitioner filed his answer vehemently denying the charges
against him. He contended that the 12 motor vehicles were covered by proper
clearances, certificates and similar documents issued by the Constabulary
Highway Patrol Group (CHPG). He claimed that the charges were baseless and
were filed only to maliciously taint his good name and reputation. The matter
was set for hearing. However, only prosecutor Ramon Cuyco and his witness,
Alfonso Alianza, were present. Petitioner and his counsel failed to appear
despite due notice. Consequently, the case was heard ex-parte and was
considered submitted for decision. After considering the evidence on record,
respondent Administrative Action Board (AAB) of the Department of
Transportation and Communications (DOTC) through then DOTC Secretary
Rainerio Reyes rendered a decision finding respondent Delano T. Padilla
guilty of the charges filed against him.
Petitioner filed a motion for reconsideration of the above-mentioned decision.
However, instead of ruling on the merits of the motion, the AAB-DOTC
deferred action thereon and scheduled the case for hearing and petitioner’s
motion for reconsideration was denied.Thereafter, petitioner appealed to the
Merit System Protection Board (MSPB) seeking reversal of the AAB-DOTC’s
decision. The MSPB rendered a decision affirming the decision of the AAB-
DOTC. Petitioner’s appeal was therefore ordered dismissed. A motion for
reconsideration of the same was denied. Aggrieved by the foregoing rulings,
petitioner elevated the case to CSC invoking that he was not afforded his
constitutional right of due process.
ISSUE: Whether there was a denial of due process
RULING: NO. The essence of due process is that a party be afforded
reasonable opportunity to be heard and to submit any evidence he may have in
support of his defense. In administrative proceedings such as the one at bench,
due process simply means the opportunity to explain one’s side or the
opportunity to seek a reconsideration of the action or ruling complained of.
Clearly therefore, petitioner was given ample opportunity to present his case.
He was not denied his right to due process. One may be heard, not only by
verbal presentation but also, sometimes more eloquently, through pleadings.
“Due process is not semper et ubique judicial process.” Hence, a formal or
trial-type hearing is not, at all times, necessary. So long as a party is afforded
fair and reasonable opportunity to explain his side, the requirement of due
process is complied with.
30. Commissioner v Atlas
FACTS: Atlas is a corporation engaged in the mining industry registered
under the laws of the Philippines. The Commissioner assessed Atlas deficiency
income taxes for the years 1957 and 1958. For the year 1957, it was the
opinion of the Commissioner that Atlas is not entitled to exemption from the
income tax under Section 4 of Republic Act 909 1 because same covers only
gold mines. The Secretary of Finance ruled that the exemption provided in
Republic Act 909 embraces all new mines and old mines whether gold or other
minerals. After hearing, the Court of Tax Appeals rendered a decision
allowing some disallowed items, except the items denominated by Atlas as
stockholders relation service fee and suit expenses.
ISSUE: Whether the error committed by the official will relieved the taxpayer
from the obligation to pay full amount of his tax liability
RULING: NO. Whether it was due to mistake, negligence or omission of the
officials concerned, the arithmetical error committed herein should not
prejudice the Government. This Court will pass upon this particular question
since there is a clear error committed by officials concerned in the computation
of the deductible amount. As held in the case of Vera vs. Fernandez, this Court
emphatically said that taxes are the lifeblood of the Government and their
prompt and certain availability are imperious need. Upon taxation depends the
Government's ability to serve the people for whose benefit taxes are collected.
To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons may be made to
suffer individually on account of his own negligence, the presumption being
that they take good care of their personal affair. This should not hold true to
government officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a general rule,
from the operation of the principle of estoppel.
31. Balmaceda v Corominas
FACTS: Corominas Company, Inc. was issued by the then Secretary of
Commerce and Industry, Barter Permit, permitting it to export to Japan, 20,000
metric tons of Rhodesian, the permit for importation was encumbered by the
limitation of the Consolidated Rules and Regulations, more relevantly, "that in
no case shall non-essentials be more than 10% of the total imports. Corominas
was sent a letter which stated: "This confirmation is an authority for you to
import the abovementioned items from your supplier but for the account of the
buyer ***."Subsequently, the Coordinator of the Producers Incentives Board,
wrote Corominas that the "NEC items you desire to import have already
exceeded the 10% allocated you under the Consolidated. Rules and
Regulations of the defunct No-Dollar Import Office. This led Corominas to
institute a "Complaint with Preliminary Mandatory Injunction"
ISSUE: Whether Corominas’ contention is tenable
RULING: NO. Court ruled: We find reason in the posture of petitioner-
appellant that the reply-letters, Exhibits D, D-1 to D-10, it sent
to Corominas were mere confirmations of the firm offers submitted by the
latter and not authorities to import. Import authority was already granted to
Corominas when it was issued its Barter Permit and later authorized by Acting
Undersecretary.
The letter concluded with this sentence: "This confirmation is an authority for
you to import the abovementioned items from your supplier but for the account
of the buyer ***."
This cannot be isolated and separately interpreted to mean that Corominas was
thus authorized to import the items listed therein irrespective of the controlling
percentages in the Barter Permit and in the authority granted by acting
Undersecretary Mariano G. Pineda
BOOK: The Commissioner is precluded from adopting a position
inconsistent with one previously taken where injustice would result
therefrom or where there has been a misrepresentation to the taxpayer.
32. Asia International Auctioneers (AIA) v CIR (553)
FACTS: AIA is a duly organized corporation operating within the Subic
Special Economic Zone. It is engaged in the importation of used motor
vehicles and heavy equipment it received from the CIR a Formal Letter of
Demand containing an assessment for deficiency VAT and excise tax for a
total amount of ₱ 106,870,235.00.
AIA claimed that it filed a protest letter. The CIR failed to act on the protest,
prompting AIA to file a petition for review before the CTA.
The CIR filed a motion to dismiss on the ground of lack of jurisdiction citing
the alleged failure of AIA to timely file its protest which thereby rendered the
assessment final and executory.
AIA filed a Manifestation and Motion with Leave of the Honorable Court to
Defer or Suspend Further Proceedings on the ground that it availed of the Tax
Amnesty Program under Republic Act 9480, otherwise known as the Tax
Amnesty Act of 2007. It submitted to the Court a Certification of
Qualification issued by the BIR stating that AIA "has availed and is qualified
for Tax Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA
9480.
ISSUE: Whether the CIR’s contention that AIA is disqualified from availing
the tax amnesty because it’s “deemed” as a withholding agent for deficiency
taxes
RULING: NO. The Tax Amnesty Program under RA 9480 may be availed of
by any person except those who are disqualified under Section 8 thereof, to
wit:
Section 8. Exceptions. — The tax amnesty provided in Section 5 hereof shall
not extend to the following persons or cases existing as of the effectivity of
this Act:
(a) Withholding agents with respect to their withholding tax
liabilities;
The CIR contends that AIA is disqualified under Section 8(a) of RA 9480
from availing itself of the Tax Amnesty Program because it is "deemed" a
withholding agent for the deficiency taxes. This argument is untenable.
The CIR did not assess AIA as a withholding agent that failed to withhold
or remit the deficiency VAT and excise tax to the BIR.
Indirect taxes, like VAT and excise tax, are different from withholding
taxes.1âIn case of withholding taxes, the incidence and burden of taxation fall
on the same entity, the statutory taxpayer. The burden of taxation is not shifted
to the withholding agent who merely collects, by withholding, the tax due from
income payments to entities arising from certain transactions and remits the
same to the government. In indirect taxes, the incidence of taxation falls on
one person but the burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. Due to this difference, the deficiency
VAT and excise tax cannot be "deemed" as withholding taxes merely because
they constitute indirect taxes. Moreover, records support the conclusion that
AIA was assessed not as a withholding agent but, as the one directly liable for
the said deficiency taxes.
33. PNZ Marketing v Commissioner (555) (CTA CASE)
FACTS: Petitioner corporation is engaged in business as importer and dealer
of powdered and skimmed milk and other related products which received a
formal assessment notice and a demand letter from herein Respondent stating
therein Petitioner's alleged deficiency income tax liability for the year 1994.
Petitioner, through its external auditor SGV & Co., duly filed with the BIR a
protest letter. It’s argued that the subject income tax assessment is void for
failing to comply with the requirements under Section 228 of the Tax code
requiring that the law and the facts upon which the assessment is made should
be clearly stated
ISSUE: Whether the said assessment is void
RULING: NO. A perusal of the records indicates a successful attempt on
Respondent's part to comply with the rules. The assessment notice, while
vague at first glance is subsequently cured by the demand letter which
shows the legal and factual basis relied upon by the Respondent in issuing
the assessment. The demand letter, as thus worded contains the reasons
why a deficiency income tax assessment was issued against the Petitioner.
It must be stressed that Section 228 requires the Respondent to inform the
taxpayer in writing of the laws and the facts on which the assessment is
made, otherwise the assessment shall be void. Simply put, it is incumbent
upon the Respondent to show clearly the legal and the factual bases which
led him to issue the said deficiency income tax assessment in the first
place. The strictness of this rule runs parallel to the due process cl; use as it
obliges the Respondent not only to lay down the law from which the
assessment is based but more importantly, the surrounding circumstances
supporting the assessment. For it is believed that it is only through a detailed
appraisal of its basis that the taxpayer may be able to dispute the imposition or
agree with it.
34. Artex Development v NLRC
FACTS: Private respondents filed individual complaints against
the Artex Development for illegal dismissal. Notification and summons were
issued to the parties by the senior labor arbitration analyst, informing them of
an initial hearing however the scheduled hearing did not proceed for failure of
the company's representative to appear. Another notice of hearing sent to the
company by telegram to which the company’s representatives again failed to
appear.
Subsequently, the Labor Arbiter rendered a decision against Artex. Artex filed
a motion for reconsideration of the decision, claiming that its failure to appear
at the scheduled hearings was due to the fact that it did not receive summons
nor any notice of hearing and that it’s right to due process was violated.
ISSUE: Whether there was a violation of the respondent’s right to due process
RULING: NO. The confirmation copies of the telegraphed notices of the
various hearings before the Labor Arbiter showed that the telegrams were
properly sent and delivered in the ordinary course of business.
Even if the petitioner was not heard at the stage of mediation and fact-finding,
it may not complain of lack of due process for it was given an opportunity to
present its side of the controversy when its motions for reconsideration and
appeal were given due course. What due process abhors is not lack of previous
notice, but absolute lack of opportunity to be heard
Furthermore, when the decision or order of an administrative agency is not
tainted with unfairness or arbitrariness, its factual findings are generally
accorded not only respect but also finality.
35. Manuel v Villalena
FACTS: Plaintiff had been in continuous possession of the land in question
since 1939, being an ignorant farmer he did not file his Tree Farm application
until June 1954, the Director of Forestry rejected the same because a prior
application had been filed by Mariano Villena in 1955. The two motions for
reconsideration of the rejection order were turned down, the plaintiff thereafter
appealed to the Secretary of Agriculture and Natural Resources, but the appeal
was dismissed by him. The Secretary found that the previous investigation
conducted by the District Forester was not in accordance with the rules and
regulations of the Bureau, and so ordered another investigation to be made, but
that before said investigation was terminated the Secretary rendered a decision
dismissing the appeal.
ISSUE: Whether there was a violation of plaintiff’s right to due process
RULING: NO. The decision of the Director of Forestry on the subject is not
subject to judicial review unless in the exercise of such jurisdiction he
committed a grave abuse of his discretion which amounts to a denial of due
process of law to the party adversely affected. While the complaint alleges
that the Director of Forestry acted with 'grave abuse of his discretion and
in violation of due process of law provision of the Constitution of the
Philippines' this allegation alone is insufficient for the court to intervene
and review the actuation of the Director of Forestry. Specific acts and
instances from which the grave abuse of discretion amounting to a denial
of due process of law may be deduced, must be alleged. The complaint
does not allege any such fact.
There is no allegation that the plaintiff was not heard nor that the Director of
Forestry decided the case without taking evidence. On the contrary,
reinvestigations were even made after which the Director of Forestry arrived at
the conclusion subject of the present action. Clearly the plaintiff was given
due process.
36. Standard Chartered Bank v Commissioner (CTA case)
FACTS: This involves a Petition for Review seeking a refund of the total
amount of P713,870.95, representing alleged overpaid branch profit remittance
taxes stemming from a BIR ruling issued in answer to a query as to the tax
base upon which the 15% branch profit remittance tax should be imposed,
held, that "the 15% branch profit remittance ·tax shall be imposed on the profit
actually remitted abroad and not on the total branch profit out of which the
remittance is to be made.
ISSUE: Whether the 15% branch profit remittance tax should be imposed on
the profit actually remitted abroad and not on the total branch profit out of
which the remittance is to be made
RULING: Inasmuch as the 15% branch profit remittance tax is imposed and
collected at source, it follows that the tax base should be the amount
actually applied for by the branch with the Central Bank of the
Philippines as profit to be remitted abroad.
Assessments are prima facie presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise.
37. Cagayan Robina Sugar Milling v CA
FACTS: All the assets and properties of the Cagayan Sugar Corporation
(CASUCO), which had been foreclosed were offered for sale and petitioner
was the highest bidder.
Among the properties bought by petitioner were sugar mill machineries.
The market value of these machineries was pegged at P391,623,520.00 and the
assessed value was set at P313,298,820.00 under Tax Declaration No. 5355.
Thereafter, the Provincial Assessor of Cagayan issued a "Notice of
Assessment of Real Property" to petitioner covering the machineries installed
at the CASUCO millsite (based on the market value of P391,623,520.00 and
the assessed value thereof at P313,298,820.00). Petitioner appealed the
assessment to the LBAA (Local Board of Assessment Appeals), on the ground
that it was excessive, erroneous, and unjust.
Petitioner asked the Provincial Assessor to reconsider his assessment,
contending that it should not be based on the selling price alone, but should
likewise consider the operating conditions of the properties and pricing factors
such as goodwill and future business potential.
ISSUE: Whether the Court of Appeals erred in finding the assessment of
petitioner's machineries proper and correct under the Real Property Tax
Code
RULING: We agree with petitioner that Section 28 of the Real Property
Tax Code provides for a formula for computing the current market value
of machineries. However, Section 28 must be read in consonance with
Section 3 (n) of the said law, which defines "market value." Under the
latter provision, the LBAA and CBAA (Central Board of Assessment
Appeals) were not precluded from adopting various approaches to value
determination, including adopting the "floor bid price" for petitioner's
properties.
Tax assessments by tax examiners are presumed correct and made
in good faith, with the taxpayer having the burden of proving
otherwise. In the instant case, petitioner failed to show that the use by the
LBAA and CBAA of the floor bid price, pursuant to Section 3 (n) of the Real
Property Tax Code was incorrect and done in bad faith.
38. Delta Motors v Commissioner
FACTS: On April 18, 1980, respondent assessed against and demanded from
petitioner payment of the amount of P35,117,287.56 allegedly due as
deficiency percentage (sales) tax, inclusive of interests and penalties for 1975
and 1976. Petitioner contested the aforesaid assessment and further requested
administrative hearing of the case. Petitioner was requested to pay the amounts
of P46 , 526,110.94 and P42,323,986.19 or a total of P88,850,097.13 as
deficiency percentage taxes, subject
to the updating of interest and penalties. Petitioner prays that this court render
judgment in its favour by holding that the assessments of P46,526,110.94 and
P42,323,986.19 representing deficiency percentage taxes, inclusive of interest
s and penalties
ISSUE: Whether petitioner’s contention is tenable
RULING: NO. The Court recognizes that the burden of proof is on the
taxpayer contesting the validity or correctness of an assessment to prove not
only that the Commissioner of Internal Revenue is wrong but that he
(taxpayer) is right. Since no evidence was presented by petitioner to
substantiate the errors that are claimed to have been committed by the
Commissioner of Internal Revenue in making the assessments in question,
this Court has no other alternative than to resort to the legal truism that
"all presumptions are in favor of the correctness of tax assessments."
39. Bonifacio Sy Po v CTA (556)
FACTS: Po Bien Sing, the sole proprietor of Silver Cup Wine Factory
(SCWF) which is engaged in the business of manufacture and sale of
compounded liquors. On the basis of a denunciation against SCWF allegedly
"for tax evasion amounting to millions of pesos, Secretary of Finance directed
the Finance-BIR--NBI team to investigate.
On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency
income tax for 1966 to 1970 in the amount of P7,154,685.16 and for
deficiency specific tax for January 2,1964 to January 19, 1972 in the amount
of P5,595,003.68
Petitioner protested the deficiency assessments. The BIR recommended the
reiteration of the assessments in view of the taxpayer's persistent failure to
present the books of accounts for examination.
ISSUE: Whether the assessments have valid and legal basis.
RULING: YES. The law is specific and clear. The rule on “The Best
Evidence Obtainable” applies when a tax report required by law for the
purpose of assessment is not available or when tax report is incomplete or
fraudulent.
The tax assessment by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the absence of
proof of irregularities in the performance of duties, an assessment duly made
by the BIR examiner and approved by his superior officers will not be
disturbed. All presumptions are in favour of the correctness of tax assessments.
40. Oceanic Wireless Corporation v Commissioner (558)
FACTS: In December 1996, petitioner received a letter from the Revenue
District Officer authorizing Revenue Officers to examine the books of
accounts and other records for the period January to December 1995.
Thereafter, petitioner executed a Waiver of Defense of Prescription of the
NIRC within which respondent may assess petitioner for deficiency taxes. A
preliminary report of tax assessment was issued and petitioner was requested
to attend an informal conference to discuss the result of the investigation done
on the books.
Again, petitioner received another pre-assessment notice this time with Details
of Discrepancies. The company was advised to file a written protest or set up
an office conference to discuss the assessments for deficiency income.
Inasmuch as the authority of respondent to assess was about to prescribe in
July 31 1999, demand letters were sent on July 30, 1999.
Petitioner now contends that the assessment notices for taxable year 1995 are
void for having been issued beyond the 3-yr prescriptive period as provided
under the NIRC. Since the tax return was filed in April 1995, respondent has 3
years to assess the petitioner. But the assessment was done in 1999, hence the
action has already prescribed.
ISSUE: Whether or not petitioner is liable for deficiency income tax.
RULING: YES. Petitioner having failed to comply with the requirement of
the law in disputing an assessment, the same became final, executory and
demandable. Sec. 228 states that:
“x x x If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable. x x x”
In the case, petitioner failed to submit supporting documents contrary to
what was jointly stipulated by the parties. Hence, the reckoning of the
180-day period would be the day the protest was filed (August 16, 1999).
However, respondent failed to render his decision within 180 days or until
February 12, 2000. The remedy of petitioner was to file within 30 days
there from an appeal with this court which would be until March 14,
2000. But since the Petition for Review was filed only on May 12, 2000, the
same was definitely filed beyond the date prescribed by law. Case
dismissed for being filed out of time.
CHAPTER XXV- ADMINISTRATIVE REMEDIES OF GOVERMENT
41. Hongkong Shanghai Banking Corporation vs. Commissioner (561)
Facts: Petitioner is the owner of 2,000 railroad ties it had acquired from the
firm of Pujalte & Co., which the latter assigned to it after it was unable to pay
a large sum of money it then owed HSBC.
The firm of Pujalte & Co. is engaged in the business of timber and it was
shown that prior to the assignment of the railroad ties to HSBC, it owed the
BIR forest charges, one of the taxes enumerated in the NIRC, amounting to
P8,328.93. It executed a bond of P2,000.00 to secure the payment of the forest
charges and was allowed to remove the timber from the public forests. More
than a year later, when some of the timber were already made into railroad ties
and transferred to third parties like HSBC, the Collector instituted collection
proceedings against Pujalte & Co. To enforce collection, the CIR went after
the property of Pujalte & Co. including those which were already in the
possession of HSBC, who at the time it acquired the property, had no notice of
the lien nor of the delinquent tax due from Pujalte & Co.
Issue: Whether the CIR can still collect taxes?
Ruling: Yes. Taxation is an attribute of sovereignty. The power to tax is the
strongest of all the powers of the government. If approximate equality in
taxation is to be attained, all property subject to a tax must respond or else
there is resultant inequality. To prevent such a lamentable situation, the law
ordains that the claim of the State upon the property of the tax debtor shall be
superior to that of any other creditor.
Book: “Tax lien” 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.
42. Republic vs. Peralta (561)
Facts: In the voluntary insolvency proceedings commenced by Quality
Tobacco Corporation, the following claims of the creditors were filed:
(i) P2,806,729.92 by the USTC Association of Employees and
workers Union;
(ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros
Trabajadores de Filipinas;
(iii) P1,085,188.22 by the BIR; and
(iv) P276,161.00 by the BOC.
In its questioned Order, the trial court held that the above-enumerated claims
of USTC and FOITAF Unions for separation pay of their respective members
embodied in final awards of the NLRC were to be preferred over the claims of
the BOC and the BIR. The trial court, in so ruling, relied primarily upon Art.
110 of the Labor Code.
The Solicitor General, in seeking the reversal of the questioned Orders, argues
that Art. 110 is not applicable as it speaks of "wages," a term which he asserts
does not include the separation pay claimed by the Unions. "Separation pay,"
the Solicitor General contends, is given to a laborer for a separation from
employment computed on the basis of the number of years the laborer was
employed by the employer; it is a form of penalty or damage against the
employer in favor of the employee for the latter's dismissal or separation from
service.
Issue: Whether the above-enumerated claims of USTC and FOITAF Unions
were to be preferred over the claims of the BOC and the BIR?
Ruling: No. Article 110 must be read in relation to the provisions of the Civil
Code concerning the classification, concurrence and preference of credits,
which provisions find particular application in insolvency proceedings where
the claims of all creditors, preferred or non-preferred, may be adjudicated in a
binding manner.
These other (non-tax) credits, although constituting liens attaching to particular
property, are not preferred one over another inter se. Provided tax liens shall
have been satisfied, non-tax liens or special preferred credits which subsist in
respect of specific movable or immovable property are to be treated on an
equal basis and to be satisfied concurrently and proportionately. Put succintly,
Arts. 2241 and 2242 jointly with Arts. 2246 to 2249 establish a two-tier order
of preference. The first tier includes only taxes, duties, and fees due on specific
movable or immovable property. All other special preferred credits stand on
the same second tier to be satisfied, pari passu and pro rata, out of any residual
value of the specific property to which such other credits relate. Credits which
are specially preferred because they constitute liens (tax or non-tax) in turn,
take precedence over ordinary preferred credits so far as concerns the property
to which the liens have attached. The specially preferred credits must be
discharged first out of the proceeds of the property to which they relate, before
ordinary preferred creditors may lay claim to any part of such proceeds.
Book: The claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicated on a judgment. The tax claim must be
given preference over any other claim of any other creditor, in respect of any
and all properties of the insolvent. There is no merit in the contention of the
NLRC that taxes are absolutely preferred claims only with respect to movable
or immovable properties on which they are due.
43. Commissioner vs. NLRC (561)
Facts: The CIR demanded payment from Maritime Company of the
Philippines of deficiency common carrier’s tax, fixed tax, 6% commercial
broker’s tax, documentary stamp tax, income tax and withholding tax totaling
P17,284,882.45. The assessment became final and executory and with private
respondent’s failure to pay the tax liabilities, the CIR issued warrants of
distraint of personal property and levy of real property which were duly
served. A “receipt of goods, articles and things” was executed covering,
among others, 6 barges as proof of constructive distraint of property but the
same was not signed by any representative of private respondent because of
the refusal of the persons actually in possession of the barges.
It appeared that 4 of the barges constructively distrained were also levied upon
by a deputy sheriff of Manila and sold at public auction to satisfy a judgment
for unpaid wages and other benefits of employees of private respondent.
Issue: Who has a preferential lien over the barges, the government or the
company’s employees?
Ruling: The court held that it is the government which has preferential lien
over the barges under Arts. 2241 and 2247 of the Civil Code. Accordingly, the
preferential lien of employees for unpaid wages under Art. 110 of the Labor
Code applies only to bankruptcy cases where the employer is under liquidation
due to bankruptcy.
The NIRC provides for the collection of delinquent taxes by any of the
following remedies: (a) distraint of personal property or levy of real property
of the delinquent taxpayer; (b) civil or criminal action.
Book: The term “tax” is used in a broad sense encompassing all government
revenues collectible by the Commissioner under the Tax Code, whether or not
involving taxes in the strict technical sense thereof (e.g., forest charges).
44. CIR vs. Pineda (562)
Facts: After the closure of the estate proceedings of Anastacio Pineda and the
distribution of the estate to his heirs, the CIR tried to collect from one of the
heirs deficiency income tax due from the estate. Respondent Pineda appealed
to the CTA alleging that he was appealing “only that proportionate part or
portion pertaining to him as one of the heirs.” The CTA found respondent
liable only for the payment corresponding to his share of the tax assessed. The
CIR appealed to the SC and proposed to hold respondent liable not only for his
share in the tax but for the payment of all the taxes found by the CTA to be
due from the estate.
Issue: Whether the CIR is correct?
Ruling: No. The SC ruled that Respondent Pineda was liable for the
assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir, he was individually answerable for the part of the
tax proportionate to the share he received from the inheritance. His liability,
however, cannot exceed the amount of his share. As a holder of property
belonging to the estate, he was liable for the tax up to the amount of the
property in his possession. The reason was that the government has a lien on
the property received by him from the estate for unpaid income taxes for which
said estate was liable.
Book: BIR may collect the deficiency tax due from one heir only or from all
the heirs in proportion to their inheritance received.
45. CIR vs. NLRC (563)
Facts: For failure of Oceanic Company, Inc. to pay deficiency taxes of
P20,000,000.00, the CIR issued warrants of distraint on Oceanic’s personal
properties and levy on its real properties. Meanwhile, the Department of Labor
through the Labor Arbiter rendered a decision ordering Oceanic to pay unpaid
wages and other benefits to its employees. Four barges belonging to Oceanic
were levied upon by the sheriff and later sold at public auction.
The CIR filed a motion with the Labor Arbiter to annul the sale and enjoin the
sheriff from disposing the proceeds thereof. The employees of Oceanic
opposed the motion contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages.
Issue: Whether the employees of Oceanic are correct?
Ruling: No. The claim of the government for unpaid taxes is generally
preferred over the claims of labourers for unpaid wages. The provision of Art.
110 of the Labor Code, which gives laborers’ claims for preference, applies
only in case of bankruptcy or liquidation at the time the warrants of distraint
and levy were issued; hence, the lien of the employees is unwarranted.
46. Reliance Procoma vs. Phil-Asia Tobacco (564)
Facts: On September 23, 1972, the CA issued a restraining order, the pertinent
excerpt of which, ordained:
x x x you the respondents are HEREBY PROHIBITED and
RESTRAINED from enforcing the writ of execution and orders of
garnishment issued in Civil Case No. 2873-V of the CFI of Ilocos
Sur, entitled Reliance Procoma, Inc., et al., vs. Phil-Asia Tobacco
Corporation, until further orders from this Court x x x
However, subsequent thereto, respondent Judge Arciaga, on motion of plaintiff
Reliance, issued an order in Civil Case No. 2873-V, of the CFI of Ilocos Sur;
which reads:
x x x I hereby direct the Philippine Virginia Tobacco
Administration, Consolacion Building, Cubao, Quezon City, to
refrain, pending the termination of the legal proceedings in this case
before the CA, from effecting the transfer to anyone so much of the
funds of the Phil-Asia Tobacco Corporation which are in the
possession and control of the Philippine Virginia Tobacco
Administration x x x.
This led to the Resolution, which was issued in CA-G. R. No. SP-01360, Phil-
Asia Tobacco Corporation vs. Hon. Ludovico D. Arciaga et al., and which was
penned by Mr. Justice Manuel P. Barcelona, which read as follows:
Before us for resolution are the motion of petitioner Phil-Asia
Tobacco Corporation to hold respondent Judge Ludovico D.
Arciaga, as well as private respondents Reliance Procoma Inc. et al.,
and the motion of intervenor Philippine Virginia Tobacco
Administration, which is likewise to declare said respondent Judge
in contempt of court.
Since the petitioners did not bother to file any memorandum, although they
were required to do so in this Court's resolution, the only points to be resolved
in this appeal are the issues raised in their petition for review: (1) they contend
that Judge Arciaga's order did not constitute an enforcement of the writ of
execution and the orders of garnishment and (2) assuming arguendo that there
was disobedience to the restraining order, it was not willful.
Issue: Whether the contentions of Judge Arciaga are correct?
Ruling: No. On the first issue, the contention has no merit. By means of the
notice of garnishment, Deputy Sheriff Cachero levied on the funds of Phil-
Asia, which were in the control of the PVTA, in order to satisfy a judgment
against Phil-Asia amounting to P2,466,786.06. The notice enjoined the PVTA,
as garnishee, not to "deliver, transfer, or otherwise dispose of" such funds
except to the sheriff or his deputy.
On the second issue, the contention is not sustainable. Willfulness, which is a
condition of mind, is inferable from the act itself and the circumstance
surrounding its commission. The juris tantum presumption is "that an unlawful
act was done with an unlawful intent".
Under the circumstances, the willfulness or bad faith of the respondents is
manifest. They knowingly disregarded and negated partially the directive of
the Appellate Court. The least that they could have done was to ask for the
reconsideration of the restraining order or to secure leave and clearance from
the CA for the freezing of Phil- Asia's funds in the custody of the PVTA.
One form of indirect contempt is "disobedience of or resistance to a lawful
writ, process, order, judgment, or command of a court, or injunction granted
by a court or judge" which is punishable by a fine not exceeding one thousand
pesos or imprisonment not exceeding six months or both.

The restraining order issued by the CA was equivalent to an injunction. A trial
judge may be held in contempt of court for disregarding a writ of preliminary
injunction issued by this Court. Judges of inferior courts should be the first to
comply with the decrees of superior courts.
Book: “Garnishment” refers to a warning to a person in whose hands the
effects of another are attached, not to pay the money or deliver the property or
allow withdrawal of deposits of the defendant in his hands.
47. Castro vs. Collector (564) (Taken from Case No. 107)
Facts: Petitioner is a duly licensed merchant. Pursuant to the provisions of
Sec. 4 (b) and (c) of R.A. 55, she filed with the BIR her war profits tax returns
in the amount of P431,884.00 and a net worth in the sum of P409,581.57.
A criminal case was filed against her in the CFI of Manila for violation of Sec.
4, in connection with Sec. 8, of the War Profits Tax Law, for allegedly
defrauding the Republic of the Philippines in the total amount of
P1,048,687.76. Petitioner received for the first time the notice of assessment
by registered mail from the CIR. The said letter of demand was based on the
report of Supervising Examiner Felipe Aquino of the BIR, who recommended
that the petitioner be assessed and made to pay the sum of P1,048,687.76 as
war profits tax and surcharge.
Supervising Examiner Aquino of the BIR, who testified for the prosecution,
declared "that as a result of a detailed reinvestigation conducted by his office,
it was found out that no war profits tax was due from the accused in
connection with the present case." City Fiscal Angeles moved for the dismissal
of the case. Finding the petition for dismissal to be well taken, petitioner is
acquitted in the criminal case.
Issue: Is the acquittal in the criminal case instituted against her, for violation
of the War Profits Tax Law, bar the collection of the taxes assessed?
Ruling: No. With regard to the tax proper, the state correctly points out in its
brief that the acquittal in the criminal case could not operate to discharge
petitioner from the duty to pay the tax, since that duty is imposed by statute
prior to and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability derived
from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
Book: 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. If a full discharge of the tax liability is to be the result of the
distraint and levy, this would permit a clever taxpayer who is able to conceal
most of the valuable part of his property from the revenue officers to escape
payment of his tax liability, by sacrificing an insignificant portion of his
holdings.
48. BPI vs. Commissioner (564) (Taken from Case No. 284-285)
Facts: On October 20, 1989, the BIR issued a formal assessment notice
against BPI. The FAN demanded BPI to pay P28,000.00 in taxes. On
November 1989, BPI filed a protest; however the protest did not specify
whether it was a request for reconsideration or a reinvestigation. The BIR did
not reply on the said protest but on October 15, 1992, four days before the
expiration of the period to collect – or 1,095 days or 3 years after the issuance
of the FAN, the CIR issued a warrant of distraint/levy against BPI for the
satisfaction of the assessed tax. The warrant was served to BPI on October 23,
1992 or 4 days after period has prescribed. In September 1997, the CIR finally
sent a letter to BPI advising the latter that its protest is denied.
Issue: Whether the government’s right to collect the assessed tax has
prescribed?
Ruling: Yes. When it comes to collection, even though the warrant for
distraint/levy was issued within the prescriptive period, it is required that the
same should be served upon the taxpayer within the prescriptive period. This is
because it is upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed. In the case at bar, BPI
received the warrant 4 days after the expiration of the prescriptive period
hence, the right to collect has already prescribed.
Book: Under Sec. 223 (c) of the Tax Code, it is not essential that the warrant
be fully executed so that it can suspend the running of the statute of limitations
on the collection of the tax. It is enough that the proceedings have validly
begun and that their execution has not been suspended by reason of the
voluntary desistance of the CIR. Jurisprudence establishes that distraint and
levy proceedings are validly begun or commenced by the issuance of the
warrant and service thereof on the taxpayer.
49. Marcos II vs. CA (565) (Taken from Case No. 61)
Facts: Bongbong Marcos sought for the reversal of the ruling of the CA to
grant the CIR's petition to levy the properties of the late Pres. Marcos to cover
the payment of his tax delinquencies during the period of his exile in the US.
The Marcos family was assessed by the BIR after it failed to file estate tax
returns. However the assessments were not protested administratively by Mrs.
Marcos and the heirs of the late president so that they became final and
unappealable after the period for filing of opposition has prescribed. Marcos
contends that the properties could not be levied to cover the tax dues because
they are still pending probate with the court and settlement of tax deficiencies
could not be had, unless there is an order by the probate court or until the
probate proceedings are terminated. He also pointed out that applying
Memorandum Circular No. 38-68, the BIR's Notices of Levy on the Marcos
properties were issued beyond the allowed period and are therefore, null and
void.
Issue: Whether the BIR is authorized to collect estate tax deficiencies by the
summary remedy of levy upon and sale of real properties of the decedent
without first securing the authority of the court sitting in probate court over the
supposed will of the decedent?
Ruling: Yes, because the collection of estate tax is executive in character. The
estate tax is exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the government.
The deficiency income tax assessments and estate tax assessment are already
final and unappealable and the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by NIRC. The omission to
file an estate tax return and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under Sec. 223
of the NIRC, in case of failure to file a return, the tax may be assessed at
anytime within 10 years after the omission, and any tax so assessed may be
collected by levy upon real property within 3 years (now 5 years) following
the assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the
said assessment, there is no reason why the BIR cannot continue with the
collection of the said tax.
50. Yabes vs. Flojo (565) (Taken from Case No. 68)
Facts: Yabes received a demand letter from the CIR which he protested and
for which he requested 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.
Issue: Whether the BIR is authorized to issue a warrant of garnishment against
the bank account of a taxpayer despite the pendency of his protest against the
assessment with the BIR or appeal with the CTA?
Ruling: The BIR is authorized to issue a warrant of garnishment against the
bank account of a taxpayer despite the pendency of protest. Nowhere in the
Tax Code is the Commissioner required to rule first on the protest before he
can institute collection proceedings on the tax assessed.
51. Republic v Lim Tian Teng
In January 1957, the Collector of Internal Revenue (CIR) made an assessment
against Lim Tian Teng Sons and Co., Inc. (LTTSCI) demanding from the latter
payment of P15k in taxes inclusive of surcharge. In the same month, LTTSCI
requested for a reinvestigation with a request to produce supporting evidence.
The CIR did not reply however he remanded the case to the Solicitor General
(SG) who did not grant a reinvestigation but rather reiterated the content of the
assessment. In September 1958, the CIR filed a tax collection suit against
LTTSCI with the Court of First Instance of Cebu. LTTSCI assailed the
collection suit on the ground that the CIR cannot commence collection
without a final and executory assessment notice. It alleged that the assessment
notice issued in January 1957 has not yet become final and executory because
of the failure of the CIR to act on the protest.
ISSUE: Whether or not LLTSCI I correct.
HELD: No. Nowhere in the Tax Code is the CIR required to rule first on a
taxpayer’s request for reinvestigation before he can go to court for the purpose
of collecting the tax assessed. Ruling on the protest is not a condition
precedent for the commencement of tax collection. The CIR is authorized to
collect delinquent internal revenue taxes either by distraint and levy or by
judicial action or both simultaneously. The only requisite before he can collect
the tax is that he must first assess the same within the time fixed by law – and
this was complied with in the case at bar. The Supreme Court notes that in the
case of a false or fraudulent return with intent to evade the tax or of a failure to
file a return, a proceeding in court for the collection of such tax may be begun
without assessment.
Book: Nowhere in the Tax Code is the Commissioner required to rule first on
the protest before he can institute collection proceedings on the tax assessed.
The legislative policy is to give the Commissioner much latitude in the speedy
and prompt collection of taxes because it is in taxation that the Government
depends to obtain the means to carry on its operations (Republic v. Lim Tian
Teng Sons, 16 SCRA 584)
52. ROVERO VS. AMPARO (May 5, 1952)
Facts: The petitioner Tranquilino Rovero in the evening of April 25, 1947,
arrived at the Makati Air Port on board a PAL plane which came from
Bangkok, Siam. He brought with him several pieces of baggage, among which
was a Chinese vase which he declared and valued at P15. The vase together
with some of the baggage were retained by the Customs officials for they
suspected that they contained merchandise not declared which should pay
customs duty. In the course of the examination of said Chinese vase, it was
found that it had a false bottom which upon being broken open was seen to
hold a tin can containing 259 pieces of jewelry with precious stones, which
the Customs officials appraised at P23,736. Rovero was found guilty of
violating section 2703 of the Revised Administrative Code and sentenced to
pay a fine of P2,500, with subsidiary imprisonment in case of insolvency, plus
costs It is argued that the parties to a case may enter into a compromise about
even a final judgment rendered by a court, and it is contended by petitioner
that the appraisal ordered by the Commissioner of Customs and sanctioned by
the Department of Finance was authorized by Section 1369 of the same Code.
Issue: Was Compromise proper?
Ruling: Article 1809 of the old Civil Code and Article 2028 of the new Civil
Code define a COMPROMISE as a contract whereby the parties in interest by
giving, promising or retaining something or otherwise making reciprocal
concessions, avoid a litigation or terminate one already commenced. Black's
Law Dictionary on page 382 thereof says: "A compromise is an agreement
between two or more persons, who, for preventing for putting an end to a
lawsuit, adjust their difficulties by mutual consent in manner which they agree
on, and which every one of them prefers to the hope of gaining, balanced by
the danger of losing." The power of the Commissioner of Customs under
Section 1369 of the Revised Administrative Code, to compromise any case or
proceeding arising under the customs laws, refers only to cases appealed to the
courts and finally decided by them; and (6) the supervision and control over
judicial proceedings given by Section 1368 of the Revised Administrative
Code to the Commissioner of Customs, does not extend to modifying final
decisions of the Court, in the sense that he may accept on behalf of the
Government anything different or less than what is awarded to said
Government in the decision.
Book: The Supreme Court ruled that the compromise was improper because
the Commissioner acted as a mere agent of the Government, the Commissioner
of Customs, is not authorized to accept anything less than what is adjudicated
in favor of the Government. By virtue of such final judgment, the Government
had already acquired a vested right (Rovero v. Amparo, 91 Phil. 228)
53. Lim Pin vs. Liao Tan
15 July 1982
Facts: Spouses Conchita Liao Tan and Tan Cho Hua alleged in their complaint
for unlawful detainer that the plaintiff Conchita Liao Tan, as owner of a parcel
of registered land with improvements located at Francisco Street, Caloocan
City, had leased a portion of it, more particularly known as 91 Francisco
Street, Caloocan City to defendant Lim Pin on a month to month basis but that
the latter starting April, 1977 had not paid the agreed rental stipulated for such
month and the succeeding months thereafter. And that despite demand, the
defendant refused to vacate the leased premises. Defendant Lim Pin, filed her
Answer denying the material allegations of the complaint and protesting the
alleged highly "unconscionable and unreasonable" increase of rental demanded
by plaintiffs. On the scheduled October 19, 1977 hearing, defendant Lim Pin
was absent. Her son George Hung who attended with his mother all the
previous hearings was present together with the defendant's counsel. Plaintiff
Conchita Liao Tan together with her counsel was also present. Through the
initiative of the court a quo, the subject compromise agreement was formulated
and executed and it finally became the basis of the October 19, 1977 judgment.
The aforesaid judgment was the subject of a motion for reconsideration filed
on October 28, 1977 by defendant Lim Pin on the following grounds: 1) that
she never authorized her son nor her counsel on record (Attorney. Pastor
Mamaril) to enter into such compromise agreement and 2) that had she been
present when said agreement was prepared, she would not have acceded
thereto. Petitioner argues that the respondent Judge should not have allowed
her son George Hung and her then counsel, Attorney. Pastor Mamaril in her
absence to enter into the October 19, 1977 compromise agreement with the
private respondent Conchita Liao Tan assisted by her counsel. Said agreement
contained admissions by petitioner, the respondent Judge should have required
a written authority and power of attorney from her son and counsel. Her
objections to the validity of the compromise agreement are premised on
Article 1878 of the Civil Code and Rule 138, Section 23 of the Rules of Court.
Issue: Was the Compromise Agreement enforceable?
Book: Compromise agreement entered into without authority is not void, but
unenforceable and may be ratified (Lim Pin v. Liao Tan. 115 SCRA 290).
54. Republic v Plan
FACTS UNAVAILABLE
Book: But a compromise agreement entered into by government lawyer
without authority of the Board of Directors is null and void. (Republic v. Plan,
116 SCRA 70).
55. CIR vs Fireman's Fund Insurance Co. 148 SCRA 315
Facts:
From January, 1952 to 1958, private respondent Fireman's Fund Insurance Co.
entered into various insurance contracts involving casualty, fire and marine
risks, for which the corresponding insurance policies were issued. From
January, 1952 to 1956, documentary stamps were bought and affixed to the
monthly statements of policies issues; and from 1957 to 1958 documentary
stamps were bought and affixed to the corresponding pages of the policy
register, instead of on the insurance policies issued.
In 1959, respondent company discovered that its monthly statements of
business and policy register were lost and reported such to the NBI and the
CIR. The CIR through its examiner, after conducting an investigation of said
loss, ascertained that respondent company failed to affix the required
documentary stamps to the insurance policies issued by it and failed to
preserve its accounting records within the time prescribed by Sec. of the
Revenue Code by using loose leaf forms as registers of documentary stamps
without written authority from the CIR. As a consequence of these findings,
petitioner assessed and demanded from petitioner the payment of documentary
stamp taxes for the years 1952 to 1958 in the total amount of P 79,806.87 and
plus compromise penalties, a total of P 81,406.87.
Issue: WON the CIR may impose and require the payment of the subject
stamp tax for the documents in question.
Ruling: NO. There is no justification for the government which has already
realized the revenue which is the object of the imposition of subject stamp tax,
to require the payment of the same tax for the same documents. Enshrined in
our basic legal principles is the time honored doctrine that no person shall
unjustly enrich himself at the expense of another. It goes without saying that
the government is not exempted from the application of this doctrine.
While there appears to be no question that the purpose of imposing
documentary stamp taxes is to raise revenue, however, the corresponding
amount has already been paid by respondent and has actually become part of
the revenue of the government. In the same manner, evidence was shown to
prove that the affixture of the stamps on documents not authorized by law is
not attended by bad faith as the practice was adopted from the authority
granted to one of respondent's general agents.
56. Mithi ng Bayan Cooperative v Araneta
FACTS Court of Tax Appeals upheld the decision of the Collector of Internal
Revenue that denied the petitioner's claim for refund of the sum of P3,590.53
paid by it as privilege or fixed tax upon business and percentage tax, and
surcharge. due (Annex A) and the resolution dated 8 October 1958, denying its
motion for reconsideration.
Acting upon the recommendation of the agent, on 19 December 1953 the
respondent Collector of Internal Revenue demanded from the petitioner
payment of the sum of P3,590.53 (less P20 for compromise), within 30 days
from receipt of the letter of demand and informed it that if it be not agreeable
to the assessment, it could take up the matter with the Conference Staff of the
Bureau of Internal Revenue by filing within the same period of time a written
notice of its in attention to appear before the Staff either in person or by an
attorney-at-law or a certified public accountant as counsel and that if it be
agreeable to extrajudicially settle the penal liabilities arising from violations of
the National Internal Revenue Code, as amended, it could pay the sum of P100
as penalty in addition to the sum of P3,590.53, or a total of P3,690.53 (Exhibit
E). On 13 January 1954 the petitioner wrote to the respondent Collector
informing him that it was not agreeable to his proposal and filed its notice of
intention to appear before the Conference Staff (Exhibit F). After hearing, on 9
December 1954 the Conference Staff recommended to the respondent
Collector the enforcement of the assessment dated 19 December 1953 for taxes
and surcharge in the sum of P3,590.53 and suggested the imposition upon the
petitioner of a compromise penalty in the sum of P100 (Exhibit 9). The
respondent Collector approved the recommendation of the Conference staff
and on 4 January 1955 demanded payment of the total sum of 690.53 within
ten day from receipt of the letter, otherwise it would enforce collection through
the summary remedies provided for by law (Exhibit G).
Issue: Does Commissioner have the power to compromise?
Ruling: (BOOK) The Commissioner has no power to impose and collect the
compromise penalties in the absence of a compromise agreement.
Commissioner (Mithi ng Bayan Cooperative Marketing Association v.
Araneta, 2 SCRA 879)
57. COMMISSIONER OF INTERNAL REVENUE VS. GUERRERO
FACTS: The Commissioner of Internal Revenue denied the claim for refund in
the sum of P2,441.93 filed by the administrator of the estate of Paul I. Gunn.
The deceased operated an air transportation business under the business name
and style of Philippine Aviation Development.
61,048.19 liters of gasoline was actually used in aviation during the period
from
October 3, 1956 to May 31, 1957. The estate, as claimed, was entitled to the
same rights and privileges as Filipino citizens operating public utilities
including privileges in the matter of taxation. The Commissioner of Internal
Revenue disagreed. The matter was brought to the Court of Tax Appeals and
ordered the petitioner to refund to the respondent the sum of P2,441.93. Court
of Tax Appeals decision was reversed.
ISSUE: Whether or not Section 142 of the National Internal Revenue Code
allowing Filipinos a refund of 50 percentum of the specific tax paid on
aviation oil, could be availed by citizens of the United States and all forms of
business enterprises owned or controlled directly by them in view of the
privilege under the Ordinance to operate public utilities in the same manner as
to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines.
DECISION: No. The decision of the Court of Tax Appeals is reversed and the
case is remanded to it, to grant respondent Administrator the opportunity of
proving whether the estate could claim the benefits of Section 142 of the
National Internal Revenue Code, allowing refund to citizens of foreign
countries on a showing of reciprocity. With costs.
Book: However, where in an appeal to the CTA, the taxpayer has expressed
his willingness to pay compromise penalties said amounts may be collected as
part of the judgment (Commissioner v. Guerrero, 19 SCRA 205).
58. Wonder Mechanical Engineering v CTA
Facts: Wonder Corp. was engaged in the business of manufacturing auto spare
parts, lamp shades, rice threshers and other articles. It was also engaged in the
business of electroplating and repair of machines. However, it did not pay
sales tax on the sale of articles and the percentage tax on its electroplating and
repair business.
Commissioner of Internal Revenue caused the investigation of Wonder Corp.
for the purpose of ascertaining its tax liability. Revenue Examiner Pedro
Cabigao reported that Corp. manufactured and sold other articles subject to 7%
sales tax but not covered by the Corp’s tax exemption privilege. The Corp. was
assessed with a deficiency percentage tax of P25, 080. and a 25% surcharge.
Wonder Corp. contends that it was a given a Certificate of Tax Exemption
with respect to the manufacture of machines for making cigarette paper, pails,
lead washer, nails… (those which are determined as new and necessary by RA
901).
Issue: Whether or not the manufacture and sale of steel chairs, jeep parts…
which are not machines for making other products are tax exempt under RA
901.
Held: No. Wonder Corp. was granted the tax exemption in the manufacture
and sale of machines but not manufacture and sale of the articles produced by
the machines. Such was the intention of the State for new and necessary
industries as an incentive to greater and adequate production of products made
scarce by World War II. Tax exemptions are highly disfavored in law and
those who claim them must be able to justify his claim and must be clearly
expressed in the law. Tax exemptions cannot be established by implication.
In the case, Wonder Corp. was granted tax exemption in the manufacture of
cigarette paper, pails, lead washers, nailsas explicitly stated in the Certificate
of Tax Exemption. The manufacture of steel chairs, jeep parts and other
articles not constituting machines for making certain products does not fall
under RA 901.
Book: No. There is no showing that the compromise penalty was imposed by
the Commissioner of Internal Revenue with the agreement and conformity of
the taxpayer (Wonder Mechanical Engineering Corporation v. Court of Tax
Appeals, et al, 64 SCRA 555).
CHAPTER XXVI JUDICIAL REMEDIES OF GOVERNMENT
59. PHILIPPINE NATIONAL OIL COMPANY vs CA
Facts: Savellano’s sworn statement informed the BIR that PNB had failed to
withhold the 15% final tax on interest earnings and/or yields from the money
placements of PNOC with the said bank, in violation of Presidential Decree
(P.D.) No. 1931. P.D. No. 1931 withdrew all tax exemptions of government-
owned and controlled corporations.
In a 1986 letter, the BIR requested PNOC to settle its liability for taxes on the
interests earned by its money placements with PNB and which PNB did not
withhold. PNOC proposed to set-off its tax liability against a claim for tax
refund/credit of the National Power Corporation then pending with the BIR, in
the amount of P335,259,450.21. This was not accepted by the BIR.
PNOC made another offer to the BIR to settle its tax liability. This time,
however, PNOC proposed a compromise by paying P91,003,129.89,
representing 30% of the P303,343,766.29 basic tax, in accordance with the
provisions of Executive Order No. 44. Executive Order No. 44, on which the
compromise agreement was predicated, set the parameters for the grant of tax
amnesty.
The BIR Commissioner in a letter, accepted the compromise.
Private respondent Savellano, through four installments, was paid the
informer's reward in the total amount of P14,093,321.89, representing 15% of
the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He
received the last installment on 01 December 1987.
Savellano, through his legal counsel, wrote the BIR to demand payment of the
balance of his informer's reward. Savellano also questioned the legality of the
compromise agreement entered into by the BIR and PNOC and claimed that
the tax liability should have been collected in full.
The CTA later on declared the compromise agreement entered into between
the BIR and PNOC as without any force and effect and that upon payment by
PNOC, Savellano was entitled to the balance of his informer’s reward
Issues:
Whether or not the compromise agreement between the BIR and PNOC valid?
Whether or not the CTA finding that the deficiency withholding tax
assessment against PNB was already final and unappealable and unenforceable
valid?
Whether or not Savellano is entitled to his additional informer’s reward
Held:
NO. The compromise agreement between PNOC and BIR is void for being
contrary to law and public policy. PNOC could not apply for a compromise
under E.O. 44 because its tax liability was not a delinquent account or a
disputed assessment. PNOC’s tax liability could not be considered a
delinquent account because it was not self-assessed as the BIR conducted an
investigation after receiving information from Savellano. Nor is there a
deficiency assessment present. Neither PNOC or PNB conducted self-
assessment, and neither was there any tax assessment issued by the BIR.
PNOC and PNB were both silent about their tax liabilities until they were
assessed thereon. Any attempt by PNOC and PNB to assess and declare by
themselves their tax liabilities had already been overtaken by the BIR's
conduct of its audit and investigation and subsequent issuance of the
assessments, against PNOC and PNB, respectively. Evidently, E.O. No. 44
applies only to 'disputed assessment or delinquent account pending as of
December 31, 1985. This is not an executive issuance meant to give blanket
authority on the Commissioner of Internal Revenue to compromise away tax
liabilities. In fact, the 'cut-off period stipulated in the executive order refers to
a date nine months prior to the date of the promulgation of the issuance, 4
September 1986.
YES. The withholding tax assessment against PNB had become final and
unappealable. The CTA and the CA declared as final and unappealable the
assessment against PNB since PNB failed to protest it within the 30-day
prescribed period.
YES. Savellano is entitled to be paid the remainder of his informer’s reward.
Savellano is entitled to additional informer’s award since the BIR had already
collected the full amount of the tax assessment against PNB.
Book: An internal revenue tax is considered delinquent when it is unpaid after
the lapse of the last day prescribed by law for its payment. Likewise, it could
also be considered as delinquent where an assessment for deficiency tax has
become final and the taxpayer has not paid it within the period given in the
notice of assessment. A "delinquent account" refers to the amount of tax due
from a taxpayer who failed to pay the same within the time prescribed for its
payment arising from (a) a self-assessed tax, whether or not a tax return was
filed, or (b) a deficiency assessment issued by the BIR, which has become final
and executory. Where no return was filed, the taxpayer shall be considered
delinquent as of the time the tax on such return was due, and in availing of the
compromise, a tax return shall be filed as a basis for computing the amount of
compromise to be paid (Rev. Regs. No. 17-86; PNOC v. CA, et al, and PNB v.
CA. et al., G.R. Nos. 109976 and 112800, April 26, 2005).
60. PNB v CA
FACTS: Savellanoinformed the BIR that PNB had failed to withhold the 15%
final tax on interestearnings and/or yields from the money placements of
PNOC with the said bank, inviolation of Presidential Decree (P.D.) No.
1931. P.D. No. 1931, which took effect on11 June 1984, withdrew all
tax exemptions of government-owned and controlledcorporations. the BIR
requested PNOC to settle its liability fortaxes on the interests earned by its
money placements with PNB and which PNB didnot withhold. PNOC wrote
the BIR on 25 September 1986, and made an offer to compromise itstax
liability. PNOC proposed to set-off its taxliability against a claim for tax
refund/credit of the National Power Corporation(NAPOCOR), then pending
with the BIR. the BIR sent a demand letter to PNB, as withholding agent,
forthe payment of the final tax on the interest earnings and/or yields from
PNOC'smoney placements with the bank. On the same date, the BIR also
mailed a letterto PNOC informing it of the demand letter sent to PNB. PNOC,
in another letter, dated 14 October 1986, reiterated its proposal to settle itstax
liability through the set-off of the said tax liability against NAPOCOR'S
pendingclaim for tax refund/credit.10 The BIR replied on 11 November 1986
that the proposal for set-off was prematuresince NAPOCOR's claim was
still under process.Once more, BIR requested PNOC to settle its tax liability.
PNOC made another offer to the BIR to settle its tax liability. Thistime,
however, PNOC proposed a compromise by paying
P91,003,129.89,representing 30% of the P303,343,766.29 basic tax. BIR
Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987,accepted the
compromise. Private respondent Savellano, through four installments, was
paid the informer'sreward in the total amount of P14,093,321.89, representing
15% of theP93,955,479.12 tax collected by the BIR from PNOC and PNB.
Issues:
Whether or not the compromise agreement between the BIR and PNOC valid?
Whether or not the CTA finding that the deficiency withholding tax
assessment against PNB was already final and unappealable and unenforceable
valid?
Whether or not Savellano is entitled to his additional informer’s reward
Held:
NO. The compromise agreement between PNOC and BIR is void for being
contrary to law and public policy. PNOC could not apply for a compromise
under E.O. 44 because its tax liability was not a delinquent account or a
disputed assessment. PNOC’s tax liability could not be considered a
delinquent account because it was not self-assessed as the BIR conducted an
investigation after receiving information from Savellano. Nor is there a
deficiency assessment present. Neither PNOC or PNB conducted self-
assessment, and neither was there any tax assessment issued by the BIR.
PNOC and PNB were both silent about their tax liabilities until they were
assessed thereon. Any attempt by PNOC and PNB to assess and declare by
themselves their tax liabilities had already been overtaken by the BIR's
conduct of its audit and investigation and subsequent issuance of the
assessments, against PNOC and PNB, respectively. Evidently, E.O. No. 44
applies only to 'disputed assessment or delinquent account pending as of
December 31, 1985. This is not an executive issuance meant to give blanket
authority on the Commissioner of Internal Revenue to compromise away tax
liabilities. In fact, the 'cut-off period stipulated in the executive order refers to
a date nine months prior to the date of the promulgation of the issuance, 4
September 1986.
YES. The withholding tax assessment against PNB had become final and
unappealable. The CTA and the CA declared as final and unappealable the
assessment against PNB since PNB failed to protest it within the 30-day
prescribed period.
YES. Savellano is entitled to be paid the remainder of his informer’s reward.
Savellano is entitled to additional informer’s award since the BIR had already
collected the full amount of the tax assessment against PNB.
Book: An internal revenue tax is considered delinquent when it is unpaid after
the lapse of the last day prescribed by law for its payment. Likewise, it could
also be considered as delinquent where an assessment for deficiency tax has
become final and the taxpayer has not paid it within the period given in the
notice of assessment. A "delinquent account" refers to the amount of tax due
from a taxpayer who failed to pay the same within the time prescribed for its
payment arising from (a) a self-assessed tax, whether or not a tax return was
filed, or (b) a deficiency assessment issued by the BIR, which has become final
and executory. Where no return was filed, the taxpayer shall be considered
delinquent as of the time the tax on such return was due, and in availing of the
compromise, a tax return shall be filed as a basis for computing the amount of
compromise to be paid (Rev. Regs. No. 17-86; PNOC v. CA, et al, and PNB v.
CA. et al., G.R. Nos. 109976 and 112800, April 26, 2005).
CHAPTER XXVI JUDICIAL REMEDIES OF GOVERNMENT
Held: The act of the CIR in filing a motion for allowance of the claim of the estat
inheritance taxes may be considered as an outright denial of petitioner’s reques
reconsideration. From the date of receipt of the copy of the CIR’s letter for collecti
estate and inheritance taxes against the estates of the late spouses, petitioners
contest or dispute the same and upon denial thereof, the petitioners have a period
days within which to appeal to the CTA. This they failed to avail of. Failure o
petitioner to appeal to the CTA in due time made the assessments in question
executory and demandable. The assessment having become final and executory, the
properly acquired jurisdiction.
63..Republic v Ledesma
FACTS: Plaintiff- sued in CFI of Iloilo to recover from defendant P16,212.00
as deficiency income tax for the year 1951, including a surcharge of 50%.
Defendant denied liability, alleging that the proceed of the sale of 3,000 piculs
of sugar on which the tax was being principally levied had been declared as
income by his son-in-law, Raul Poblador, to whom the said sugar belonged
and who had paid the corresponding tax thereon. The assessment for the
deficiency was released by the BIR on February 25, 1957. Ledesma however
failed to dispute the assessment.

61.Marcos II v CA Issue: Whether said acts of the D would provide legal basis to collect
taxpayers liability?
"The approval of the court sitting in probate is not a mandatory requirement in the
collection of estate taxes.""In case of failure to file a return, the tax may be assessed
Held: at Yes, taxpayer’s failure to dispute the assessment effectively by
anytime within 10 years after the omission." complying with the conditions lid down by the BIR, such
specifying under oath the grounds of his protest, paying one-half of the amount
FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals assessed and putting up a bond for the balance, provides a legal basis for the
to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the
government to collect by ordinary civil action.
payment of his tax delinquencies during the period of his exile in the US. The Marcos
family was assessed by the BIR after it failed to file estate tax returns. However the v Republic
64..Basa
assessment were not protested administratively by Mrs. Marcos and the heirs of the late CIR assessed Basa of deficiency tases. Basa did not contest the assessments,
Facts:
president so that they became final and unappealable after the period for filing of
it became final and incontestable. CIR then sued Basa for the collection of the ass
opposition has prescribed. Marcos contends that the properties could not be levied tax. to
The trial court affirmed the CIR. Basa tried to contest the assessment before the
cover the tax dues because they are still pending probate with the court, and settlement
Issue: Can a taxpayer contest an assessment before the CA without protesting befor
of tax deficiencies could not be had, unless there is an order by the probate court orCTA?
until
the probate proceedings are terminated. Held NO. The prescription of the Government’s right to assess is no longer availab
Petitioner also pointed out that applying Memorandum Circular No. 38-68, the aBIR's defense in a civil action for collection; the same should have been ventilated befor
Notices of Levy on the Marcos properties were issued beyond the allowed period, and
CTA.
are therefore null and void.
65..Mambulao Lumber v Republic
ISSUE: Are the contentions of Bongbong Marcos correct?
"Forest charges are internal revenue taxes and the BIR has the sole power and du
HELD: No. The deficiency income tax assessments and estate tax assessment collect
are them. Thus, an assessment made by the Bureau of Forestry cannot be consid
already final and unappealable -and-the subsequent levy of real properties is an a tax
assessment made by the BIR."
remedy resorted to by the government, sanctioned by NIRC. The omission to file an
estate tax return, and the subsequent failure to contest or appeal the assessment madeFACTS:
by The Bureau of Forestry sent a demand letter to P demanding for the payme
the BIR is fatal to the petitioner's cause, as under Sec.223 of the NIRC, in case of failure
forest charges and surcharges. Mambulao protested the assessment. The BIR gav
to file a return, the tax may be assessed at anytime within 10 years after the omission,
company 20 days from receipt within which to submit the results of its verificati
and any tax so assessed may be collected by levy upon real property within 3 yearspayments.
(now For failure to comply and failure to pay its tax liability despite demands,
5 years) following the assessment of the tax. Since the estate tax assessment had become
filed a complaint for collection with CFI-Manila on August 25, 1961. The CFI-M
final and unappealable by the petitioner's default as regards protesting the validity and
of the Court of Appeals decided against Mambulao ordering it to pay the tax liab
said assessment, there is no reason why the BIR cannot continue with the collection Petitioner
of argued that the collection is barred by the statute of limitations under N
the said tax. As stated, the collection should be made within the five (5) year period. From
(date when the Bureau of Forestry assessed and demand payment as forestry ch
62.Dayrit v Cruz (579) and surcharges) up to 1961 (date of filing of complaint), it is already more than
years.
Facts: After separate estate and inheritance tax returns for the estate of the late spouses
Teodoro were filed, deficiency estate and inheritance tax assessments were issued. ISSUE: Has the period of filing of collection complaint prescribed?
Petitioners, heirs of the late spouses, asked for a reconsideration of the assessments
alleging that the same were contrary to law and not supported by sufficient evidence. HELD:At No. The action for collection is not barred by prescription. The basis o
the same time, petitioners requested a period of 30 days within which to submitcomplainttheir filed on August 1961 was the demand letter made by the CIR on Augus
position paper in support of their claim. 1958 and not the demand letter of the Bureau of Forestry on January 1949. So tha
reckoning date of the 5-year period should be from the date of the BIR letter and no
However, CIR filed a motion for allowance of claim against the estate of the CFI of the
of Bureau of Forestry. This must be so because forest charges are internal rev
Rizal, for a payment of said sums after which the petitioners filed separate appositions
taxes and the BIR has the sole power and duty to collect them.
alleging that the estate and inheritance taxes sought to be collected have already been
settled. 66..Fernandez Hermanos v Commissioner (581)

Issue: Whether or not said assessments have become final and executory. "The filing of an answer to taxpayer's petition for review is considered as instituti
judicial action."
 the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Y
FACTS: The Commissioner of Internal Revenue assessed the petitioner investment which has not yet become final, executory and incontestable, and which assessme
corporation of deficiency income taxes for the years 1950 to 1954 and for 1957. beingThere contested by petitioners in the Court of Tax Appeals, Case No. 2216, and
were two conflicting dates of assessment, which are vital to the compliance with pending
the consideration?
statute of limitations, based on each claim of the petitioner and the respondent; Held:
the The filing of a civil action in court to collect a tax which was the subject
Commisioner's record of date of assesment is February 27, 1956 while the petitioner pending protest in the BIR was a justifiable basis for the taxpayer to appeal to the C
believes the demand was made on December 27, 1955 so that, as the petitioner of Tax Appeals & to move for the dismissal in the trial court of the Government’s a
corporation claims, the Commissioner's action to recover its tax liability should to collect
be the tax under dispute. The respondent Court of First Instance of Cagaya
deemed to have prescribed for failure on the part of the Commissioner to only file aacquire jurisdiction over this case filed against the heirs of the taxpayer i
complaint for collection against it in an appropriate civil action. assessment made by the Commissioner of Internal Revenue had become final
incontestable. If the contrary is established, as this Court holds it to be, considerin
ISSUE: Has the action for collection prescribed? aforementioned conclusion of the Court of Tax Appeals on the finality
incontestability of the assessment made by the Commissioner is correct, then the C
HELD: No. It has been held that "a judicial action for the collection of a tax is begun
of Tax
by Appeals has exclusive jurisdiction over this case.
the filing of a complaint with the proper court of first instance, or where the assessment
69..Republic v Dorego
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." This is but logical for where Facts:
the Tomas Dorego, as principal, with Natividad Dorego and Silvestre
taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals,
Arroyo
the as sureties, executed in the City of Iloilo, a surety bond guaranteeing
said Court is vested with the authority to pronounce judgment as to the taxpayer's payment of P2,600.00 in favor of the Republic, representing percentage taxes
liability to the exclusion of any other court. In the present case, regardless of whether
due from the principal Tomas Dorego on his sales of sand and gravel.The
the assessments were made on February 24 and 27, 1956, as claimed by Doregos
the paid only the sum of P260.00, as first installment thereby leaving
Commissioner, or on D unpaid the balance of P2,340.00. Notwithstanding repeated demands, the
December 27, 1955 as claimed by the taxpayer, the government's right to collect Doregos
the failed and refused to pay the balance. Hence, on March 25, 1959, the
taxes due has clearly not prescribed, as the taxpayer's appeal or petition for reviewRepublic
was filed a complaint in the CFI of Iloilo against them, for collection.
filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20,
1960 his Answer with a prayer for payment of the taxes due, long before the expiration
Doregos filed a motion to dismiss the complaint on the ground that the right of
of the five-year period to effect collection by judicial action counted from the datethe ofRepublic to collect has already prescribed. Acting on the motion, the CFI
assessment. of Iloilo, dismissed the complaint, declaring that since the payment of the first
installment of P260.00 on June 19, 1951, no action was instituted in due time
67..BPI v Commissioner to enforce the collection of the balance unpaid. The Republic appealed directly
to this Court, contending that the lower court erred in dismissing the case on
FACTS: BPI, on two separate occasions, sold United States (US) $500,000.00 the to theground of prescription of action, an issue which is purely legal in nature.
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- ISSUE:
89- WHETher action has prescribed?
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 Held:
BPI No, The bonds under consideration are written contracts imposing
received the Assessment, together with the attached Assessment Notice, on 20 October rights and liabilities, according to the terms thereof. Since the principals
1989 and protested such on Nov. 16, 1989. BPI did not receive any immediate reply andtosureties failed to pay the liabilities in the manner and on the dates
its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint
indicated in said bond, the right of the government to take court action for
and/or Levy, against petitioner BPI for the assessed deficiency DST for taxabletheir yearforfeiture is clear. And these actions were filed in both cases, within
1985, in the amount of P27,720.00. It served the Warrant on petitioner BPI only the on 23 10 year period from the accrual of the right of action. HENCE,the
October 1992. Then again, BPI did not hear from the BIR until 11 September order 1997, of dismissal appealed from is reversed, and the case remanded to the
when its counsel received a letter, dated 13 August 1997, signed by thencourt BIR of origin for further proceedings, with costs against the defendants-
Commissioner Liwayway Vinzons-Chato, denying its “request for reconsideration”. appellees.
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
70.REPUBLIC vs. HIZON
Court of Appeals.
Issue: Has the right of BIR to collect from BPI the alleged deficiency DST prescribed?
"A request for reconsideration of the tax assessment does not effectively suspen
Held: YES. The statute of limitations on collection may only be interrupted running
or of the precriptive period if the same is filed after the assessment had be
suspended by a valid waiver executed in accordance with paragraph (d) of Section final
223and unappealable."
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
FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a defici
granted by the BIR Commissioner. Even when the request for reinvestigation granted income
by tax assessment covering the fiscal year 1981-1982. Respondent not ha
the BIR Commissioner. Even when the request for reconsideration or reinvestigation contested
is the assessment, petitioner BIR, on January 12, 1989, served warran
not accompanied by a valid waiver or there is no request for reinvestigation that distraint
had and levy to collect the tax deficiency. However, for reasons not known,
been granted by the BIR Commissioner, the taxpayer may still be held in estoppel notandproceed to dispose of the attached properties.
be prevented from setting up the defense of prescription of the statute of limitations on More than three years later, the respondent wrote the BIR requestin
collection when, by his own repeated requests or positive acts, the Government reconsideration
had of her tax deficiency assessment. The BIR, in a letter dated Augus
been, for good reasons, persuaded to postpone collection to make the taxpayer feel 1994,
that denied the request. On January 1, 1997, it filed a case with the RTC to collec
the demand is not unreasonable or that no harassment or injustice is meant by taxthedeficiency. Hizon moved to dismiss the case on two grounds: (1) that the comp
Government, as laid down by this Court in the case of CIR vs. Suyoc Consolidated was not filed upon authority of the BIR Commissioner as required by Sec. 221 o
Mining Co. Applying the given rules to the present Petition, this Court finds that: NIRC,(a) and (2) that the action had already prescribed. Over petitioner's objection
The statute of limitations for trial court granted the motion and dismissed the complaint.
BIR on the other hand contends that respondent's request for reinvestigation of he
68..Yabes v Flojo (582) deficiency assessment on November 1992 effectively suspended the running o
Facts: Yabes received a demand letter from CIR which he protested and for which periodhe of prescription.
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 filedISSUE: a Has the action for collection of the tax prescribed?
tax waiver extending the period of prescription. Spouses Yabes died pending said
action. HELD: Yes. Sec. 229 of the NIRC mandates that a request for reconsideration mu
Issue: Can the CFI lawfully acquire jurisdiction over a contested assessment made made by within 30 days from the taxpayer's receipt of the tax deficiency assessm
otherwise the assessment becomes final, unappealable and, therefore, demandable. Eventually,
The RDFC redeemed the property and demanded possession but
notice of assessment for respondent's tax deficiency was issued by petitioner on July
EMRACO-CIPI
18, and Nilo Villanueva resisted so that petitioners were
1986. On the other hand, respondent made her request for reconsideration thereofcompelled
only to sue for recovery of possession.
on November 3, 1992, without stating when she received the notice of tax assessment.RDFC and petitioners finally obtains possession of the ice plant by virtue of
Hence, her request for reconsideration did not suspend the running of the prescriptive
the Mandatory Injunction previously issued, which ordered defendant
period provided under Sec. 223(c). Although the Commissioner acted on her request "particularly
by Nilo C. Villanueva and his agents representatives, or any person
eventually denying it on August 11, 1994, this is of no moment and does not detract found in the premises to vacate and surrender the property in litigation."
from Petitioners did not re-employ private respondents.
Private respondents filed complaints against petitioners for illegal dismissal
Re: Approval of the filling of civil actions where the Ministry of Labor ordered petitioner and petitioner corporation to
reinstate the private respondents and pay their backwages.
71. Republic v Domecillo (p.583) Issue: Whether Sunio should be personally liable with petitioner company,
ICC?
Case cannot be found Ruling: No. This is reversible error.
The Assistant Regional Director's Decision failed to disclose the reason why
Book: Complaints in civil actions for the collection of delinquent taxes are he was made personally liable. Respondents, however, alleged as grounds
required to be approved by the Solicitor General before they are thereof, his being the owner of one-half (1/2) interest of said corporation, and
filed. However, BIR legal officers deputized as special attorneys his alleged arbitrary dismissal of private respondents. Petitioner Sunio was
and stationed outside Metro Manila may file verified complaints impleaded in the Complaint his capacity as General Manager of petitioner
without the approval of the Sol Gen, provided that the Sol gen is corporation. where appears to be no evidence on record that he acted
furnished with a copy of the complaint, and thereafter the action maliciously or in bad faith in terminating the services of private respondents.
is filed. If the complaint is found to be improperly filed, a motion for His act, therefore, was within the scope of his authority and was a corporate
dismissal is filed with the court. act.
It is basic that a corporation is invested by law with a personality separate
Re: Respondents in a civil action for the collection of tax 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. 4 Mere ownership by a
72. Gotamco & Sons v Commissioner (583) single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
Case cannot be found disregarding the separate corporate personality. Petitioner Sunio,
therefore, should not have been made personally answerable for the payment
Book: Parties who are not included in an assessment made by the of private respondents' back salaries.
CIR cannot be made respondents in an appeal from a particular
assessment, and no judgement can be rendered against such Re: Exception to the rule laid down by Sunio v NLRC
parties because any such judgement would be encroachment on
the prerogative of the Commissioner to make an assessment and 74. Tang Tiong Bio v Commissioner
would further violate the rule on due process and exhaustion of
administrative remedies. Sypnosis: Petitioners were ordered by the CTA to pay jointly and severally, to
the Collector of Internal Revenue deficiency sales tax and surcharge on the
Moreover, under Section 7 of RA 1125, only the Commissioner of surplus goods purchased by them from the Foreign Liquidation Commission.
the Internal Revenue and the commissioner of customs may be Facts: Central Syndicate (syndicate for short) a corporation, sent a letter to the
sued before the CTA in appropriate cases. Collector of Internal Revenue advising the latter that (1) it purchased from Dee
Hong Lue the surplus properties which the said Dee Hong Lue had bought
73. Alberto S. Sunio and Ilocos Commercial Corporation v NLRC from the Foreign Liquidation Commission (2) that it assumed Dee Hong Lue's
obligation and would pay a portion of the sales tax on said surplus goods (3) it
Note: You might get confused because there is nothing about tax delinquency was paying P43,750.00 in behalf of Dee Hong Lue as deposit to answer for the
in this case. However, what the it highlights is the Principle of Corporate payment of said sales tax
Personality and how the stockholders cannot be made liable for the obligations The syndicate again wrote the Collector requesting a refund for the purchase
of the corporation, such as backwages. price of goods obtained from Dee Hong Lue was adjusted and reduced. The
CIR investigated the matter and the Collector decided that the Central
Sypnosis: Private respondents filed a complaint for illegal dismissal against Syndicate was the importer and original seller of the surplus goods in
the petitioners. The Ministry of labor held the petitioner, Sunio, personally question and, therefore, the one liable to pay the sales tax. The Collector
liable with the petitioner corporation in his capacity as its General Manager. denied the request of the syndicate for the refund.
Facts: EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice CTA DECISION: (1)Denied Collector’s motion. On the ground that cannot be
Plant, Inc. (CIPI for short), sister corporations, sold an ice plant to Rizal legally done it appearing that the syndicate is already a non-existing entity due
Development and Finance Corporation (RDFC) with a mortgage on the same to the expiration of its corporate existence (2) dismissing syndicate’s appeal
properties. primarily on the ground that the Central Syndicate has no personality to
CIPI had terminated the services of its employees, including herein private maintain the action then pending before it.
respondents, giving them their separation pay which they had accepted. When From this order the syndicate appealed to the Supreme Court wherein it
RDFC took over ownership and management, therefore, it hired its own intimated that the appeal should not be dismissed because it could be
employees, not the private respondents, who were no longer there. RDFC substituted by its successors-in-interest. The syndicate was later substituted
subsequently sold the property to petitioners on November 28, 1973. by its officers and directors (petitioners herein). Court of Tax Appeals
Both RDFC-ICC failed to pay the balance of the purchase price, as a proceeded to hear the case.
consequence of which, EMRACO-CIPI instituted extrajudicial foreclosure CTA APPEALS DECISION: Petitioners ordered to pay jointly and
proceedings. The properties were sold at public auction. The highest bidders severally, to the Collector of Internal Revenue deficiency sales tax and
being EMRACO CIPI and they eventually re-possessed the plant. surcharge on the surplus goods purchased by them from the Foreign
During all the period that RDFC and petitioners were operating the plant. They Liquidation Commission. Petitioners filed appeal.
had their own employees. CIPI-EMRACO then sold the plant, on the same
period, to Nilo Villanueva, subject to RDFC's right of redemption. Nilo Issue: Whether Central Syndicate having already been dissolved because of
Villanueva then rehired private respondents as employees of the plant. the expiration of its corporate existence, whether the sales tax in question can
be enforced against its successors-in-interest who are the present petitioners.
Ruling: YES. The creditor of a dissolved corporation may follow its assets
once they passed into the hands of the stockholders.
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".
75. LUMANLAN v. JACINTO R. CURA, et. al, DIZON & CO.,
INC. etc.
Sypnosis: Petitioner is a stockholder who has an unpaid subscription with an
insolvent corporation. Through an agreement made with other stockholders,
he was designated to pay the debt of the corporation to one of its creditors in
which he obliged. However, the collection suit filed by the receiver against P
was executed. Thus P seeks to enjoin the execution of the said collection suit.
FACTS: Dizon & Co is a corporation duly organized under the PH laws.
Lumanlan subscribed for 300 shares of stock of said corporation at a par value
of P50 or a total of P15K. Julio Valenzuela and the other creditors of the
corporation filed a suit against it
▪ Praying that a receiver be appointed as it appeared that the
corporation had not assets except credits against those who had
subscribed for shares of stick
The said corporation was put under Receivership and the Court named Tayag
as receiver. Lumanlan paid only P1,500 of the P15K, so Tayag filed a suit
against him for the collection of P15, 109:
P13,500 = amount he owed for unpaid stock
P1,609 = loans & advances by the corporation to Lumanlan
The Court in Case No. 37492, sentenced Lumanlan to pay the said amount.
Lumanlan appealed from the said decision. Pending such appeal, w/ the
permission of the Court, the creditors held several meetings, in which it was
agreed that subscribers for the capital stock who were in default should pay.
Lumanlan was designated to pay the debt of the corporation to Julio
Valenzuela.
▪ Lumanlan agreed to assume the obligation and in turn the
corporation agreed that if Lumanlan would dismiss his appeal, the
corporation would collect only 50% of the amount subscribed by
him for stock, provided that in case the 50% was insufficient to pay
Valenzuela he should pay an additional amount which should not
exceed the amount of the judgment against him
▪ In view of the agreement, Lumanlan withdrew his appeal
Disregarding the agreement, the corporation asked for the execution of the
sentence in Case No. 37492. So the Provincial Sheriff levied upon 2 parcel of
land belonging to Lumanlan. Lumanlan brought this case to collect from Dizon
& Co and to prevent the sheriff from selling the 2 parcels of land
▪ Pending result, sheriff was enjoined from proceeding w/ the sale
ISSUE: Whether or not the corporation has a right to collect all unpaid stock
subscriptions and any other amounts which may be due it.
RULING: YES.
A stockholder who has unpaid subscriptions is liable for the debts of the
corporation.
It is established doctrine that subscriptions to the capital of a corporation
constitute a fund to which the creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets for the payment of its
debts.
The Corporation Law clearly recognizes that a stock subscription is a
subsisting liability from the time the subscription is made, since it requires the
subscriber to pay interest quarterly from that date unless he is relieved from
such liability by the by- laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay
any other debt, and the right of the company to demand payment is no less
incontestable.
The judgment of the trial court is modified in accordance with the above and
Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the sum of
P13,840 against the judgment for P15,109, and to issue to Bonifacio Lumanlan
300 shares of its capital stock upon payment by him of the sum of P1,269 with
interest thereon at 6% per annum. The preliminary injunction issued in this
case is hereby dissolved for the purpose of enabling Dizon & Co., Inc., to ask
for a new order of execution in case No. 37492, Court of First Instance of
Manila, for the sum of P1,269 with interest thereon as stated above.
The corporation has a right to collect the amount of shares subscribed just like
an ordinary debt however in this case, since Lumanlan paid the debt of the
corporation amounting to P13,840, the corporation should credit the said
amount against the P15,109 judgment of the court, which Lumanlan was
ordered to pay.
Re: Criminal Actions under the 1997 Tax Code
76. People v Mendez
Sypnosis: Accused denies criminal liability on his failure to file ITR for the
taxable year 2001, contesting that his business began operating only in 2003,
thus there was no need for him to file his ITR with the BIR. Accused claims
that he was not legally obligated to file an ITR for taxable year 2001 as he had
no income earned during that said taxable year.
Facts: Joel C. Mendez, a duly registered taxpayer, and sole proprietor of
"Weigh Less Center", was charged with Violation of Section 255 of Republic
Act No. 8424; accused, for his failure to file his income tax return (ITR) with
the Bureau of Internal Revenue I for the taxable year 2001, to the damage and
prejudice of the Government.
Accused claimed that his business did not begin only until 2003. He refuted
the fact that in 2001, he executed a Contract of Lease with Ma. Lita Gregorio,
the owner of the property in Roces Avenue, for his clinic. Although lease
agreement took effect in 2001, his clinic actually opened in 2003 as the place
had to be renovated.
When the advertisements in the newspapers were printed, his businesses were
not yet in operation and the advertisements were only for promotions or for
marketing purposes. In other words, registration with the BIR in 2001 was not
necessary since income was yet to flow. Corollarily, the phrase "Since 1996"
in his company's logo only means that his specialization in the United States
under his brother's supervision started in 1996. 43 His investments in Sabili
Mendez Medical Services, Primehealth Card Services, Orocab Company, Oro
Glass and Aluminum Supply and the New Millenium came from loans, gifts,
and inheritance.
Issue: WHETHER ACCUSED JOEL C. MENDEZ IS CRIMINALLY
LIABLE FOR VIOLATION OF SECTION 255 OF THE 1997 NATIONAL
INTERNAL REVENUE CODE
Ruling: Yes.
To sustain conviction, the following elements of the offense charged must be
established by sufficient and credible proof, thus:
(1) That accused was a person required to make or file a return;
(2) That he failed to make or file such return at the time
required by law;
(3) That the failure to make or file the return was willful.
The evidence show that accused had the legal obligation to make or file an
ITR.
The massive and huge advertising campaign covering the print and broadcast
media in 2000 and 2001 to promote the branches of Weigh Less Center
negates accused' contention that he was not yet in operation in 2001
Even assuming in gratia argumenti that no income was generated from his
business in 2001, still accused had, under Section 51(A)(2)(a) of the 1997
NIRC,61 the obligation to file an ITR. The said provision explicitly requires
every person engaged in trade or business or is in the exercise of his
profession, like accused, to file an ITR and declare income obtained from
whatever source, irrespective of whether the income flowed during the taxable
period.
Further, Section 236(A)(2)62 of the NIRC of 1997, as amended, requires
registration "on or before the commencement of business". It is the
commencement of business or the engagement in the practice of profession
that subjects the taxpayer to the requirement of registration and subsequent
filing of an ITR.
Contrary to accused' claim, generation of income is not a condition to the filing
of an ITR. The obligation to file an ITR is not dependent on the acquisition of
income during the relevant taxable period. In fact, a taxpayer who has
registered but has not operated during the taxable year, or worse, incur losses
in the conduct of business is still mandated to file an ITR. Once the business is
registered, a corresponding duty to file an ITR exists.
Undoubtedly, accused, who practiced his profession in 2001 and earned
income therefrom had the obligation to register it, file an ITR and pay the
corresponding tax thereon but failed, in violation of the Tax Code.
77. People v Tambunting
Note: This is the actual full text of the cited case. Cannot find the antecedent
facts re the same case.
RE S OL U T I O N
For failure of State Prosecutor Minerva Alejandria-Bautista to
comply,despite notice, with the Resolution dated April 7, 2011 , requiring
her to submit tothis Court the records of the preliminary investigation,
pursuant to Section 8 of Rule 112 of the Revised Rules on Criminal
Procedure, as amended, the above captioned case is hereby DISMISSED,
without prejudice.
SO ORDERED.
78. People v Rogelio Tan (586)
Sypnosis: Filed the ITR but failed to supply correct information.
Facts: Accused Rogelio A. Tan is being charged, as President and General
Manager of JADEWELL PARKING SYSTEMS CORPORATION, for
violation of Section 255 of the National Internal Revenue Code (NIRC) of
1997.
On June 26, 2000 and January 25, 2001, Jadewell entered into a Memorandum
of Agreement3 with the respective cities of Baguio and Caloocan, where the
former will install, manage and operate a parking system in the designated city
streets and parking spaces for a minimum guaranteed period of five (5) years
against rescission and with a term of twelve (12) years. The cities' share is
twenty percent (20%) of the gross profits of the operations or fifty percent
(50%) of the net profits, whichever is higher.
In 2005, an investigation of Jadewell was conducted by the Special
Investigation Division of the BIR on the basis of confidential information that
Jadewell is involved in a tax evasion scheme.
However, upon finding that Jadewell transferred its main office to Manila, the
case was forwarded to the BIR's Special Investigation Division in Manila,
which conducted a preliminary investigation on Jadewell's accessible records.
The investigation initially resulted in the findings of an undeclared gross
profit/income for the years 2002 and 2003, and was signed by one Via Aguas
who was not an employee of Jadewell.
Pursuant thereto, the issuance of a Letter of Authority for taxable years 2002 to
2004 was recommended. Eventually, a Letter of Authority dated February 28,
2006 was issued, but allegedly unheeded. A Second Notice and Final Notice
for Jadewell to submit documents or records relative to the investigation were
respectively sent on March 9, 2006 and March 24, 2006, but likewise allegedly
ignored by Jadewell.
Accused filed a motion to quash the Amended Information for Criminal Case
before the First Division of this Court, where the said case was pending, on the
ground that he is charged with knowingly and willfully providing false
information in Jadewell's Income Tax Return (ITR) but the prosecution failed
to present or attach to the record the assailed ITR.
Issue: Whether or not accused Rogelio A. Tan, as the General Manager and
President of Jadewell, knowingly and willfully failed to supply correct and
accurate information in Jadewell's Income Tax Returns for taxable years 2003
and 2004
Ruling: Yes.
The elements that must be proven beyond reasonable doubt by the prosecution
are the following:
a. Existence of an obligation to supply correct information;
b. Failure to supply correct information;
c. Such failure was willful; and
d. In case of corporate taxpayers, that the accused is the responsible
officer
The accused, as President of Jadewell, should at the very least have been aware
of who is authorized to sigh Jadewell’s ITR and other tax filings. He could not
even explain how a certain Ivy Aguas was able to sign some ITR and payment
forms, despite the allegation of the defense that said person is not an employee
of Jadewell.
The deliberate avoidance or omission on the part of the accused leads the
court to conclude that the supply of false and incorrect information was willful
and done with the knowledge of the accused.
79-80
TOPIC: ADMINISTRATIVE REMEDIES OF GOVERNMENT
81. COMMISSIONER OF INTERNAL REVENUE VS. LA SUERTE
CIGAR AND CIGARETTE FACTORY
G.R. NO. 144942, JULY 4, 2002
● In its resolution, dated 15 November 2000, this Court denied the
Petition for Review on Certiorari submitted by the Commissioner of
Internal Revenue because the appeal was not pursued by the
Solicitor General. The petitioner sought clarification whether the
involvement of the Solicitor General is truly mandatory, considering
that Section 220 of the Tax Reform Act (R.A. 8424) allows the legal
officers of the Bureau of Internal Revenue (BIR) to institute and
conduct judicial action in behalf of the Government.
● Section 220 states: "SECTION 220. Form and Mode of Proceeding
in Actions Arising under this Code. – Civil and criminal actions and
proceedings instituted in behalf of the Government under the
authority of this Code or other law enforced by the Bureau of
Internal Revenue shall be brought in the name of the Government of
the Philippines and shall be conducted by legal officers of the
Bureau of Internal Revenue but no civil or criminal action for the
recovery of taxes or the enforcement of any fine, penalty or
forfeiture under this Code shall be filed in court without the approval
of the Commissioner." (Underscoring supplied)
Issue(s)/Ruling:
1. Whether or not appeals of tax cases need to be deputized by the
Solicitor General. YES.
An appeal from such court, however, is not a matter of right. Section
220 of the Tax Reform Act must not be understood as overturning the long
established procedure before this Court in requiring the Solicitor General to
represent the interest of the Republic. This Court continues to maintain that it
is the Solicitor General who has the primary responsibility to appear for the
government in appellate proceedings. This pronouncement finds justification
in the various laws defining the Office of the Solicitor General. Section 35,
Chapter 12, Title III, Book IV, of the Administrative Code outlines the powers
and functions of the Office of the Solicitor General which includes, but not
limited to, its duty to represent the Government in the Supreme Court and the
Court of Appeals in all criminal cases, and in all other courts or tribunals in all
civil actions and special proceedings in which the Government or any officer
thereof in his official capacity is a party.
An exception to the above rule is that enunciated in the case of
Orbos vs. Civil Service Commission, thus: "In the discharge of this task the
Solicitor General must see to it that the best interest of the government is
upheld within the limits set by law. When confronted with a situation where
one government office takes an adverse position against another government
agency, the Solicitor General should not refrain from performing his duty as
the lawyer of the government. It is incumbent upon him to present to the court
what he considers would legally uphold the best interest of the government
although it may run counter to a client's position. In such an instance the
government office adversely affected by the position taken by the Solicitor
General, if it still believes in the merit of its case, may appear in its own behalf
through its legal personnel or representative."
Aware that the dismissal of the petition could have lasting effect on
government tax revenues, the lifeblood of the state, the Court heeds the plea of
petitioner for a chance to prosecute its case. It does appear from the statements
of the Commissioner of Internal Revenue, seeking clarification on the issue of
legal representation, that it has labored and acted in good faith. Relative to the
lack of verification required of petitions, this Court has held in a number of
instances that such a deficiency can be excused or dispensed with in
meritorious cases, the defect being neither jurisdictional nor always
fatal. Verification is mainly intended to ensure that the allegations in the
pleading are true and correct and not mere speculations. The Court may thus
order the correction of the pleading or act on an unverified pleading, if the
attending circumstances are such that strict compliance would not fully serve
substantial justice which, after all, is the basic aim for the rules of procedure.
82. PEOPLE OF THE PHILIPPINES VS. LUCIO TAN, FORTUNE
TOBACCO CORPORATION, ET. AL.
G.R. NO. 144707, JULY 13, 2004
FACTS SURROUNDING G.R. 119322
● On September 7, 1993, the Commissioner of Internal Revenue filed
a Complaint with the Department of Justice (DOJ), charging Fortune
Tobacco Corporation (hereafter Fortune), its corporate officers, nine
(9) other corporations and their respective corporate officers, with
fraudulent tax evasion for supposed non-payment of the correct ad
valorem, income and value-added taxes for the year 1992.
● On October 15, 1993, Fortune filed a Verified Motion to Dismiss;
Alternatively Motion to Suspend. At the scheduled preliminary
investigation on October 15, 1993, the DOJ Panel denied the motion
to dismiss and treated the same as respondents’ counter-affidavits.
Two other criminal cases were filed subsequently, alleging the same
acts of tax evasion, for the taxable years 1990 and 1991.
● The trial court and the Court of Appeals maintained that at that stage
of the preliminary investigation, where the complaint and the
accompanying affidavits and supporting documents did not show
any violation of the Tax Code providing penal sanctions, the
prosecutors should have dismissed the complaint outright because of
total lack of evidence, instead of requiring private respondents to
submit their counter affidavits under Section 3(b) of Rule 112. The
Supreme Court affirmed the trial court and the Court of Appeals’
decision.
FACTS SUBSEQUENT TO THE G.R. NO. 119322 RESOLUTION
● In compliance with this Courts resolution, a New Panel (New DOJ
Panel) of prosecutors was created. The BIR was directed to furnish
respondents the documents supporting the complaints and to give
respondents time to examine the same and, thereafter, for
respondents to submit their counter-affidavits. On March 20, 1998,
the BIR submitted a Manifestation/ Compliance, submitting the
required documents with the explanation that it did not produce the
other documents (i.e. the Daily Manufacturers Sworn Statements of
other cigarette companies) because to do so would be inappropriate
as the same do not, in any manner, bear any relevance to the
preliminary investigation proceedings against Fortune.
● Subsequently, on July 24, 1998, the New DOJ Panel ruled that: 1)
There was substantial compliance by the BIR with the order to
produce documents; 2) on the basis of the evidence submitted by the
BIR, the panel finds sufficient ground to proceed with the
preliminary investigation of the cases; and 3) in view of the
foregoing findings, the respondents were directed to file their
counter-affidavits within 15 days from receipt of the order.
● The New DOJ Panel resolved the main complaints in favor of the
BIR. It found reasonable ground to believe that respondents were
probably guilty thereof and should be held for trial.
● On December 1, 1998, Informations for nine (9) counts of tax
evasion (Taxable Years 1990, 1991 and 1992) were filed by the New
DOJ Panel with the Metropolitan Trial Court
(MeTC), Marikina City, Branch 75, docketed as Criminal Cases
Nos. 98-38181 to 98-38189. The indictments were signed and
certified by the New DOJ Panel of state prosecutors. On March 22,
1999, Judge Ruiz issued an Order[27] dismissing the criminal cases.
Citing the provisions of Section 220 of the Tax Reform Act of 1997,
Republic Act No. 8424, the trial court ruled: “The Court agrees with
the Bureau of Internal Revenue that in view of the aforecited Section
of the Tax Reform Act of 1997, a substantive law and the fact that it
is evident that the Commissioner of Internal Revenue has not
approved the filing of the instant cases, this Court, thus, has no other
recourse but to obey the law and dismiss the cases at bar.”
● On July 14, 1999, the New Panel filed a Petition for Certiorari before
the Regional TrialCourt of Marikina City, Branch 273 (RTC-
Marikina), seeking to nullify the MeTC Orders dated March 22,
1999 and May 17, 1999, alleging grave abuse of discretion on the
part of the court a quo. On August 25, 1999, RTC-Marikina
Presiding Judge Olga Palanca Enriquez dismissed the petition, for
being filed eleven (11) days late, in violation of Section 4, Rule 65
of the 1997 Rules of Criminal Procedure.
● On October 20, 1999, the OSG appealed the RTC-Marikina Orders
dated August 28, 1999 and October 13, 1999, to the Court of
Appeals. The appellate court dismissed the petition for lack of merit.
Issue(s)/Ruling:
1. Did the MeTC gravely abuse its discretion or exceed its jurisdiction
in dismissing the criminal cases?
In the same case of Martinez v. Court of Appeals, et al., this Court,
citing the case of Crespo v. Mogul, held: “The rule therefore in this jurisdiction
is that once a complaint or information is filed in Court any disposition of the
case as its dismissal or the conviction or acquittal of the accused rests in the
sound discretion of the Court. Although the fiscal retains the direction and
control of the prosecution of criminal cases even while the case is already in
Court he cannot impose his opinion on the trial court. The Court is the best and
sole judge on what to do with the case before it. The determination of the case
is within its exclusive jurisdiction and competence. A motion to dismiss the
case filed by the fiscal should be addressed to the Court who has the option to
grant or deny the same. It does not matter if this is done before or after the
arraignment of the accused or that the motion was filed after a reinvestigation
or upon instructions of the Secretary of Justice who reviewed the records of
the investigation.
In the present case, the record clearly shows that the MeTC failed to
discharge its duty to judiciously and independently rule upon the motion to
withdraw.
As the Court finds it, the government, that is to say, more accurately,
the People, by statute has ordained the government prosecutors not to come to
Court and file a criminal case involving violations of the National Internal
Revenue Code without first getting the nod and approval of the Commissioner
of Internal Revenue. No such Commissioner of Internal Revenue certification
has been submitted to this Court against any of the accused in these cases. As
to such a primordial statutory requirement, this Court believes that the statute
rather than the Rules of Court, applies and governs.
A reading of the MeTC order thus shows that the same was basically
anchored only on the Manifestation and Motion of the BIR, praying for the
withdrawal of the complaints. Contrary to its mandate, the trial court
abandoned its duty to evaluate the submissions before it. By relying on the
manifestation and motion of the BIR alone, it ignored the positive findings of
the panel of state prosecutors, which had, themselves, painstakingly conducted
the preliminary investigation on the subject criminal liability of the
respondents.
By merely echoing the findings of the BIR, the MeTC abdicated its
duty as a court of law, and subjugated itself to the administrative agency. In
failing to make an independent finding of the merits of the case and merely
anchoring the dismissal on the position of the BIR, the trial court relinquished
the discretion it was obliged to exercise, in violation of the ruling in Crespo v.
Mogul.
For this reason, this Court is constrained to annul and set aside the
Orders of the MeTC.
83. PEOPLE OF THE PHILIPPINES VS. JOEL C. MENDEZ
CTA CRIM. CASE NOS. O-013 & O-015, DECEMBER 11, 2012 (THE
ONE DATED JANUARY 5, 2011 AS STATED IN THE BOOK CANNOT
BE FOUND, BUT I THINK THE SAME FACTS APPLY).
● In two separate Amended Informations, Dr. Joel C. Mendez was
charged with violation of Section 255 of R.A. No. 8424 for his
failure to file his income tax return (ITR) with the Bureau of Internal
Revenue for the taxable year 2002 and 2003 amounting to
P1,522,152.14 and P2,107,023.65, respectively, exclusive of
penalties, surcharges, and interest. Mendez pleaded not guilty to the
crimes charged.
● Based on a confidential letter-complaint against Mendez for the
alleged non-issuance of official receipts for services rendered, a
Letter of Authority dated November 8, 2004 was issued for the
examination of book of accounts and other accounting records of
Mendez for the period covering taxable years 2001, 2002, and 2003.
However, Mendez failed to submit the required documents; thus a
Second Letter-Notice and Final Request for presentation of required
documents were issued and received on November 24, 2004 and
January 11, 2005, respectively.
● A perusal of the tax records reveals that Mendez did not file his
income tax returns for 2001 and 2002, and under-declared his
income tax return in 2003.
● In his defense, Mendez alleged that he was not personally aware on
the letters served on him, and he was only made aware of its
existence sometime in late February 2005 when the BIR personnel
went to his office inquiring about said notice since Richard Bianan,
who was entrusted with all the documents and records in relation to
his business, deliberately concealed these notices from him to avoid
discovery that Bianan has not been remitting or paying to the BIR
sums of money which Mendez had entrusted to him to pay his taxes.
● The CTA Second Division found Mendez guilty beyond reasonable
doubt of violation of Section 255 of the NIRC of 1997. A motion of
reconsideration was filed by Mendez which was subsequently
dismissed.
Issue(s)/Ruling:
1. Whether or not Dr. Mendez is guilty of tax evasion.
The elements of violation of Section 255 are as follows: 1) That the
accused is a person required to make or file a return; 2) That the accused failed
to make or file the return at the time required by law; and 3) That the failure to
make or file the return was willful.
In addition, the prosecution presented testimonial and documentary
evidence to prove that Mendez spent a large amount of money on
advertisements, purchases of vehicles, rents, and foreign travels. Said amount
used for such purchases and expenditures came from his income earned from
the practice of his profession through the operation of his business in 2002.
Moreover, Mendez has no record of filing of the required ITR for 2002 with
any of the revenue district offices of the BIR.
Being a doctor and a businessman, Mendez ought to know and
understand all the matters concerning his practice and business. This includes
knowledge and awareness of his tax obligations.
Main point in the book: While the accused is guilty beyond
reasonable doubt for violation of Section 255, this court will not impose the
alleged tax liabilities, considering that there was no assessment issued against
the accused. The computations presented by the prosecution to prove civil
liabilities may not be used because the BIR did not follow the assessment
procedures provided for in the Tax Code, and the civil liabilities for the non-
payment of tax may not be determined and imposed.
84. REPUBLIC OF THE PHILIPPINES VS. PEDRO B. PATANAO
G.R. NO. L-22356, JULY 21, 1967
● In the complaint filed by the Republic of the Philippines, through the
Solicitor General, against Pedro B. Patanao, it is alleged that
defendant was the holder of an ordinary timber license with
concession at Esperanza, Agusan, and as such was engaged in the
business of producing logs and lumber for sale during the years
1951-1955; that defendant 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; that in an
examination conducted by the Bureau of Internal Revenue on
defendant's income and expenses for 1951-1955, it was ascertained
that the sum of P79,892.75, representing deficiency; income taxes
and additional residence taxes for the aforesaid years, is due from
defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with
enclosed income tax assessment to the defendant requiring him to
pay the said amount; that notwithstanding repeated demands the
defendant refused, failed and neglected to pay said taxes; and that
the assessment for the payment of the taxes in question has become
final, executory and demandable, because it was not contested before
the Court of Tax Appeals in accordance with the provisions of
section 11 of Republic Act No. 1125.
● Defendant moved to dismiss the complaint on two grounds, namely:
(1) that the action is barred by prior judgment, defendant having
been acquitted in criminal cases Nos. 2089 and 2090 of the same
court, which were prosecutions for failure to file income tax returns
and for non-payment of income taxes; and (2) that the action has
prescribed.
● After considering the motion to dismiss, the opposition thereto and
the rejoinder to the opposition, the lower court entered the order
appealed from, holding that the only cause of action left to the
plaintiff in its complaint is the collection of the income tax due for
the taxable year 1955 and the residence tax (Class B) for 1953, 1954
and 1955. A motion to reconsider said order was denied, whereupon
plaintiff interposed the instant appeal, which was brought directly to
this Court, the questions involved being purely legal.
Issue(s)/Ruling:
1. Whether or not respondent’s acquittal in a criminal case bars the
collection of tax penalties. NO.
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. The only civil remedies provided, for the collection of income
tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are
distraint of goods, chattels, etc. or by judicial action, which remedies are
generally exclusive in the absence of a contrary intent from the legislator.
(People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra,
G.R. Nos. L-17177-17180, December 28, 1964) Considering that the
Government cannot seek satisfaction of the taxpayer's civil liability in a
criminal proceeding under the tax law or, otherwise stated, since the said 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. It is error to hold, as the lower court has held, that the
judgment in the criminal cases Nos. 2089 and 2090 bars the action in the
present case. The acquittal in the said criminal cases cannot operate to
discharge defendant appellee 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. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174,
April 20, 1962).
 Regarding prescription of action, the lower court held that the cause
of action on the deficiency income tax and residence tax for 1951 is barred
because appellee's income tax return for 1951 was assessed by the Bureau of
Internal Revenue only on February 14, 1958, or beyond the five year period of
limitation for assessment as provided in section 331 of the National Internal
Revenue Code. Appellant contends that the applicable law is section 332 (a) of
the same Code under which a proceeding in court for the collection of the tax
may be commenced without assessment at any time within 10 years from the
discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in
the appellee's income tax return for 1951, was discovered on February 14,
1958. By filing a motion to dismiss, appellee hypothetically admitted this
allegation as all the other averments in the complaint were so admitted. Hence,
section 332 (a) and not section 331 of the National Internal Revenue Code
should determine whether or not the cause of action of deficiency income tax
and residence tax for 1951 has prescribed. Applying the provision of section
332 (a), the appellant's action instituted in court on December 7, 1962 has not
prescribed.
85. MARIA B. CASTRO VS. THE COLLECTOR OF INTERNAL
REVENUE
G.R. NO. L-12174, APRIL 26, 1962
● On November 22, 1947, Criminal Case No. 4976 was filed against
her in the Court of First Instance of Manila for violation of Section
4, in connection with Section 8, of the War Profits Tax Law, for
allegedly defrauding the Republic of the Philippines in the total
amount of P1,048,687.76. The criminal action, was filed at the
instance of respondent and simultaneous with the filing of said
action, the petitioner received for the first time the notice of
assessment dated November 19, 1947 by registered mail from the
Collector of Internal Revenue. The said letter of demand was based
on the report of Supervising Examiner Felipe Aquino of the Bureau
of Internal Revenue, who recommended that the petitioner be
assessed and made to pay the sum of P1,048,687.76 as war profits
tax and surcharge.
● On February 9, 1948, the motion of petitioner to quash the
information was denied by the Court of First Instance of Manila. At
the scheduled hearing of the case on the merits on March 7, 1949,
the City Fiscal of Manila manifested in open court that after a re-
investigation of the case "the amount of the tax due and for which
the accused stands charged for evading payment is only about
P700,000.00, instead of P1,048,687.76 as stated in the information."
However, at the continuation of the hearing of the case on February
22, 1950, Supervising Examiner Felipe Aquino of the Bureau of
Internal Revenue, who testified for the prosecution, declared in
answer to questions propounded by the City Fiscal "that as a result of
a detailed reinvestigation conducted by his office, it was found out
that no war profits tax was due from the accused in connection with
the present case." Whereupon, City Fiscal Angeles moved for the
dismissal of the case. Finding the petition for dismissal to be well
taken, the Court of First Instance of Manila, in an Order dated
February 22, 1950, dismissed Criminal Case No. 4976 against
petitioner.
● After the dismissal of the Criminal Case, another report was
submitted by the same Supervising Examiner Felipe Aquino to his
superiors wherein he changed his previous stand taken before the
Court of First Instance of Manila, on the basis of which report
another letter of demand for P2,008,293.53 as war profits tax was
issued against petitioner on January 24, 1950. Barely one month
thereafter, another report was again submitted by the same
Supervising Examiner Felipe Aquino to his superiors, on the basis of
which another letter of demand for war profits tax was issued by
respondent against petitioner for the sum of P2,229,976.94 or an
increase of P221,683.31 over that assessment of January 24, 1950.
The case was again referred to the City Fiscal's Office for another
prosecution based on the earlier demand but the same was again
dropped.
Issue(s)/Ruling:
1. Whether or not respondent’s acquittal in a criminal case bars the
collection of tax penalties. NO.
The third main ground of appeal is predicated on the acquittal of
petitioner in case No. 4976 of the Court of First Instance of Manila, wherein
she was criminally prosecuted for failure to render a true and accurate return of
the war profits tax due from her, with intent to evade payment of the tax. She
contends (Assignments of Error II to IV) that the acquittal should operate as a
bar to the imposition of the tax and specially the 50% surcharge provided by
section 6 of the War Profits law (R.A. No. 55), invoking the ruling in Coffey v.
U.S., 29 L. Ed. 436.
With regard to the tax proper, the state correctly points out in its
brief that the acquittal in the criminal case could not operate to discharge
petitioner from the duty to pay the tax, since that duty is imposed by statute
prior to and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability derived
from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that
rendered the Coffey decision has subsequently pointed out that additions of
this kind to the main tax are not penalties but civil administrative sanctions,
provided primarily as a safeguard for the protection of the state revenue and to
reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer's fraud (Helvering vs. Mitchell, 303 U.S. 390, 82
L. Ed. 917; Spies vs. U.S. 317 U.S. 492). This is made plain by the fact that
such surcharges are enforceable, like the primary tax itself, by distraint or civil
suit, and that they are provided in a section of R.A. No. 55 (section 5) that is
separate and distinct from that providing for criminal prosecution (section 7).
We conclude that the defense of jeopardy and estoppel by reason of the
petitioner's acquittal is untenable and without merit. Whether or not there was
fraud committed by the taxpayer justifying the imposition of the surcharge is
an issue of fact to be inferred from the evidence and surrounding
circumstances; and the finding of its existence by the Tax Court is conclusive
upon us. (Gutierrez v. Collector, G.R. No. L-9771, May 31, 1951 ; Perez vs.
Collector, supra).
86. PEOPLE VS. ESTELITA DELOS ANGELES
CTA CRIM. CASE NO. O-027, NOVEMBER 25, 2009
● Estelita Delos Angeles was charged with violation of Section 255, in
relation to Sections 253 (d) and 256 of the Tax Code of 1997, as
amended by R.A. 8424, for feloniously failing and refusing, and still
failing and refusing to pay her internal revenue tax liabilities
amounting to P3,614,971.24. A warrant of arrest was issued against
her. She later voluntarily surrendered and posted a cash bailbond in
the amount of P10,000 for her provisional liberty. She pleaded not
guilty to the charge.
● Josephine Meron, a revenue examiner, said that she sent a letter
request to Estelita for the presentation of records, and that her
proposed assessments amounted to a total of P1,507,457.85 which
represents the deficiency Value Added Tax, Withholding Tax on
Compensation, and the Expanded Withholding Tax.
● Josephine also said that Eselita did not file any VAT return with the
BIR; that she did not enter in her books of accounts any salary or
wage expenses which must be subjected to withholding tax but
instead entered said items on a different account.
● In her defense, Estelita contested that she was a plain housewife
attending to her blind husband for the last 20 years; and that the
Repletion International Trading is the company of her daughter,
Analene, and her husband Steven Hoo; that her daughter asked her to
register Repletion International Trading under her name as a sole
proprietorship; that although the business is registered under her
name, it was solely operated and ran by Analene and Steven Hoo.
Issue(s)/Ruling:
1. Whether or not respondent should be held liable for the crime
charged. NO.
One of the elements of the violation of Section 255 of the Tax Code
was that the failure to pay such tax was willful. In this case, the Court finds
that the prosecution’s evidence is insufficient to prove that the accused
intentionally failed to pay her tax obligations.
Upon learning that there was a case filed by the BIR against her,
accused immediately responded to the subpoena issued by the Office of the
City Prosecutor of Manila, and offered to settle her tax obligations and tried to
avail of the tax amnesty program of the BIR. These voluntary acts negate the
deliberate or voluntary intention on her part not to pay her tax liabilities.
2. Whether the violation of the Tax Code is malum prohibitum so as to
disregard Estelita’s lack of intent in prosecuting her for the
aforementioned crime. NO.
The index of whether or not a crime is malum prohibitum is not its
form, that is, whether or not it is found in the Revised Penal Code or in a
special penal statute, but the legislative intent that underlies its continuing
existence as part of the law of the land (People v. Quijada, 259 SCRA 269).
Considering that under Section 255 of the NIRC, willful or deliberate intent to
violate the law must be present in order to be liable under said Section, then
the same cannot be considered as malum prohibitum.
3. Whether Estelita is civilly liable despite her acquittal from the
criminal case. YES.
Pursuant to Section 11 that states: “In cases within the jurisdiction of
the Court, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall be deemed jointly
instituted in the same proceeding. The filing of the criminal action shall
necessarily carry with it the filing of the civil action. No right to reserve the
filing of such civil action separately from the criminal action shall be allowed
or recognized.” Hence, both criminal and civil actions shall be at all times
simultaneously institute with, and jointly determined in the same proceeding
by the CTA.
Corollary thereto is the rule that an accused acquitted of a criminal
charge may be held civilly liable. In this case, considering that the accused
failed to protest the tax assessment within thirty (30) days, the assessment had
become final, executory and demandable.
87. PEOPLE OF THE PHILIPPINES VS. MALLARI
CTA CRIM. CASE NOS. A-1 AND A-2, SEPTEMBER 4, 2006
THIS CASE COULD NOT BE FOUND AT ALL IN THE CTA
WEBSITE.
88. PEOPLE OF THE PHILIPPINES VS. BENJAMIN G. KINTANAR
CTA CRIM. CASE NO. O-30, AUGUST 11, 2010
● Benjamin G. Kintanar is charged with the crime of willful failure to
file his income tax return in violation of Section 255 of the Tax
Code. He pleaded not guilty to the crime charged.
● According to the prosecution witness, Benjamin failed to comply
with the Letter of Authority and a Final Notice of Assessment which
required him to submit his financial records. Moreover, the filing of
the criminal charge was made only when the accused failed to attend
to the letters and notices of the BIR. Another prosecution witness,
Atty. Christina C. Barroga (who was the Assistant Revenue District
Officer of Paranaque City) issued a certification which substantially
states that the accused did not file his income tax returns for the
years 1999 to 2001.
● In his defense, Benjamin said that he is engaged in business as a
distributor or an independent contractor of Forever Living Products
Philippines, Inc. (FLPPI); that he earned income by way of
commissions on the products sold by him and by the people he
recruited; and that the commissions he received are net of
withholding tax. He also said that he engaged verbally Marina
Mendoza (a BIR employee and a family friend) to prepare his tax
returns to which he would only sign thereon. As proof of such
engagement, Benjamin showed a BPI Check in the amount of
P120,000 drawn from his personal account which was payable to
Marina. Benjamin also said that he merely browsed the ITRs for the
years 1999 to 2001 which were allegedly prepared by Marina before
he affixed his signature.
Issue(s)/Ruling:
1. Whether accused Benjamin is guilty beyond reasonable doubt for
willful failure to file his income tax return for the taxable year 1999
in violation of Section 255 of the Tax Code (the National Internal
Revenue Code). YES.
Under Section 255, there are three (3) essential elements: 1) Accused
is a person required by law to make or file a return; 2) The accused failed to
make or file the return at the time required by law; and 3) Failure to make or
file the return was willful.
In this case, Benjamin, as a Filipino citizen residing in the
Philippines and duly engaged in the business as a distributor selling FLPPI
products in the Philippines, is required under the law to make and file a
declaration of his estimated income for the current taxable year on or before
April 15 of the same taxable year. Moreover, the certification attesting the fact
that Benjamin has no record on file for the years 1999 to 2001 was
corroborated by Atty. Christina C. Barroga that the accused did not file any
income tax return for the same years.
Finally, Benjamin’s failure to file his return was willful. In sum, he
maintains that he merely relied on his accountant (Ms. Mendoza) in the
preparation and filing of the ITR. Hence, the alleged non-filing of said ITR
was not voluntary and willful since he simply fell prey to the
misrepresentations made by said accountant. The Court was not convinced of
Benjamin’s defense because it took note of the inconsistencies and
irregularities surrounding the existence, execution, and other circumstance
relative to the filing of the purported 1999 ITR. For example, he himself
admitted that he resided in Paranaque City, but the address in the subject ITR
indicated that he resided in Lagro, Novaliches, Quezon City. These
inconsistencies and irregularities in the foregoing documentary evidence
presented by Benjamin implies manifest and deliberate acts on his part to
conceal willful non-filing of the ITR.
Even assuming arguendo that Benjamin merely relied on the
representations made by his alleged accountant, his deliberate refusal to verify
the contents of these documents and inquire on the authenticity thereof under
the circumstances obtaining in this case constitutes “willful blindness” on his
part. Willful blindness is the deliberate avoidance of knowledge of a crime,
especially by failing to make a reasonable inquiry about suspected wrongdoing
despite being aware that it is highly probable. It creates an inference of
knowledge of the crime in question.
In this instant case, a reasonable and prudent taxpayer like Benjamin
would naturally suspect some wrongdoing or irregularity in the preparation
and filing of his ITY by a mere reading of the documents furnished by his
alleged accountant. A perusal of these documents readily reveals that it does
not bear the official dry seal of the BIR. The purported ITR and undated
certification for 1999 reflect two (2) different addresses; and the two (2)
Revenue Districts, which does not refer to the correct venue for purposes of
filing his ITR, and conducting verification and investigation of the said ITR.
Moreover, no BIR receipts were presented to show that the subject ITR was
indeed filed.
89. PEOPLE OF THE PHILIPPINES VS. GLORIA V. KINTANAR
CTA EB CRIM. NO. 006 (CTA CRIM CASE NOS. O-033 & O-034),
DECEMBER 3, 2010
● Spouses Benjamin Kintanar and Gloria Kintanar were distributors or
independent contractors of Forever Living Products, Phil. Inc.
(FLPPI). It all began when the Investigation Division of the BIR
received confidential information of an alleged tax evasion scheme
of the Spouses Kintanar. As a result thereof, BIR issued a Letter of
Authority (LOA) to examine the books of accounts and other
accounting records for taxable years 1999 to 2002. The LOA was
received by Mr. Kintanar on April 3, 2003. Gloria failed to submit
the required documents.
● Thereafter, several notices and a subpoena were sent to her by the
BIR but she remained uncompliant.
● On August 31, 2004, Benjamin filed a protest to the Letter of
Demand and Assessment notices sent by the BIR. Photocopies of the
spouses’ joint income tax returns for the years 2000-2002 were
attached to the protest.
● In response thereto, the BIR required the spouses to submit
additional documents within 60 days. Again, the spouses failed to
comply with the said request; consequently, the assessment and the
demand letter became final, executory and demandable.
● The prosecution proved that Gloria Kintanar failed to file her ITRs
for the years 1999-2001 and found her liable for deficiency income
taxes arising from income earned from FLPPI.
● Gloria testified that she filed her ITRs for taxable years 2000-2001.
She denied having willfully, unlawfully and feloniously failed to file
her ITR on said years as she has no personal knowledge of the actual
filing of the said returns because it was her husband who filed the
 ITRs. Her husband on the other hand testified that he filed the ITRs
for the years 1997-2004 through their hired accountant who prepared
and filed their returns. Because he relied upon his accountant, he
only browsed the returns; therefore, he has no knowledge to the
amount stated thereon and to the address which their accountant filed
their returns to.
● The Former Second Division found Gloria Kintanar guilty beyond
reasonable doubt of violation of Section 255 of the NIRC of 1997.
Hence, Gloria Kintanar filed this instant petition before the CTA En
Banc.
Issue(s)/Ruling:
1. Whether accused Gloria Kintanar is guilty beyond reasonable doubt
for willful failure to file his income tax return. YES.
Under Section 255, there are three (3) essential elements: 1) Accused
is a person required by law to make or file a return; 2) The accused failed to
make or file the return at the time required by law; and 3) Failure to make or
file the return was willful.
In this case, Gloria is duty bond to make or file a return under
Section 51 of the NIRC. Considering that she earned a substantial income as
distributor of FLPPO; she is therefore required to make or file her annual
income tax return. Moreover, Gloria had no record that she filed the required
ITRs within the reglementary period to any of the Revenue District Offices of
the BIR. The only record the BIR has was when she was registered as a one-
time transaction taxpayer for capital gains and documentary stamp in Cavite.
Moreover, in this case, Gloria’s sole reliance on her husband to file their ITRs
is not a valid reason to justify her non-filing. Being an experienced
businesswoman and having an independent distributor of FLPPI since 1996,
she ought to know and understand all the matters concerning her business.
This includes knowledge and awareness of her tax obligation in connection
with her business. This includes knowledge and awareness of her tax
obligation in connection with her business. Such neglect or omission is
tantamount to deliberate ignorance or conscious avoidance.
90. PEOPLE OF THE PHILPPINES VS. CHING LAK
G.R. NO. L-10609, MAY 23, 1958
● On March 31, 1954, Ching Lak was charged with having violated
Section 5(b) in connection with Section 8 of R.A. No. 55 for his
alleged willful failure and refusal to pay the war profits taxes due
from him in the total amount of P33,643.651. Ching Lak pleaded not
guilty to the crime charged. He filed a motion to quash the
information on the ground that the criminal action or liability
charged therein had been extinguished by prescription, and the court,
after proper hearing, sustained the motion.
● Ching Lak filed his motion to quash on the ground that since
February 7, 1948 up to the filing of the information on March 31,
1954, more than five years have elapsed, contending that if he had
ever violated R.A. No. 55, that violation must have taken place
either on February 7, 1948, as alleged in the information, or on April
30, 1947, which was the last day of the sixth month following the
approval of said Act within which the tax in question should have
been paid, otherwise the defendant would incur the penalty
prescribed by Section 8 of said Act.
Issue(s)/Ruling:
1. Whether the crime charged against Ching Lak has already
prescribed.
Republic Act No. 55 is a special law, and therefore, the prescriptive
law applicable to the instant case should be Act 3326; as amended by Act
3585, it being a well-known principle in statutory construction that in case of
conflict between a special law and a general law, the former should govern.
Anent the theory that in the present case the period of prescription
should commence from the time the case was referred to the Fiscal's Office,
suffice it to state that such theory is not supported by any provision of law and
we need not elucidate thereon. Moreover, the record of the case shows that on
May 22, 1947, Collector Bibiano L. Meer of the Bureau of Internal Revenue
assessed the war profits tax in question against the accused and fixed June 15,
1947 as the date of its payment without the herein accused paying it, and,
according to the information, the accused, on February 17, 1948, willfully and
unlawfully failed to pay said tax. Therefore, the violation of law in question
was known to the prosecution, it was not concealed, and consequently it
cannot now be pretended that same has not yet prescribed because it was not
discovered until the papers of the case were sent to the Fiscal's Office of the
City of Manila. Certafaly appellant had knowledge of the illegal acts of the
accused even before February 17, 1948, and that knowledge precludes the
appellant from evading the operation of the Statute of Limitations.
The Solicitor General contends, however, that at the behest of
appellee, the Internal Revenue examiners assigned to the case submitted an
amended assessment of February 25, 1950 and, therefore, the prescriptive
period for violation of the war profits tax law should be considered as having
been suspended up to the aforementioned date, because up to that time it was
legally impossible for appellant to charge appellee criminally in view of the
fact that the war profits tax was as yet undetermined. Citing Lattimore vs. U.S.
(12 F. Supp. 895): "It is important to recognize that the ordinary period of
limitation may be extended or suspended not only by what has come to be
recognized as a 'waiver' but also by the acts of the taxpayer involved. It has
been held, for example, that where the taxpayer has strenuously objected to
collection of the tax arid has urged the Commissioner to withhold collection
pending the adjustment of the controversy between him and the Commissioner
and where the Commissioner yielded to the request and postponed collection
until after the statute had run on collection, conferences being held in the
interim, the taxpayer can not claim that the collection was not timely."
We have carefully examined this Lattimore case and we find it
completely inapplicable to the case at bar, for it refers to civil action for
collection of taxes and not to criminal prosecution for violation of law for non-
payment of taxes. We hold that a petition for reconsideration of 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.
91. People vs. Tierra
Facts: Defendant Ildefonso Tierra was, during the years 1946 up to 1949,
engaged in the general merchandise business. For the years 1946, 1947 and
1949, he filed his income tax returns, declaring in full all his gross sales, and
paid income taxes due thereon in the respective sums of P2,557.54, P13,097.63
and P2,980.00. Said returns were later verified by Valerians Robles, an income
tax examiner of the BIR. And on December 16, 1950, examiner Robles
reported his finding, that appellant had filed false and fraudulent returns for
said by overstating his purchases for 1946, 1947 and 1949, and over declaring
his expenses, for 1947, thereby reducing the, net income subject to tax.
On December 29, 1950, Income Tax Assessment Notices were sent to the
appellant, giving him up to January 29, 1951 to pay the aforementioned
deficiency income taxes plus surcharges. Appellant protested against the
assessments. On February 26, 1951, the CIRreiterated the demand for payment
by the appellant. Up to now, nothing was paid by, the appellant on account of
the above claims of the government. Four separate informations were filed
against this defendant on December 12, 1955.
Issue: Whether the criminal actions against appellant had already prescribed
when the informations were filed
Ruling: No. In a criminal action that was instituted against the taxpayer for
having filed a false and fraudulent return and for failure to pay taxes, the
subsequent satisfaction of the tax liability by payment or prescription will not
operate to extinguish taxpayer’s criminal liability. Whether under the Tax
Code or RPC, the satisfaction of civil liability is not one of the grounds for
extinction of criminal action.
The failure of the government to enforce by appropriate civil remedies the
collection of taxes does not detract from its right criminally to prosecute
violations of the Tax Code.
92. People vs. Balagtas
Facts: The information filed by the government on August 17, 1954, alleged
that the said appellant failed to pay his income taxes for the years 1946, 1947,
1948 and 1949, in the total amount of P10,431.22. Upon his plea of guilty, he
was sentenced to pay a fine of P300, with subsidiary imprisonment in case of
insolvency, to indemnify the Republic the sum of P10,431.22, also with
subsidiary imprisonment in case of insolvency. Despite appellant's plea of
guilty, he appealed on the ground that the lower court erred (1) in not holding
that the violation alleged in the information has already prescribed, and (2) in
imposing subsidiary imprisonment relative to his civil liability.
Issue: Whether the court erred in imposing subsidiary imprisonment relative to
appellant’s civil liability
Ruling: If a person is convicted for violation of any of the provisions of the
Tax Code has no property with which to meet the fine imposed upon him by
the court, or is unable to pay such fine, he shall be subject to subsidiary
personal liability.
93. Collector v University of Sto Tomas (596)
Facts: During the period from January 1, 1948- June 30, 1950, UST paid on
its gross receipts derived from its printing and binding jobs for the University,
the aggregate amount of P13,590.03, representing the 2% tax on its gross
receipts during the period in question.
On October 17,1950, UST requested in writing from the respondent the refund
of the sum of Php 8,293.31, on account of the following:
a. The amount of Php 359,972.45 paid by the other departments to the
UST Press was for the purposes of accounting only and does not
legally constitute gross receipts subject to the percentage tax
b. The printing and binding of the annuals THOMASIAN and
VERITAS fall under the exception provided for in Section 191 in
relation to Section 183(a) of the Tax Code
CIR: UST’s claim for refund in the sum of Php 8,293.31 is denied; also, the
amount of Php 2,452.04, representing deficiency percentage tax and surcharge
on the undeclared receipts derived from the printing and binding of the subject
annuals, is hereby assessed and demanded from UST
CTA: Modified the decision of the CIR
a. UST’s claim for refund to the extent of Php 5, 842.27 is DENIED,
the same being BARRED BY PRESCRIPTION
b. The deficiency tax assessment of Php 2, 451.04 for percentage taxes
and surcharges is RECOGNIZED, but the amount is DEEMED
PAID, BY WAY OF RECOUPMENT, to the extent of the amount
of Php 2, 451.04 which UST erroneously paid for the period from
January 1948 to Jun 1950
Issue: Whether it was proper for the CTA to apply the doctrine of recoupment
Ruling: No. The doctrine of equitable recoupment means that when a refund
of a tax illegally or erroneously collected or overpaid by a taxpayer is barred
by the statute of limitations and a tax is being presently assessed against said
taxpayer, said present tax may be recouped or set-off against the tax the refund
of which has been barred. This doctrine, however, was rejected by the SC,
saying that it was not convinced of the wisdom and proprietary thereof, and
that it may work to tempt both the collecting agency and the taxpayer to delay
and neglect heir respective pursuits of legal action within the period set by law.
The same thing would have been true where the Government has failed to
collect a tax within the period of limitation and said collection is already
barred and the taxpayer has to its credit a tax illegally or erroneously collected
or overpaid whose refund is not yet barred the Government need not make
refund of all the tax illegally or erroneously collected but it may set off against
it the tax whose collection is barred by the statute of limitation.
Book: If the Commissioner is convinced that the taxpayer is criminally liable,
he should institute criminal proceedings and not arbitrarily impose a penalty.
94. People v Typingco (598)
Facts: Joseph Typingco is the alleged President and authorize officer of Fiesta
Pack, Inc. He was charged for violation of Section 255 (Failure to file return
and to supply correct information), in relation to Sections 253 (d) [Officers of
corporation on whom penalties may be imposed] and 256 (Penalty liability of
corporations) of the Tax Code, under Information filed by the Asst. City
Prosecutor on March 3, 2009.
On September 6, 2001, a letter of authority for 2000 was issued by the BIR.
The investigation led to the issuance of PAN (Pre-Assessment Notice) for
deficiency income tax, EWT, and VAT. FAN (Final Assessment Notice) and
demand letters were issued on June 28, 2004. Fiestapack purportedly failed to
pay despite the demand and until the above assessments became final; hence,
this case.
Apparently, to be liable for the alleged crime, the following elements have to
be proven by the prosecution beyond reasonable doubt : (a) the corporation
taxpayer is required to pay tax and it failed to pay such tax at the time required
by law; (b) Typingco is the president general manager, branch manager,
treasurer, officer-in-charge or employee responsible for the violation of the
corporate taxpayer; and (c) Typingco willfully fails to pay the corporate taxes.
Issue: Whether the pre-assessment notice made by the BIR was valid to satisfy
the required element of “willfulness”in this case
Ruling: No. An act or omission is willfully done, if done voluntarily and
intentionally and with specific intent to fail to do something the law requires to
be done. Undoubtedly, it becomes necessary for the prosecution to prove
beyond reasonable doubt that Typingco, in representation of Fiestapack,
received the assessment notices or was aware of its tax liabilities in order to
impute upon him the required elements of “willfulness”in this case. The BIR
witness testified that PAN was mailed by ordinary mail and the FAN, by
registered mail. Finally, considering that the prosecution failed to prove to
authenticate the signature, to show that the person who signed the ITR and
who received the PAN was really the authorized Typingco, the assessment
made by the CIR is void. A void assessment bears no fruit; hence no civil
liability arises in this case.
95. People v Paz Abad Santos (599)
Facts: Accused Paz Abad Santos is charged for violation of Sec. 49(b) now
Sec. 106(A), Secs. 57(B), 175 and 24(B)(2) of the 1997 Tax Code, allegedly
due to her failure to pay corporate tax liabilities, for the period 2005. The CTA
ruled that a determination of probable cause cannot be made when the
evidence do not substantiate the accused to have perpetrated the crime.
Issue: Whether the actions filed against the defendant Abad Santos were
sufficiently made
Ruling: No. Notably, these tax liabilities are corporate tax liabilities of
Vicente Singson Encarnacion Corporation, but it is misleadingly stated therein
that "the above-named accused, did then and there willfully, unlawfully and
feloniously fail and refused to fail tax liabilities" without stating that these are
corporate tax liabilities. Also, the basis for the assessment of deficiency taxes
for taxable year 2005 against Vicente Singson-Encarnacion Corporation was
not attached to the records of this case. It is alleged that said accused is being
charged " in her capacity as Treasurer of Vicente Singson-Encarnacion
Corporation", the supposed corporate taxpayer in the instant case. The
supporting documents attached to the records of this case do not substantiate or
prove that accused Paz S. Abad Santos is indeed the Treasurer and/or
responsible officer of Vicente Singson-Encarnacion Corporation. All the
foregoing considered, the Court finds difficulty in making a judicious
determination of the existence of probable cause to hold accused liable for the
commission of the offense charged herein. Case dismissed.
96. People v Benjamin Hian Tek Co
Facts: The prosecution filed an Information, charging accused for violation of
Section 255 in relation to Sections 220 and 56(b) of the NIRC. In the
Resolution dated February 22, 2012, this Court ordered the prosecution: (1) to
submit the entire records of the preliminary investigation conducted, including
the affidavit-complaint, and (2) to show appropriate authority to file the
Information. Subsequently, the Judicial Records Division of this Court issued a
letter informing the Exec. Clerk Court III that counsel for the prosecution
failed to comply with the said Resolution.
Issue: Whether the accused should be held liable
Ruling: No. Without doubt, it is not required that the complete or entire
records of the case during the preliminary investigation be submitted to and
examined by the judge, to determine the existence of probable cause. What is
required, rather, is that the judge must have sufficient supporting documents
(such as the complaint, affidavits, counter-affidavits, sworn statements of
witnesses or transcripts of stenographic notes, if any) upon which to make his
independent judgment or, at the very least, upon which to verify the findings
of the prosecutor as to the existence of probable cause. After a circumspect
perusal of the documents attached by the prosecution on the Information, We
find the non-existence of probable cause.
The prosecution failed to present any supporting document or sworn statement
of witnesses which can establish the BIR's finding of "Unrecorded Gain on
Sale by way of Dacion En Pago " against the accused. Such circumstance is
material for the determination of probable cause because that would ascertain
that accused was indeed required to pay the subject tax.
97. People v Elisoe
Facts: Informations were filed against the accused Eliseo Co for violations of
Sec. 254 (Attempt to Evade or Defeat); Sec. 267 (Declaration under Penalties
of Perjury); Sec. 257 (Penal Liability for Making False Entries, Records).
Accused allegedly filed with the BIR a false and fraudulent Income Tax
Return (ITR) for taxable year 1998, wherein he allegedly declared therein a
lower income in the total amount of P9,247,410.40, derived from his business
under the name of "Divisoria Dried Fish Center”. However, he contends that
these consolidated cases should be dismissed on the ground that the
prosecution failed to prove the identity of the accused; and that there is
insufficient evidence to prove the income that was supposedly declared by the
accused in 1998.
Issue: Whether the accused should be liable for the crimes charged against
him
Ruling: No. In evaluating the above pieces of evidence, the conclusions that
can be derived therefrom are: the BIR requested accused Eliseo Co to produce
his books of account, that he received certain amounts from the Bureau of
Corrections, and that the BIR computed his tax deficiencies. But then, none of
the said pieces of evidence can show or indicate that indeed, accused Eliseo Co
recorded a different amount of income in his Income Tax Return, which
constitutes the very core of the offenses charged against accused. The
prosecution argues that the contents of the ITR can be proven by the
testimonies of its witnesses. However, testimonial evidence without admissible
documents to corroborate the same, is not enough. Let it be noted that these
cases are criminal cases, and the liberty and property of the accused are at
stake. Likewise, it is a basic rule of evidence that between documentary and
oral evidence, the former carries more weigh
It was also held that the claim of the defense that the prosecution failed, in the
course of the presentation of the prosecution's evidence, to have a competent
witness positively identify accused, Eliseo Co, as the same person charged in
the Informations in these criminal cases, and as the person who committed the
offenses since during the arraignment, the prosecution cannot ascertain
whether the Eliseo Co is the person listed in the Information, hence, they
denied it.
98. People v Medina
Facts: A perusal of the Information filed in this case shows that there is no
specified amount of
taxes and fees claimed. This Court dismissed the case on the ground that the
jurisdiction is vested with the regular Courts pursuant to Sec. 7 of RA No.
9282, which took effect on April 23, 2004, amending
RA No. 1125 [the law creating the Court of Tax Appeals]
Issue: Whether or not the CTA’s dismissal of the case was proper
Ruling: Yes. Sec. 7 of RA No. 9282 provides:
Section 7. Jurisdiction. - The CTA shall exercise:
(a) X X X
(b) Jurisdiction over cases involving criminal offenses as
herein provided :
(1) Exclusive original jurisdiction over all criminal
offenses arising from violations of the BIRC or Tariff and
Customs Code and other laws administered by the BIR or
the BOC: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of
taxes and fees , exclusive of charges and penalties,
claimed is less than One million pesos (P1 ,000,000.00) or
where there is no specified amount claimed shall be tried
by the regular Courts and the jurisdiction of the CTA shall
be appellate. x x x "
The CTA has no jurisdiction. The jurisdiction is with the regular
courts and the case should be dismissed by the CTA. Pursuant to the
aforequoted provision , the CTA has exclusive orig inal jurisdiction
over all criminal offenses arising from violations of the National
Internal Revenue Code or the Tariff and Customs Code ,where the
principal amount of taxes and fees , exclusive of charges and
penalties, claimed is P1 ,000,000.00 or more. Where the principal
amount of taxes and fees , exclusive of charges and penalties ,
claimed is less than P1 ,000,000.00 or where there is no specified
amount claimed, the same shall be tried by the regular Courts and
the jurisdiction of the CTA shall be appellate.
99. People v Marungo
(Case cannot be found)
Book: The accused are charged in an Information for violation of Section 3602
of the Tariff and Customs Code in relation to Article 172 of the RPC. On April
18, 2011 and on May 25, 2011, the CTA promulgated resolutions ordering the
State Preosecutors to submit clear and legible copies; otherwise, the case shall
be dismissed for failure to comply with a lawful order of the Court. Records
show that despite notice and receipt of the resolution, the prosecutors failed to
comply with the resolution; hence, case was dismissed.
100. People v Malic (600)
Facts: An Information was filed against Benjamin Valic for violation of
Section 3602 of the Tariff and
Customs Code of the Philippines, in relation to Article 172 of the RPC. It was
alleged that Briones and Banga, being the general manager and customs
representatives, respectively of Skyrider, in conspiracy with Benjamin Valic of
BP Valic Brokerage, filed before the BOC of the aforesaid port, Import Entry
No. 95-2001 covering 9,667 prilled urea in bulk with the equivalent duty in the
amount of P1,829,496.00, by means of fraudulent statement or declaration
making it appear that the subject shipment is exempt from payment of duties
and taxes on the basis of fraudulent certificate of eligibility purportedly issued
by the Philippine Carabao Center in favor of Norsk Hydro Philippines, to
avoid payment of rightful duties and taxes.
Issue: Whether or not the accused Valic is guilty as charged for violation of
Section 3602 of the Tariff and Customs Code of the Philippines in relation to
Article 172 of the RPC
Ruling: No. The prosecution failed to prove that there was an item imported in
the amount stated in the Information. The original of the Certificate of
Eligibility was not presented before the Court.
Considering that the document alleged to have been falsified, viz./ the
Certificate of Eligibility, was not presented before this Court; and considering
further that the exhibit described and offered by the prosecution as Certificate
of Eligibility was denied admission in the Resolution, a determination of
whether such Certificate mentioned in the Information was indeed falsified
would be impossible. Even assuming that the prosecution was able to prove
the existence of the falsified Certificate of Eligibility allegedly utilized in
perpetrating the offense charged, still there was nothing in the evidence
presented by the prosecution that would show that accused Valic was the one
who filed the said Import Entry Declaration No. C-95-2001 and presented the
Certificate of Eligibility before the Bureau of Customs. Thus, the accused has
been acquitted.

101. Ungab vs. Cusi (p.600)
FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana
saplings producer, for allegedly evading payment of taxes and other violations
of the NIRC. Ungab, subsequently filed a motion to quash on the ground that
(1) the information are null and void for want of authority on the part of the
State Prosecutor to initiate and prosecute the said cases; and (2)that the trial
court has no jurisdiction to take cognizance of the case in view of his pending
protest against the assessment made by the BIR examiner. The trial court
denied the motion prompting the petitioner to file a petition for certiorari and
prohibition with preliminary injunction and restraining order to annul and set
aside the information filed.
ISSUE: Is the contention that the criminal prosecution is premature since the
CIR has not yet resolved the protest against the tax assessment tenable?
RULING: No. The contention is without merit. SC ruled that the criminal
action is legally proper where the taxpayer deliberately did not declare his
income from sales of banana saplings. What is involved here is not the
collection of taxes where the assessment of the Commissioner of Internal
Revenue may be reviewed by the Court of Tax Appeals, but a criminal
prosecution for violations of the National Internal Revenue Code which is
within the cognizance of courts of first instance. While there can be no civil
action to enforce collection before the assessment procedures provided in the
Code have been followed, there is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution under the
Code. The protest cannot stop his prosecution for violation of the Tax Code.
102. Commissioner vs. CA and Fortune Tobacco Corp,97 SCRA 199, Feb 6,
1997
(Sorry, I can’t find the case sa e-scra. If i-google ko din, andaming CIR vs.
CAandFortune tobacco corp na lumalabas. If I will check the date, CIR vs.
Alhambra Industries ang lumalabas na case @@)
103. Commissioner vs. Pascor Realty and Development
FACTS: The CIR authorized certain BIR officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in
recommendation for the issuance of an assessment. Commissioner filed a
criminal complaint for tax evasion against PRDC, its president and treasurer
before the DOJ and they received a subpoena. Pascor filed a request for
reconsideration/reinvestigation which the CIR denied prompting the
respondents to elevate the CIR’s decision to the CTA. CIR filed a Motion to
Dismiss on the ground that CTA has no jurisdiction over the subject matter
since no formal assessment has been issued against PRDC. The CTA denied
the Motion stating that the criminal case for tax evasion is already an
assessment. The complaint, more particularly, the Joint Affidavit of Revenue
Examiners Lagmay and Savellano attached thereto, contains the details of the
assessment like the kind and amount of tax due, and the period covered.CA
agreed with the decision of the CTA.
ISSUE: Whether an assessment is necessary before criminal charges for tax
evasion may be instituted.
RULING: NO. The SC reiterated the rule that an assessment is not necessary
before criminal charges can be filed. A criminal charge need not only be
supported by a prima facie showing of failure to file a required return and such
fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is then given a chance to
submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him
or her is then sent to the taxpayer informing the latter specifically and clearly
that an assessment has been made against him or her. In contrast, the criminal
charge need not go through all these. The criminal charge is filed directly with
the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed
against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code.
104. Ungab vs. Cusi (same with case 101)
105. CIR vs. Pascor (same with case 102)
106. Alhambra Cigar vs. Collector (the case does not talk about any criminal
prosecution) (kindly refer to the full text)
Source:
http://www.central.com.ph/sfsreader/session/00000167b69c441fcecbd6260036
00fb002c009e/t/?o=False
FACTS: The Alhambra Cigar and Cigarette Manufacturing Co. filed its
income tax returns. The Collector of Internal Revenue assessed and demanded
from the company, by way of deficiency taxes for said years, the sum of
P240.560.04, plus 5 per cent surcharge and 1 per cent monthly interest from
January 15, 1955. After appropriate proceedings, on appeal taken by the
company, the Court of Tax Appeals rendered an amended decision reducing
the deficiency income taxes P103,604.05. Both the company and the Collector
have appealed.
ISSUE: whether the certain expenses claimed by the company were properly
disallowed.
RULING: The company maintains that the directors' fees, bonuses and
commissions paid to Kuenzle and Streiff, non-resident president and vice-
president, respectively, of the company, were disallowed by the Collector upon
the sole ground that they had actually rendered no personal services to the
company and attended no board meetings thereof, and that the Court of Tax
Appeals should have limited its inquiry to the determination of the accuracy of
this findings, and that, having concluded that Kuenzle and Streiff had rendered
some services, said court should have allowed said fees, bonuses and
commissions "without touching upon the reasonableness of that particular
compensation." This pretense is untenable. Under section 30 of the Tax Code,
whenever a controversy arises on the deductibility, for purposes of income tax,
of certain items for alleged compensation of officers of the taxpayer, two
questions become material, namely: (a) Have "personal services" been
"actually rendered" by said officers? (b) In the affirmative case, what is the
"reasonable allowance" therefor? When the Collector disallowed the fees,
bonuses and commissions aforementioned, and the company appealed
therefrom, it became necessary for the lower court to determine whether said
officer had correctly applied section 30 of the Tax Code, and this, in turn,
required the consideration of the two questions already adverted to. In the
circumstances surrounding the case, the lower court has correctly construed
and applied said provision.
107. Castro vs. CIR
FACTS: Petitioner Maria B. Castro, who is authorized to manage her own
property, is a duly licensed merchant. Pursuant to the provisions of Section 4
(b) and (c) of Republic Act No. 55, she filed with the Bureau of Internal
Revenue her war profits tax returns in the amount of P431,884.00 and a net
worth in the sum of P409,581.57.
A criminal case was filed against her in the CFI of Manila for violation of
Section 4, in connection with Section 8, of the War Profits Tax Law, for
allegedly defrauding the Republic of the Philippines in the total amount of
P1,048,687.76. Petitioner received for the first time the notice of assessment
by registered mail from the CIR. The said letter of demand was based on the
report of Supervising Examiner Felipe Aquino of the Bureau of Internal
Revenue, who recommended that the petitioner be assessed and made to pay
the sum of P1,048,687.76 as war profits tax and surcharge.
Supervising Examiner Felipe Aquino of the BIR, who testified for the
prosecution, declared "that as a result of a detailed reinvestigation conducted
by his office, it was found out that no war profits tax was due from the accused
in connection with the present case." City Fiscal Angeles moved for the
dismissal of the case. Finding the petition for dismissal to be well taken,
petitioner is acquitted in the criminal case..
ISSUE: Is the acquittal in the criminal case instituted against her, for violation
of the War Profits Tax Law, a bar to the collection of the taxes assessed.
RULING: NO. With regard to the tax proper, the state correctly points out in
its brief that the acquittal in the criminal case could not operate to discharge
petitioner from the duty to pay the tax, since that duty is imposed by statute
prior to and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability derived
from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
108. People vs. Mendez (case not found- CTA case)
109. People vs. Tan Boon Kong
FACTS: On and during the four quarters of the year 1924, in Municipality of
Iloilo, Province of Iloilo, the defendant, as manager of the Visayan General
Supply Co., Inc., a corporation organized under the laws of the Philippine
Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax, and
other native products. The payment of internal-revenue taxes upon its sales,
declared in 1924 for purpose of taxation only the sum of P2,352,761.94, when
in truth and in fact, and the accused knew that the total gross sales of said
corporation during that year amounted to P2,543,303.44, thereby failing to
declare P190,541.50, and voluntarily not paying the percentage taxes the sum
of P2,960.12, corresponding to 1½ per cent of said undeclared sales.
ISSUE: Whether the defendant, as manager of the corporation, is criminally
liable for violation of the tax law for the benefit of said corporation.
RULING: A corporation can act only through its officers and agents, and
where the business itself involves a violation of the law, all who participate in
it are liable. In the present case the information alleges that the defendant was
the manager of a corporation which was engaged in business as a merchant,
and as such manager, he made a false return, for purposes of taxation, of the
total amount of sales made by said corporation during the year 1924. As the
filing of such false return constitutes a violation of law, the defendant, as the
author of the illegal act, must necessarily answer for its consequences,
provided that the allegations are proven
110. CIR vs. Tokyo Shipping
FACTS: Tokyo shipping is a foreign corporation which owns and operates a
vessel. The vessel was chartered by a certain Nasutra to load raw sugar in the
Phil thru its representative. Thus, Tokyo Shipping’s representative made a pre-
payment of the required income and common carrier’s taxes. Upon arrival at
the port, the vessel found no sugar for loading, thus, claimed for a tax refund.
Tokyo Shipping filed a claim for refund from the BIR for erroneous
prepayment of income and common carrier’s taxes amounting to P107,142.75
since no receipt was realized from its charter agreement. BIR failed to act
promptly on the claim and thus it was elevated to the Court of Tax Appeals
which decided in favor of the refund. Hence, this petition for review on
certiorari.
ISSUE: Whether Tokyo Shipping is entitled to a refund or tax credit for the
prepayment of taxes
RULING: Yes. 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”. Fair
deal is expected by taxpayers from the BIR and the duty demands that BIR
should refund without unreasonable delay the erroneous collection.
112. Commissioner v Connel Bros Co 40 SCRA 416
Facts: The Commissioner disallowed the deductions for bad debts,
depreciation, and excess in valuation of leasehold improvements by Connel
Bros. Co. in its income tax return for taxable year 1954 and 1955. The
Commissioner thus assessed against the company deficiency taxes or
assessments for said years. The Court of Tax Appeals modified the assessment
by including the corresponding interest and surcharges pursuant to Section 51
of the Tax Code.
Issue: Whether the interest and surcharges on delinquents tax payments are
chargeable.
Held: Delinquency indicates non-payment of the correct and collectible tax,
and such state of delinquency exists not from the assessment of the deficiency
but from the very time the taxpayer failed to pay the correct amount due from
him. Herein, the delinquency taxes became due and the assessment therefore
were made before the amendment of Section 51 on 2 June 1959; and thus, the
company’s liability should be determined pursuant to the old Section (e) of the
Tax code. Under the old Section, a delinquent tax payer would have to pay, in
addition to the unpaid tax, a 5% surcharge thereon computed from the time the
tax became due, plus interest on the whole unpaid amount at the rate of 1% a
month. Under RA 2343, the delinquent taxpayer shall pay at the rate of 6% per
annum computed from the date prescribed for payment of the income tax up to
the assessment of the delinquency tax, but which shall not exceed the amount
corresponding to a period of 3 years. Section 13 of the amendatory act shoes
that there is no intent to make RA 2343 retroactive.

PART V TAX REMEDIES

1ST BATCH

CHAPTER XXVI JUDICIAL REMEDIES OF GOVERNMENT

111. Guagua Electric Light Plant Co v Commissioner (608)
Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by
the municpal councils of
Guagua and Sexmoan, Pampanga. It reported a gross income of P1,133,003.44
for 1947 go 1956 and paid
thereon a franchise tax of P56,664.97 computed at 5% in accordance with
Section 259 of the Tax Code.
Believing that it should pay a lower franchise tax as provided by its franchises,
it filed a claim for refund on 25 March 1957 for overpayment. The
Commissioner denied the refund of franchise tax for the period prior to the 4th
quarter of 1951 on the ground that the right to refund has prescribed. The
Commissioner allowed the refund of P16,593.87. 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, and thereby
including the amount previously allowed by the Commissioner to be refunded.
Issue: Whether the tax “refunded erroneously” should be imposed against the
company, or if the right to
recover has prescribed.
Held: Guagua Electric would be paying the same deficiency tax for the period
of 1 January to 30 November 1956 if it is required to pay P16,593.87 in
addition to the sum of P19,938.12, the difference between the tax computed at
5% pursuant to Section 259 of the Tax Code and the franchise tax paid at 1%
and 2% under the franchise. Further, by insisting on the payment of
P16,593.87 (September 1951 to November 1956), the Commissioner is trying
to collect the same deficiency tax where the right to assess the same, according
to him, has been lost by prescription. The demand on the taxpayer to pay the
sum of P16,593.87 is in effect 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 P16,593.87.
113. Azucarera v CTA GR No. L-23235, May 31, 1967
FACTS:
In G.R. No. L-23236 (CTA Case No. 1273),
● Petitioner Central Azucarera Don Pedro had been filing its income
tax returns on the "fiscal year" basis ending August 31, of every
year.
● Within the period allowed it under Section 46 of the National
Internal Revenue Code, petitioner filed, on October 24, 1954, with
the Bureau of Internal Revenue, its income tax return for the fiscal
year ending August 31, 1954, for which it paid the total sum of
P491,038.00, as income tax, computed on the basis of said return.
● On October 15, 1959, Respondent Commissioner of Internal
Revenue assessed against petitioner the amount of P167,935.00, as
deficiency income tax for the abovementioned fiscal year, but he
did not assess and impose any interest thereon.
● Petitioner protested, in a letter dated October 26, 1959, said
deficiency income tax assessment and requested that the same be
cancelled.
● Acting on the letter-protest, respondent finally ascertained and
assessed, in a letter dated December 20, 1961, against petitioner the
amount of P10,062.00, as deficiency income tax, to which was
added the sum of P1,509.30 as ½% monthly interest thereon,
● Petitioner was satisfied with the revised assessment of said
deficiency income tax proper and, accordingly, it paid, on January
16, 1962, the said amount of P10,062.00 to respondent; however, it
objected, in a letter-protest dated January 18, 1962, to the
demand and imposition of interest which was assessed and
included for the first time in respondent's letter of December
20,1961.
● In due time petitioner went to the Tax Court in a petition for review,
claiming that the imposition of ½% monthly interest on its
deficiency tax for the fiscal year 1954, Pursuant to Section 51 (d)
of the Revenue Code, as amended by Republic Act No. 2343, is
illegal, because the imposition of interest on efficiency income
tax earned prior to the effectivity of the amendatory law (Rep.
Act 2343) will be tantamount to giving it (Rep. Act No. 2343)
retroactive application.
● On June 15, 1964, the Tax Court rendered its decision, upholding the
ruling of respondent Commissioner.
In G. R. No. L-23254 (CTA Case No. 1278
● The same petitioner (Central Azucarera Don Pedro) filed its income
tax returns within the prescribed period for the succeeding fiscal
years ending August 31 — 1955, 1956, 1957, and 1958, for which it
paid the corresponding income taxes, based on said returns.
● After verification and examination of petitioner's income tax returns
for the abovestated fiscal years, respondent Commissioner
ascertained and assessed, for each of said fiscal years against
petitioner, deficiency income taxes in the total amount of
P21,330.00, and interest thereon in the total sum of P2,307.10,
which interest were likewise imposed pursuant to Section 51 (d) of
the Internal Revenue Code, as amended by Republic Act No. 2343.
● Petitioner paid said deficiency income taxes and interests within the
period prescribed by respondent to pay the same; however, on
January 19, 1962, it filed with the latter a claim for refund or tax
credit of the aforesaid sum of P2,307.00, which was paid as
interests, claiming that said payment was erroneous and the
collection thereof by respondent was illegal, which contention is
similar to that alleged in its previous protest (now CTA Case No.
1273).
ISSUE: Whether or not the interest provided for in Section 51 (d) of the
National Internal Revenue Code, as amended by Republic Act No. 2343
(effective June 20, 1959) is imposable on deficiency income tax due on
income earned prior to the effectivity of said Republic Act No. 2343, but
assessed after it.
HELD: YES. It is thus evident that petitioner's contention that "interest on
such deficiency accrued only when the taxpayer failed to pay the tax within the
period prescribed therefor by respondent (Commissioner of Internal Revenue)"
is not correct; said interest was imposable in case of non-payment on time, not
only on the basic income tax, but also on the deficiency tax, since the
deficiency was part and parcel of petitioner's income tax liability.
From a perusal and comparison of the above quoted sections of the Tax Code,
before and after its amendment, it will be observed that, although the
Commissioner (formerly Collector) of Internal Revenue, under the old
Section 51 (a) was required to assess the tax due, based on the taxpayer's
return, and notify the taxpayer of said assessment, still, under subsection
(b) of the same old Section 51, the time prescribed for the payment of tax
was fixed, whether or not a notice of the assessment was given to the
taxpayer. Under the new provision, the time of payment is also fixed and
pre-determined (usually coinciding with the filing of the return) without
the necessity of giving notification of the assessment to the taxpayer by the
Commissioner.
It should further be observed that, under the old Section 51 (e), the interest
on deficiency was imposed from the time the tax became due; while under
the new Section 51 (d), said interest is imposed on the deficiency from the
date prescribed for the payment of the tax.
It is thus evident that petitioner's contention that "interest on such deficiency
accrued only when the taxpayer failed to pay the tax within the period
prescribed therefor by respondent (Commissioner of Internal Revenue)" is not
correct; said interest was imposable in case of non-payment on time, not
only on the basic income tax, but also on the deficiency tax, since the
deficiency was part and parcel of petitioner's income tax liability.
It appearing that the new Section 51 (d) under Republic Act 2343 expressly
provides that the interest on deficiency shall be assessed at the same time as
the deficiency income tax; and that respondent Commissioner of Internal
Revenue imposed and sought to collect the interest only from June 20, 1959,
which was the date of effectivity of said Republic Act No. 2343; that the
deficiency income taxes in question were assessed and unpaid when said
Act was already in force, the Tax Court correctly held that said Section 51
(d), as amended, is not being applied retroactively as contended by
petitioner herein.
Moreover, the application of said Section 51 (d), as amended, in the cases at
bar, operated and worked in favor of petitioner-appellant, since instead of
imposing the rate of one per centum (1%) monthly interest prescribed in the
old section 51 (e) from the time the tax became due, i.e., from January 15, —
1955, 1956, 1957, 1958 and 1959, respectively, respondent Commissioner
merely imposed the new ½% monthly interest from January 20, 1959, which
interests, as computed, are less than what would be due under the old law.
114. Abad v CTA
FACTS: Armando L. Abad is engaged in business as a distiller and operates
two (2) alcohol distilleries, a bonded warehouse and bonded denaturing
warehouse. During the period from January, 1955 to August 1958, inclusive,
he used the total sum of 836,483 proof liters of rectified or ethyl
alcohol, without paying the specific tax thereon, in the conversion into, and for
the production of, specially denatured alcohol. He produced said specially
denatured alcohol, in and from his bonded denaturing warehouse, in
accordance with four formulas, acquired by different grantees and duly
approved by the Commissioner of Internal Revenue, and sold the same to said
grantees, who, in turn, used said specially denatured alcohol as raw material in
manufacture of various non-beverage industrial products, such as varnish, pre-
mixed rice, solid alcohol fuel, detergents, emulsifiers, industrial solvents,
shellac, wood dye, thinner, cleansing mixtures, embalming mixtures, barber,
shop disinfectants like Tonix and bayrum. These products contain more than
50% ethyl alcohol by volume, excluding water.
During the same period of January, 1955 to August, 1948, Abad also produced
and sold completely denatured alcohol of not less than 180 degrees proof
(ninety per cent absolute alcohol) for which he paid the 7% sales tax on the
gross sales but in the computation of the sales tax, he deducted the cost of
ethyl alcohol purchased from suppliers and used in the manufacture of said
completely denatured alcohol, although the distillers and sellers of said ethyl
alcohol did not pay any specific tax nor did they declare their sales for
purposes of the sales tax imposed by Section 186 of the Tax Code.
On December 12, 1958, the Commissioner of Internal Revenue wrote a letter
to Abad, assessing and demanding the following:
(a) As specific tax on the rectified or ethyl alcohol used in the
production of specially denatured alcohol
 (b) As deficiency sales tax and surcharge on the gross selling price of
completely denatured alcohol
(c) P300.00 as compromise penalty for the loss of his books of accounts
and records.
Abad contested it; and the case was elevated to the Appellate Division of the
Bureau of Internal Revenue. After due hearing therein, the Commissioner of
Internal Revenue. After the filing of the usual answer by the Commissioner of
Internal Revenue, the parties submitted the case on a stipulation of facts.
On the basis of this stipulation, the Tax Court ruled that it having been
admitted that the 836,483 proof liters of specially denatured alcohol 2 consist of
50% ethyl alcohol by volume, excluding water, distilled spirits compose its
chief ingredient; hence, it is subject to specific tax pursuant to Section 127, in
relation to Section 133, both of the Tax Code; that it also having been admitted
that said specially denatured alcohol was used as raw materials in the
manufacture of other products by the different grantees thereof and not used in
the operation of industries, it is not exempt from specific tax under Section 128
of the same Code; and that it having been admitted further that Abad himself
sold and removed said alcohol, he should be held liable for said specific tax,
and not the grantees or buyers thereof. The same decision, however, held
petitioner Abad not liable for deficiency sales tax and surcharge, ruling that
when ethyl alcohol is sold for use in the production of completely denatured
alcohol it ceases to be liable for the specific tax imposed by Section 133 of the
Tax Code, and, not being included among the articles taxable under sections
184 and 185 of the same Code, the sales of said ethyl alcohol become subject
to sales tax under section 186; hence, for purposes of computing the sales tax
due on the sales of completely denatured alcohol pursuant to same section 186,
the total cost of said ethyl alcohol is deductible from the gross selling price
thereof, regardless of whether the specific or sales taxes thereon had
previously been paid or not. Said decision also held Abad not liable for the
P300.00 compromise penalty for the loss of his books of accounts and records,
it having been admitted by respondent Commissioner that the same cannot be
imposed without the consent of the taxpayer, and Abad did not give his
consent thereto.
ISSUE: Whether or not the 836, 483 proof liters of rectified or ethyl alcohol
used in the production or manufacture of specially denatured alcohol is subject
to specific tax, and to what extent petitioner Abad is liable for the payment of
such tax.
RULING: YES. From Section 133 of the Tax Code, it cannot be disputed that
rectified or ethyl alcohol falls within the definition or enumeration of the term
"distilled spirits", and is taxable as such. But during the period that transpired
between the enactment of Republic Act No. 592 and the enactment of
Republic Act No. 1608 the specific tax did not attach to the alcohol upon its
coming into existence; hence, this Court has ruled that a producer of ethyl
alcohol specially denatured and sold to permittees of the Collector of Internal
Revenue is not liable for the tax, but that said tax is to be paid by the producer
of the taxable finished product.
During the period from January, 1955 to August 22, 1956, when Republic Act
1608 became effective, the record discloses that Abad used for denaturation
and sale the following quantities of rectified or ethyl Following our rulings
aforesaid, this last amount should be deducted from appellant Abad's tax
liability, having been improperly assessed against him.
Upon the other hand, when Republic Act No. 1608 reincorporated to Section
133 of the Tax Code, it is evident that distilled spirits such as rectified or ethyl
alcohol, produced or manufactured after August 23, 1956 became subject to
specific tax as soon as it came into existence as such; and that the
manufacturer, producer, owner, or person having possession of the same at the
time is liable for said specific tax
It appears that after August 22, 1956, petitioner Armando L. Abad was the
owner or producer of quantities of rectified or ethyl alcohol.
And it being undisputed that said rectified or ethyl alcohol is distilled spirits
within the meaning of Section 133 of the Tax Code, 4 and that by Republic Act
No. 1608 the specific tax attaches to this substance as soon as it is in existence
as such, then petitioner Armando L. Abad should be required to pay the above
computed tax of P111,116.00 assessed on the 179,750 proof liters of rectified
or ethyl alcohol produced by him from
The Tax Court, therefore, correctly held that the sales of said ethyl alcohol to
Abad are subject to sales tax under the first part of Section 186, already
quoted; wherefore, the cost thereof is deductible from Abad's gross selling
price of the completely denatured alcohol made from it, for purposes of
computing the 7% sales tax due on the latter.
The same result obtains when it is considered that, under Section 188(a) of the
Tax Code, transactions in commodities subject to taxes under Title IV of the
Code (specific taxes) are to be excluded in computing the sales tax under
Sections 184 to 186. Since the alcohol was purchased by Abad before it was
denatured, it was then subject to specific tax, and its cost should be deducted
from the computation of the sales tax due on the sale of the denatured alcohol.
The fact that Abad's suppliers of ethyl alcohol did not pay sales tax thereon is
no reason for burdening Abad with said tax. The Commissioner's contention
that the bond required under Section 164 is answerable for all kinds of internal
revenue taxes is too far-fetched and not tenable because the evident purpose of
said bond is to make it answerable only for specific taxes in the event that the
producer of the denatured alcohol will not use the distilled spirits for the
purpose or the uses described in Section 128 (light, fuel, etc.), when it is
allowed to be withdrawn under bond.
115. Perez v CTA
Facts: Petitioner was assessed by the Collector with deficiency tax due to its
increase in net worth. In making the deficiency assessments, the Collector
employed what is known as the "net worth" technique and started by
determining the opening net worth of petitioner at the start of the year 1947
which he fixed at P936.72. The Court of Tax Appeals declared the "net worth"
method of determining understated income to have been validly and properly
applied; found that the consistent under declaration of income, unexplained
acquisition of properties, and the fact of petitioner's having claimed fictitious
losses evidenced fraudulent intent, and ordered him to pay deficiency income
taxes and surcharges in the sum of P241,547.77.
Issues:
(1) Whether the Collector of Internal Revenue is empowered by law to
investigate appellant's (petitioner) income tax returns for 1947, 1948,
and1949 and to enforce collection of the alleged deficiency income
taxes for said years by summary proceedings of distraint and levy
more than three years after the income tax returns covering them
were filed.
(2) Whether the use of the "net worth" method by the respondent in
computing appellant's netincome is valid
Ruling:
1. No. Reiterating a long line of decisions to the effect that the three-
year prescriptive period under section 51 (d) of the National Internal
Revenue Code constituted a limitation to the right of the government
to enforce the collection of income taxes by summary proceedings of
distrain tand levy, though, it could proceed to recover the taxes due
by the institution of the corresponding civil action. Nevertheless, the
appeal of the taxpayer vested jurisdiction on the Court of Tax
Appeals to review and determine his tax liability for the aforesaid
period.
2. Yes. This method of proving unreported income, according to the
Court of Tax Appeals, is based upon the general theory that money
and other assets in excess of liabilities of a taxpayer (after an
accurate and proper adjustment of non-deductible items) not
accounted for by his income tax returns, leads to the inference that
part of his income has not been reported (p. 6, B.T.A. 189).There is
no question that the application of the "net worth" method of
determining the taxable income of a taxpayer has been an accepted
practice.
In fine, we hold: That section 38 of our National Internal Revenue Code
authorizes the application of the Net Worth Method in this jurisdiction. That
no civil cases, the Government need not prove the specific source of income
(this is reasonable on the basic assumption that most assets are derived from a
taxable source and that when this is not true the taxpayer is in a position to
explain the discrepancy, {see Holland case, supra);
That the determination of the tax deficiency by the Government has prima
facie validity and the burden rests upon the taxpayer to overcome this
presumption and to show to the satisfaction of the Tax Court that the
determination was not correct. And finally, that no sufficient grounds exist to
warrant a reversal of the findings of fraud of the lower court as being "clearly
erroneous"; on the contrary, we find them supported by reason
116. Aznar v Collector
Facts: Petitioner, as administrator of the estate of the deceased, Matias H.
Aznar, seeks a review and nullification of the decision of the Court of Tax
Appeals ordering the petitioner to pay the government the sum of P227,691.77
representing deficiency income taxes for the years 1946 to 1951. An
investigation by the Commissioner of Internal Revenue (CIR) ascertained the
assets and liabilities of the taxpayer and it was discovered that from 1946 to
1951, his net worth had increased every year, which increases in net worth was
very much more than the income reported during said years. The findings
clearly indicated that the taxpayer did not declare correctly the income
reported in his income tax returns for the aforesaid years. Petitioner avers that
according to the NIRC, the right of the CIR to assess deficiency income taxes
of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at
the time the assessment was made on November 28, 1952; there being a five
year limitation upon assessment and collection from the filing of the returns.
Meanwhile, respondents believe that the prescription period in the case at bar
that is applicable is under Sec. 332 of the NIRC which provides that: "(a) In
the case of a false or fraudulent return with intent to evade tax or of a failure to
file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission". Petitioner argues
said provision does not apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax.
Issue: Whether or not the deceased Aznar filed false or fraudulent income tax
returns and subsequently, whether the action has not prescribed.
Ruling: The petition is without merit. The respondent CTA concluded that the
very "substantial under declarations of income for six consecutive years
eloquently demonstrate the falsity or fraudulence of the income tax returns
with an intent to evade the payment of tax." The ordinary period of
prescription of 5 years within which to assess tax liabilities under Sec. 331 of
the NIRC should be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from
proper assessment of tax liabilities due to false returns, fraudulent return
intended to evade payment of tax, or failure to file returns, the period of ten
years from the time of the discovery of the falsity, fraud or omission even
seems to be inadequate. There being undoubtedly false tax returns in this case,
We affirm the conclusion of the respondent Court of Tax Appeals that Sec.
332 (a) of the NIRC should apply and that the period of ten years within which
to assess petitioner's tax liability had not expired at the time said assessment
was made.
117. Aguinaldo Industries v Commissioner
Facts: An action for review of the decision and dissolution of the CTA
holding the petitioner liable for deficiency tax for 1957, plus 5% surcharge and
1% monthly interest for late payment from December 15, 1957 until full
payment.
Aguinaldo Industries Corporation is a domestic corporation engaged in two
lines of business, namely: (a) the manufacture of fishing nets, a tax-exempt
industry, and the manufacture of furniture.
Previously, Aguinaldo Industries 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
Aguinaldo Industries, it sold the Muntinglupa property, Aguinaldo Industries
derived profit from this sale in the amount of P244,416.70 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, Aguinaldo Industries 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 BIR found that the Fish
Nets Division deducted from its gross income for that year the amount of
61,187.48 as additional remuneration paid to the officers of Aguinaldo
Industries. The examiner recommended the disallowance of the 61,187.48
deduction because he found that this amount was taken from the net profit of
an isolated transaction (sale of aforementioned land) not in the course of or
carrying on of Aguinaldo Industries' trade or business. It appears from the
books that such deduction was claimed as part of the selling expenses of the
land in Muntinglupa, Rizal. Aguinaldo Industries insists that said amount
should be allowed as deduction because it was paid to its officers as allowance
or bonus pursuant to Section 3 of its by-laws which provides as follows:
From the net profits of the business of the Company shall be deducted for
allowance of the President 3%, for the first Vice President 1%, for the second
Vice President for the members of the Board of Directors 10% they divided
equally among themselves, for the Secretary of the Board for the General
Manager for two Assistant General Managers.
Issue 1: Whether the profit derived from the sale of its Muntinglupa land is not
taxable for it is tax-exempt income, considering that its Fish Nets Division
enjoys tax exemption as a new and necessary industry under Republic Act 901.
Ruling 1: It must be stressed however that at the administrative level, the
petitioner implicitly admitted that the profit it derived from the sale of its
Muntinglupa land, a capital asset, was a taxable gain.
In the instant case, up to the time the questioned decision of the respondent
Court was rendered, the petitioner had always implicitly admitted that the
disputed capital gain was taxable, although subject to the deduction of the
bonus paid to its corporate officers. It was only after the said decision had been
rendered and on a motion for reconsideration thereof, that the issue of tax
exemption was raised by the petitioner for the first time. It was thus not one of
the issues raised by petitioner in his petition and supporting memorandum in
the Court of Tax Appeals. We therefore hold that petitioners belated claim for
tax exemption was properly rejected.
Issue 2: WON the bonus given to the officers of Aguinaldo upon the sale of its
Muntinglupa land is an ordinary and necessary business expense deductible for
income tax purposes?
Ruling 2: No.
Sec. 30 (a) (1) of the Tax Code which reads:
In computing net income there shall be allowed as deductions
(a) Expenses:
(1) In general. All the Ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for personal services actually rendered x x
The bonus given to the officers of the Aguinaldo Industries as their share of
the profit realized from the sale of the land cannot be deemed a deductible
expense for tax purposes, even if the aforesaid sale could be considered as a
transaction for Carrying on the trade or business of the Aguinaldo Industries
and the grant of the bonus to the corporate officers pursuant to Aguinaldo
Industries' by laws could, as an intra-corporate matter, be sustained. Evidence
show that the sale was effected through a broker who was paid by Aguinaldo
Industries a commission for his services. On the other hand, 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 out 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.
Thus, the extraordinary and unusual amounts paid by Aguinaldo to these
directors in the guise and form of compensation for their supposed services as
such, without any relation to the measure of their actual services, cannot be
regarded as ordinary and necessary expenses within the meaning of the law.
118. Commissioner v Fireman’s Fund Insurance
Facts: Fireman’s Funds Insurance is a resident foreign insurance corporation
organized under the laws of the United States, authorized and duly licensed to
do business in the Philippines. From 1952-1958, the company entered into
various insurance contracts involving causality, fire and marine risks, for
which the corresponding insurance policies were issued. From 1952-1956,
documentary stamps were bought and affixed to the corresponding pages of
the policy register, instead of on the insurance policies issued. The
Commissioner assessed and demanded from the company the payment of
documentary stamps for the years 1952-1958, plus compromise penalties.
Issue: Whether the affixture of documentary stamp on pages other than those
authorized by law is tantamount to failure to pay the same.
Held: Although the documentary stamps were affixed to papers other than
those authorized by law, it is not tantamount to failure to pay the same as the
company purchased and paid the documentary stamps
corresponding to the various insurance policies. Sections 210, 232, 221, 237
and 239 of the Tax Code have the overriding purpose to collect taxes, and the
steps involving documentary taxes (purchase, affixture, and cancellation) are
but a means to that end. Although the insurance policies with the
corresponding documentary stamps affixed are the best evidence to prove
payment of said documentary stamp tax, it does not preclude the admissibility
of other proofs which are uncontradicted and considerable weight. Still,
whenever the interpretation of statute levying taxes or duties are in doubt, such
statutes are to be construed most strongly against the government and in favor
of the subjects or citizens, because burdens are not to be imposed, nor
presumed to be imposed beyond what statutes expressly and clearly import.
There is no justification for the government which has already realized the
revenue, which is the object of the imposition of the subject stamp tax, to
require payment of the same tax for the same documents
119. Mithi ng Bayan v Araneta (613)
FACTS: On 3 July 1953, Pedro Guevarra, an agent of the Bureau of Internal
Revenue, assigned in San Pablo City, reported to the provincial revenue agent
that the petitioner, an association of persons organized and incorporated as a
cooperative marketing association under the provisions of the Cooperative
Marketing Law, Act No. 3425, as amended, and the Corporation Law, Act No.
1459, as amended, has been operating a rice mill in barrio Calios, Santa Cruz,
Laguna, where palay owned by members and non-members are milled; that a
fee is charged and collected by the petitioner from the owners for milling their
palay; and that the petitioner paid the fixed tax of P10 due for the year 1952
and the percentage tax of 2% due on the total value of rice milled during the
first and second quarters of 1952 but did not pay the fixed tax due for the year
1953 and the percentage tax of 2% due on the total value of rice milled during
the third quarter of 1952 to the first quarter of 1953. The agent recommended
that a letter be sent to the petitioner demanding payment of the total sum of
P3,610.53.
The Collector of Internal Revenue demanded from the petitioner
payment of the sum of P3,590.53 (less P20 for compromise), within 30 days
from receipt of the letter of demand and informed it that if it be not agreeable
to the assessment, it could take up the matter with the Conference Staff of the
Bureau of Internal Revenue by filing within the same period of time a written
notice of its intention to appear before the Staff either in person or by an
attorney-at-law or a certified public accountant as counsel and that if it be
agreeable to extrajudicially settled the penal liabilities arising from violations
of the National Internal Revenue Code, as amended, it could pay the sum of
P100 as penalty in addition to the sum of P3,590.53, or a total of P3,690.53.
On 13 January 1954 the petitioner wrote to the respondent Collector informing
him that it was not agreeable to his proposal and filed its notice of intention to
appear before the Conference Staff (Exhibit F). After hearing, on December
1954 the Conference Staff recommended to the respondent Collector the
enforcement of the assessment dated 19 December 1953 for taxes and
surcharge in the sum of P3,590.53 and suggested the imposition upon the
petitioner of a compromise penalty in the sum of P100 (Exhibit 9). The
respondent Collector approved the recommendation of the Conference Staff
and on 4 January 1955 demanded payment of the total sum of P3,690.53
within ten days from receipt of the letter, otherwise it would enforce collection
through the summary remedies provided for by law.
On 6 December 1955 the respondent issued a warrant of distraint and levy
ordering the deputy provincial treasurer, through the provincial treasurer, "to
distrain the goods, chattels, or effects and other personal property of whatever
character, and levy upon the real property and interest in/or rights to real
property of the delinquent taxpayer, and sell so much of such personal or real
property as may be necessary to satisfy in full the sum or sums due as set forth
above (P3,690.53), and to cover such expenses as may be incurred in making
this distraint and levy." On 14 March 1956 the petitioner filed in the Court of
Tax Appeals an "urgent motion to suspend execution of warrant of distraint
and levy and collection of tax," on the ground that the enforcement of the said
warrant of distraint and levy and collection of tax would jeopardize the interest
of the petitioner because it is exempt from the payment of the taxes sought to
be collected. It offered to file a bond for that purpose. On 21 March 1956 the
respondent filed an objection to the petitioner’s motion. After hearing, the
Court denied the petitioner’s motion.
After hearing and after the parties had filed their respective memoranda and
the petitioner a reply to the respondent’s memorandum, on 14 August 1958 the
Court rendered judgment declaring that the "petitioner cannot be considered as
having been organized in accordance with Act No. 3425, and its claim for
exemption under Section 48 of said Act cannot be sustained."
ISSUE: Is the petitioner an association organized under the provisions of the
Cooperative Marketing Law, Act No. 3425, as amended, exempt from the
payment of privilege tax or fixed tax upon business and percentage tax,
imposed by sections 178, 182, 183 and 189, of the National Internal Revenue
Code, as amended?
RULING: NO. Section 48, Act No. 3425, as amended by Republic Act No.
702, exempting cooperative associations organized under the said Law from
payment of merchant’s sales tax income tax and other percentage taxes,
provides:
Any association organized under this Act shall not be subject to the
payment of the merchant’s sales tax, the income tax, and all other
percentage taxes of whatever nature and description.
Any exemptions under any and all existing laws applying to agricultural
products in the possession or under the control of the individual producer, shall
apply similarly and completely to agricultural products delivered by the former
members to the association, or which are in the possession or under the control
of the association.
It is plain from the foregoing provisions of the Cooperative Marketing Law
that a cooperative marketing association should be organized by and composed
of persons engage in the production of agricultural products for the benefit of
producers-members and the association "should aim to promote, foster, and
encourage the intelligent and orderly marketing of agricultural products
through cooperation; to make the distribution of agricultural products between
producer and consumer as direct as can be efficiently done; and to stabilize the
marketing of agricultural products." If the association fails to comply with
these requirements, it cannot be considered as an association organized under
the Cooperative Marketing Law. It cannot be gainsaid that once the association
admits as members persons who are not engaged in the production of
agricultural products, the reasons for its existence under the law ceases to
operate and the privilege of exemption from the payment of taxes provided for
in section 48 of the Law is withdrawn from it. A person not engaged in the
production of agricultural products has no direct relation to and common cause
with one who is so engaged to bring about an intelligent and orderly
marketing, a direct and efficient distribution between producers and consumers
and the stabilization of the marketing of agricultural products through
cooperation with his fellow producers.
The evidence at hand does not sufficiently establish the fact that all members
of the petitioner association are engaged in the production of agricultural
products. Hence, it cannot be said to have been organized as a cooperative
marketing association and entitled to exemption from the payment of taxes
provided for in section 48 of the Cooperative Marketing Law, Act No. 3425, as
amended. The judgment under review is affirmed, with costs against the
petitioner.
ACCEPTANCE AS MEMBER OF PERSONS NOT ENGAGED IN THE
PRODUCTION OF AGRICULTURAL PRODUCTS; WITHDRAWAL
OF PRIVILEGE OF TAX EXEMPTION. — Once an association admits as
members persons not engaged in the production of agricultural products, the
reason for its existence as a cooperative marketing association ceases to
operate and the privilege of exemption from the payment of taxes, provided for
in Section 48, Act No. 3425, as amended, is withdrawn from it.
120. Commissioner v Guerrero 19 SCRA 25 [GR No. L-19074
January 31, 1967]
Facts: Antonio G. Guerrero was, during the years of 1949 and 1950, a dealer
of logs, which he used to sell to Aparri Lumber Company, hereinafter referred
to as the company. On April 2, 1954, the then collector of internal revenue
made an assessment and demands requiring Guerrero to pay the sum of
Php4,014.91, representing fixed and percentage taxes and forests charges, as
well as surcharges and penalties, in connection with his aforementioned
business transactions with the company. Upon Guerrero’s requests, the matter
was submitted to the conference staff of the Bureau of Internal Revenue (BIR),
which, in due course, thereafter on January 11, 1956, recommended that the
assessment be increased to Php5,139.17. In addition to, the sums of Php20 and
Php100 as compromise penalties in extrajudicial settlement of his penal
liabilities under sections 208 and 209 of the NIRC should be reiterated. That
another sum of Php50 as compromise penalty for his violation of the
bookkeeping regulations should be imposed against the taxpayer, he having
admitted during the hearing of this case that he did not keep books of accounts
of his timber business. This recommendation was approved by the collection
of internal revenue, who, accordingly made the corresponding reassessment
upon receipt of notice which Guerrero requested, on February 10, 1956, a
rehearing before the conference staff. Instead of acting on this request, on
April 20, 1956, the corresponding internal revenue director issued an
assessment of distraint and levy against the properties of Guerrero, in order to
effect the collection of his tax liability under said reassessment. Hence, on
June 8, 1956, Guerrero filed with the court of tax appeals the corresponding
petition for review. Subsequently, said court rendered the decision appealed
from. Hence, these appeals.
Issue: Whether or not reassessment by the BIR is proper.
Ruling: No. The foregoing circumstances clearly indicate that the logs
involved in said reassessment were obtained from illegal sources, and that the
forest charges due thereon had not been paid. Since these charges “are lieu on
the products and collectible from whomsoever is in possession” thereof, unless
he can show that he has the required auxiliary and official invoice and
discharge permit – which Guerrero has not shown – it follows that he is bound
to pay the aforementioned forest charges and surcharges, in the sum of Php
3,775.66.
At this juncture, it may not be amiss to advert to a problem of semantics
arising from the operation of section 1588 of the revised administrative code,
the counterpart of which is is now section 315 of the NIRC, pursuant to which:
Every internal revenue tax on property or on any business or occupation, and
every tax on resources and receipts, and any increment to any of them incident
to delinquency, shall constitute a lien superior to all other charges or liens not
only on the property itself upon which such tax may be imposed but also upon
the property used in any business or occupation upon which the tax is imposed
and upon all property rights therein.
The enforcement of this lien by the commissioner (formerly collector) of
internal revenue, has often induced the parties adversely affected thereby to
raise the question whether a given charge is a tax or not, on the theory that
there would be no lien if said question were decided in the negative. In
connection therewith, said parties had tended to distinguish between taxes, on
the one hand – as burdens imposed upon persons and/or properties, by way of
contributions to the support of the government, in consideration of general
benefits derived from its operation – and license fees – charged in the exercise
of the regulatory authority of the state, under its police power – and other
charges – for specific things or special or particular benefits received from the
government – on the other hand.
CHAPTER XXVIII – REMEDIES OF TAXPAYERS
121. Corona v United Harbor Pilots Association of the Philippines
(616)
FACTS: Administrative Order No. 04-92) provides that all appointments to
harbor pilot positions in all pilotage districts shall only be for a term of one
year from date of effectivity subject to yearly renewal or cancellation by the
Authority. AO No. 04-92 whose avowed policy was to instill effective
discipline and thereby afford better protection to the port users through the
improvement of pilotage services. Respondent, through Capt. Alberto C.
Compas, questioned AO No. 04-92 before the Dept of Transportation and
Communication.
Subsequently, the Office of the President directed the PPA to hold
abeyance the implementation of the said AO. PPA countered that the said
order was issued in the exercise of its administrative control and supervision
over harbor pilots under Section 6, Article I of P.D. 857. Office of the
President, through Assistant Executive Secretary Renato Corona, dismissed the
appeal and lifted the restraining order issued. He concluded that the said order
applied to all harbor pilots and, for all intents and purposes, was not an act of
Dayan, but of the PPA, which was merely implementing P.D. 857, mandating
it to control, regulate and supervise pilotage and conduct of pilots in any port
district.
ISSUE: Whether AO No.04-92 is constitutional
RULING: No. The Court is convinced that PPA No. 04-92 was issued in stark
disregard of respondents’ right against deprivation of property without due
process law. The Supreme Court said that in order to fall within the aegis of
the provision, two conditions must concur, namely, that there is a deprivation
and that such deprivation is done without proper observance of due process.
As general rule, notice and hearing, as the fundamental requirement
of procedural due process, are essential only when administrative body
exercises its quasi-judicial function. In the performance of its executive or
legislative functions, such as issuing rules and regulations, an Administrative
body needs to comply with the requirement of notice and hearing.
There is no dispute that pilotage as a profession has taken on the
nature of a property right. It is readily apparent that the said administrative
order unduly restricts the right of harbour pilots to enjoy their profession
before their right of harbor pilots to enjoy their respective profession before
their compulsory retirement.
When one speaks of due process, a distinction must be made
between matters of procedure and matters of substance. In essence, procedural
due process refers to the method or manner by which the law is enforced,
while substantive due process requires the law itself, not merely the procedures
by which the law would be enforced, is fair, reasonable, and just.
122. Meralco v Savellano
FACTS: Juan Maniago informed the CIR that MERALCO Securities
Corporation did not pay the proper taxes from 1962 to 1966. The CIR
conducted an investigation and it found out that MERALCO did actually pay
the proper amount of tax due within said period. The CIR then informed
Maniago of its decision and also informed him that since no deficiency tax was
collected, Maniago is not entitled to the informer’s reward then offered to
individuals who report tax evaders. Maniago then filed a petition for
mandamus against the CIR. After hearing, Judge Victorino Savellano granted
Maniago’s petition and ordered the CIR to collect the deficiency taxes and
further ordered the CIR to pay Maniago’s informer’s reward.
ISSUE: Whether Judge Savellano is correct
RULING: No. The power to assess or not to assess tax deficiency against a
taxpayer is a discretionary function vested in the CIR. As such, the CIR may
not be compelled by mandamus. Mandamus only lies to enforce the
performance of a ministerial act or duty and not to control the performance of
a discretionary power. Especially so in this case where the CIR found that no
tax deficiency is due. It should be noted further that regular courts have no
jurisdiction over the subject matter of this case. Section 7 of Republic Act No.
1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive
appellate jurisdiction to review by appeal, among others, decisions of the
Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal
Revenue.
123. Manila Electric Co v Public Service Commission
FACTS: Meralco filed two applications to PSC for revision and reduction of
rates for commercial (85889) and non-residential and residential (85890)
customers w/c were approved. They also applied for revision nd reduction of
its general power rate (89293), the same was approved as well. Meralco filed
seven additional applications. The commission sought General Auditing Office
to examine Meralco’s book of accounts. The commission reset the hearing for
considering such further revision of applicant’s rates. During the hearing, the
Chief of Finance and Rate Division announced that it was an ‘informal
hearing’ and the purpose was to hear any statement of the parties and to define
the issues. The Commission through Dr Pedro Gil then submitted the 3 cases
and asked the commission to allow Meralco a rate of *% return. Soc-gen
submitted the same report to Deputy Auditor General adnd aske Meralco was
asked to answer w/in 30 days. Meralco contend that cases should be reset
because they were not given the opportunity to cross-examine the GAO report
and to present evidence.
ISSUE: Whether Meralco was deprived of due process wherein the informal
hearing was considered as porper notice and hearing in an administrative case?
RULING: Petitioner was not afforded his constitutional right. The record
shows that no hearing was held apart from the “preliminary hearing.” Meralco
was not given the opportunity to present evidence to rebut the audit report. It is
the cardinal right of a party in trials and administrative proceedings to be
heard, which includes the right of the party interested to present his own case
and submit evidence.
The provisions of the Constitution on the exercise of the taxing power are not
construed as grants of such power but are merely limitations on a power
otherwise absolute. Tax statues, like other legislation, enjoy the presumption
of validity and constitutionality. To doubt is to sustain. A tax statute may be
attacked in the courts not only by reason of non-observance or violation of the
constitutional limitations on the exercise of the taxing power, but also on
account of violation or non-observance of the procedure laid down by the
fundamental law on the enactment of legislation.
124. Chamber of Real Estate v Exec Secretary
FACTS: Petitioner is an association of real estate developers and builders in
the Philippines. It assails the validity of the imposition of minimum corporate
income tax (MCIT) on corporations and creditable withholding tax (CWT) on
sales of real properties classified as ordinary assets.
Petitioner argues that the MCIT violates the due process clause
because it levies income tax even if there is no realized gain. Petitioner also
asserts that the enumerated provisions of the subject revenue regulations
violate the due process clause because, like the MCIT, the government collects
income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being
levied upon real estate enterprises but not on other business enterprises, more
particularly those in the manufacturing sector.
ISSUE: Whether the imposition of the MCIT on domestic corporations and
CWT on income from sales of real properties classified as ordinary assets are
unconstitutional.
RULING: NO. MCIT is not violative of due process. The MCIT is imposed
on gross income which is arrived at by deducting the capital spent by a
corporation in the sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed
in lieu of the normal net income tax, and only if the normal income tax is
suspiciously low. The MCIT merely approximates the amount of net income
tax due from a corporation, pegging the rate at a very much reduced 2% and
uses as the base the corporation’s gross income.
It is also stressed that the CWT is creditable against the tax due from
the seller of the property at the end of the taxable year. The seller will be able
to claim a tax refund if its net income is less than the taxes withheld. Nothing
is taken that is not due so there is no confiscation of property repugnant to the
constitutional guarantee of due process. More importantly, the due process
requirement applies to the power to tax. The CWT does not impose new taxes
nor does it increase taxes. It relates entirely to the method and time of
payment. Petitioner, in insisting that its industry should be treated similarly as
manufacturing enterprises, fails to realize that what distinguishes the real
estate business from other manufacturing enterprises, for purposes of the
imposition of the CWT, is not their production processes but the prices of
their goods sold and the number of transactions involved. The income from
the sale of a real property is bigger and its frequency of transaction limited,
making it less cumbersome for the parties to comply with the withholding tax
scheme.
Safeguards were incorporated into the law, to wit: (a) imposition of MCIT only
on the fourth year after commencement of operations; (b) carrying forward of
any excess of MCIT paid over the normal income tax which shall be credited
against the normal income tax for three (3) immediately succeeding years; and
(c) to address the genuine repeated losses that businesses may incur, the
Secretary of Finance is authorized to suspend the imposition of MCIT, if a
corporation suffers loss due to prolonged labor dispute, force majeure and
legitimate business reverses. MCIT is a tax on income as it is imposed on
gross income (sales less cost of sales).
125. ABS-CBN v CTA
FACTS: ABS-CBN Broadcasting Corporation was engaged in the business of
telecasting local as well as foreign films acquired from foreign corporations
not engaged in trade or business with the Philippines for which ABS-CBN
paid rentals after withholding income tax of 30% of one-half of the film
rentals. In implementing Section 4(b) of the Tax Code, the Commissioner
issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting
Corp. dutifully withheld and turned over to the BIR 30% of ½ of the film
rentals paid by it to foreign corporations not engaged in trade or business in the
Philippines. The last year that the company withheld taxes pursuant to the
Circular was in 1968.
RA 5431 amended Section 24 (b) of the Tax Code increasing the tax
rate from 30% to 35% and revising the tax basis from “such amount” referring
to rents, etc. to “gross income.” CIR issued Revenue Memorandum Circular
No. 4-71, revoking General Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax therein prescribed should
be based on gross income without deduction whatever.
Commissioner issued a letter of assessment and demand for
deficiency withholding income tax for years 1965 to 1968. The company
requested for reconsideration; where the Commissioner did not act upon.
ISSUE: Whether Revenue Memorandum Circular 4-71, revoking General
Circular V-334, may be retroactively applied.
RULING: No. Any rulings or circulars promulgated by the CIR have no
retroactive application when it would be prejudicial to taxpayers. The
retroactive application of Memorandum Circular No. 4-71 prejudices ABS-
CBN since (1) the assessment and demand on petitioner to pay deficiency
withholding income tax was also made three years after 1968 for a period of
time commencing in 1965; and, (2) ABS-CBN was no longer in a position to
withhold taxes due from foreign corporations because it had already remitted
all film rentals and no longer had any control over them when the new Circular
was issued.
Respondent’s failure to describe itself as HMO is not tantamount to
bad faith. HMO was first recorded in Philippine statute books upon the
passage of RA 7875 (National Health Insurance Act of 1995). In 1988, when
VAT Ruling No. 231-88 was issued, HMO was yet unknown or had no
significance for tax purposes. “Good faith” is that state of mind denoting
honesty of intention and freedom from knowledge of circumstance which
ought to put the holder upon injury. The CIR is precluded from adopting a
position contrary to one previously taken, where injustice would result to the
taxpayer.
126. Philippine Healthcare Provides v Commissioner
Facts: CIR sent petitioner assessment of deficiency taxes, both VAT and
documentary stamp tax (DST) in the total amount of P224,702,641.18 for
taxable years 1996 and 1997. Petitioner protested such assessment in a letter,
but the respondent did not act on the protest which led the petitioner to file a
petition in the Court of Tax Appeals (CTA) seeking the cancellation of said
assessments. CTA partially granted the petition wherein the petitioner is
ordered to pay the deficiency VAT and set aside the DST deficiency tax.
Respondent appealed in Court of Appeals (CA) with regard to the cancellation
of DST assessment. CA granted the petition. The Court affirmed CA’s
decision. Hence, petitioner filed a motion for reconsideration.
Issue: Whether petitioner is liable to pay the DST on its health care agreement
pursuant to Sec. 185 of the NIRC
Held: Petition granted. Petitioner is not contemplated to be included in “or
other branch insurance” covered by Section 185 of NIRC because it is a Health
Maintenance Organization (HMO) and not an insurance company. HMOs
primary purpose is rendering service to its member by lowering prices and
reducing the cost rather than the risk of medical health. On the other hand,
insurance businesses undertakes for a consideration to indemnify its clients
against loss, damage or liability arising from unknown or contingent event.
The term “indemnify” therein presuppose that a liability or claim has already
been incurred. In HMOs, there is no indemnity precisely because the member
merely avails of medical services to be paid or already paid in advance at a
pre-agreed price under the agreements.
Moreover, HMOs play an important role in society as partners of the State in
achieving its constitutional mandate of providing citizens with affordable
health services.
Also, the DST assessment of the petitioner for the years 1996 and 1997
became moot and academic since it availed tax amnesty under RA 9480 on
December 10, 2007. Thus, petitioner is entitled to immunity from payment of
taxes for taxable year 2005 and prior years.
Applying the ruling retroactively would be prejudicial to the
taxpayer.
127. Commissioner v Michel Lhuillier Pawnshop
FACTS: Revenue Memorandum Orders (RMOs) were issued imposing a 5%
lending investor’s tax on pawnshop. Pursuant to this, the BIR issued an
assessment against Michel J. Lhuillier Pawnshop, Inc. (hereafter Lhuillier)
demanding payment of deficiency percentage tax. Lhuillier filed an
administrative protest, contending, inter alia, that pawnshops are different from
lending investors, which are subject to the 5% percentage tax under the
specific provision of the Tax Code. Its protest having been unacted upon,
Lhuillier with the CTA which declared the RMO’s in question null and void
insofar as they classify pawnshops as lending investors subject to 5%
percentage tax.
ISSUE: Whether or not the RMOs in question are valid
RULING: NO. There are two kinds of administrative issuances: the legislative
rule and the interpretative rule. A legislative rule is in the nature of subordinate
legislation, designed to implement a primary legislation by providing the
details thereof. An interpretative rule, on the other hand, is designed to provide
guidelines to the law which the administrative agency is in charge of
enforcing. When an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance, for it gives no real
consequence more than what the law itself has already prescribed. When, on
the other hand, the administrative rule goes beyond merely providing for the
means that can facilitate or render least cumbersome the implementation of the
law but substantially increases the burden of those governed, it behooves the
agency to accord at least to those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance is given the force and
effect of law.
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as
implementing rules or corrective measures revoking in the process the
previous rulings of past Commissioners. Specifically, they would have been
amendatory provisions applicable to pawnshops. Without these disputed CIR
issuances, pawnshops would not be liable to pay the 5% percentage tax,
considering that they were not specifically included in Section 116 of the
NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the
law. The due observance of the requirements of notice, hearing, and
publication should not have been ignored.
In the absence of publication, Revenue Memorandum Order (RMO)
No. 15-91 and RMC 43-91, imposing the 5% lending investors tax on
pawnshops, are not valid. While the rule-making authority of the CIR is not
doubted, like any other government agency, the Commissioner may not
disregard legal requirements or applicable principles in the exercise of quasi-
legislative powers. The due observance of requirements of notice, hearing, and
publication should not have been ignored.
128. CIR v Filinvest (620)
FACTS: FDC owns 80% of the outstanding shares of FAI and 67.42% of FLI.
FDC and FAI entered into a Deed of Exchange with FLI where the former will
transfer parcels of land to the latter and in exchange, shares of stock of FLI
were issued to FDC and FAI. BIR assessed both FDC and FAI for deficiency
taxes. One of the bases for the assessment is the cash advances FDC extended
in favor of its affiliates. The CIR argued that they were interest free despite the
interest bearing loans it obtained from banking institutions.
ISSUE: Whether the advances extended by respondent to its affiliates are
subject to income tax
RULING: CIR's power to distribute, apportion or allocate gross income or
deductions between or among controlled taxpayers may be exercised as long
as the controlled taxpayer's taxable income is not reflective of that which it
would have realized had it been dealing at arm's length with an uncontrolled
taxpayer, the CIR can make the necessary rectifications in order to prevent
evasion of taxes. However, the to power to impute "theoretical interests" is not
included in the broad parameters of CIR. There is no evidence of actual or
possible showing that the advances FDC extended to its affiliates had resulted
to the interests subsequently assessed by the CIR.
Sec. 43 of the Tax Code authorizes the CIR to distribute, allocate or
apportion gross income or deductions between or among controlled
corporations in order to prevent evasion of taxes. Despite the broad
parameters, however, the power of the CIR does not include the power to
impute “theoretical interests” to the controlled taxpayer’s transactions. There
must be proof of the actual or at least, probable receipt or realization by the
controlled taxpayer of the item of gross income sought to be distributed or
allocated by the CIR. However, the CIR adduced no concrete proof that said
funds were, indeed, the source of the advances the former provided its
affiliates. While admitting FDC obtained interest-bearing loans from
commercial banks, FDC clarified that the subject advances were sourced from
the corporation’s rights offering in 1995 as well as the sale of investment in
Bonifacio Land 1997. Article 1956 of the Civil Code provides that no interest
shall be due, unless it has been expressly stipulated in writing. Considering
that taxes, being burdens, are not presumed beyond what the applicable statute
expressly and clearly declares, the rule is likewise settled that tax statutes must
be construed strictly against the government and liberally in favor of the
taxpayer.
129. Commissioner v Ariete (621)
FACTS: Mercado filed an affidavit attesting that respondent earned
substantial income in 1994, 1995, and 1996 without paying income tax. The
SID then issued an order to investigate the denunciation made and submit a
progress repot. Thereafter, the revenue officer submitted a report stating that
respondent admitted her non-filing of income tax returns. The respondent then
filed her income tax returns under the Voluntary Assessment Program (VAP).
A notice of assessment was then issued against respondent finding a tax
deficiency amounting to P191,463.04.
Upon assessment, respondent filed for assessment protest and
offered a compromise settlement but the same was denied. Consequently,
respondent filed a petition for review and the CTA granted such and rendered a
decision cancelling the deficiency assessments. The CTA stated that when
respondent filed her income tax returns on 2 December 1997, she was not yet
under investigation by the Special Investigation Division. The Letter of
Authority to investigate respondent for tax purposes was issued only on 28
July 1998. Further, respondent’s case was not duly recorded in the Official
Registry Book of the BIR before she availed of the VAP.
The CTA ruled that the conjunctive word "and" is used; therefore, all
of the above requisites must be present before a person may be excluded from
the coverage of the VAP. The CTA explained that the word "and" is a
conjunction connecting words or phrases expressing the idea that the latter is
to be added or taken along with the first.
ISSUE: Whether the CA erred in holding that the recording in the Official
Registry Book of the BIR of the information filed by the informer under
Section 28 of the Tax Code is a mandatory requirement before a taxpayer-
applicant may be excluded from the coverage of the VAP.
RULING: Verba legis. The Court explained that were the language of the law
is clear and unequivocal, it must be given its liberal application and applied
without interpretation. The conjunctive word “and” is not without legal
significance. It means “in addition to.” The word “and,” whether it is used to
connect words, phrases or full sentences must be accepted as binding together
and as relating to one another. It implies conjunction or union. When a tax
provision speaks unequivocably, it is not the province of a Court to scan its
wisdom or its policy. The more correct course of dealing with a question of
construction is to take the words exactly what they say.
130. Commissioner v Philex Mining Corporation (Philex v CIR case
only) (CTA case cannot be found)
DOCTRINE: The law presumes that the BIR had sufficiently passed upon the
taxpayer’s compliance before acceptance of tax amnesty payment. – The law
presumes that the BIR had sufficiently passed upon the taxpayer’s compliance,
much more the details of the SALN, before the acceptance of the applicable
amnesty tax payment. In the instant case, the CIR even failed to file a timely
motion for reconsideration when the Court in Division resolved PMC’s
availment of the tax amnesty. Thus, he cannot raise at this point in time that
the CTA can inquire into the correctness of PMC’s SALN, when the CIR itself
have easily denied accepted of PMC’s availment of the tax amnesty.