DIGESTS

1. PAL v CIR

Supreme Court rules that PAL is entitled to its claim for refund for taxes withheld by
Chinabank, PBCom, and Standard Chartered. Remittance need not be proven. PAL needs
only to prove that taxes were withheld from its interest income.

2. CIR v BPI

CTA properly acquired jurisdiction over the case. Under Section 7 of R.A. No. 9282, CTA has
exclusive appellate jurisdiction to review by appeal inaction by the CIR in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matter arising under the NIRC or other laws administered by the BIR,
where the NIRC provides a specific period of action, in which case the inaction shall be deemed
a denial.

Under Sec. 229 of NIRC, Assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable. If the protest is denied in whole and in part,
the individual, association or corporation adversely affected by the decision on the protest may
appeal to the CTA within 30 days from receipt of the said decision; otherwise, the decision shall
become final, executory and demandable.

Under the NIRC, assessment must be made within 3 years from the last day of filing of ITR or
from the day ITR was filed if it is filed late. Since PAN was sent by the BIR almost 4 years (March
1991) after the April 15, 1987 and waivers executed were invalid, it is clear that the right of CIR
to assess has already prescribed. For the period of collection, it also prescribed. If it will be
reckoned, the period to collect from May 6, 1991, or the alleged Final Demand Letter on
February 5, 1992, counting the three-year period therein to collect, the mode of collection
through the issuance of Warrant of Distraint and/or Levy on October 05, 2011 was made beyond
the prescriptive period. It must be remembered that the law imposes a substantive, not merely
a formal, requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in administrative investigations:
that taxpayers should be able to present their case and adduce supporting evidence.

3. CBK POWER COMPANY v CIR

NO. The law does not require that the Commissioner first act upon the taxpayer's claim, and
that the taxpayer shall not go to court before he is notified of the Commissioner’s action.
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer's claim must be filed within two (2) years from
the date of payment of the tax or penalty. However, Section 229 of the NIRC further states the
condition that a judicial claim for refund may not be maintained until a claim for refund or credit
has been duly filed with the Commissioner.
4. CIR v NAGASE

The Supreme Court had consistently ruled in a number of cases that a request for
reconsideration and reinvestigation by the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as required by the Tax Code and implementing
rules, will not suspend the running thereof. The CIR argues that her right to assess Nagase for
deficiency income tax for the year 2003 has not prescribed pursuant to Section 222 of the NIRC.

Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.- (a) In
the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection
thereof." As provided above, in cases when a false or fraudulent return is ftled with the intent of
evading the tax or when no return was ftled at all, the CIR can assess or begin a court
proceeding for the collection without an assessment within ten years. In these cases, the ten-
year period for prescription begins, or is counted from the date of discovery of the falsity, fraud
or omission. The fraud contemplated by Section 222 is actual and not constructive, and must
amount to intentional wrong-doing with the sole object of avoiding taxation, not merely error.
Fraud must be proven by clear and convincing evidence, and not by mere conjectures and
speculations. Beyond the allegation of fraud in its "Details of Discrepancies" and presentation of
internal Memoranda prepared by Revenue Officer Dionisio Lumagui mentioning the same, not
much else was asserted or presented to bolster the serious allegation. Neither was this
allegation tackled

In fine, We see no cogent reason to deviate from our previous ruling that due to petitioner's
failure to prove fraud on the part of Nagase, the assessment issued against Nagase beyond the
three year period, is therefore, void.

5. CIR v ALPHA RIGGINGG

the Supreme Court ruled that failure to strictly comply with notice requirements prescribed
under Section 228 of the National Internal Revenue Code of 1997 and R.R. No. 12-99 is
tantamount to a denial of due process, regardless of the failure to file a protest in the
assessment, for it is well-settled that a void assessment bears no fruit. Section 228 of the Tax
Code clearly requires that the taxpayer must first be informed that he is liable for deficiency
taxes through the sending of a PAN. He must be informed of the facts and the law upon which
the assessment is made. The law imposes a substantive, not merely a formal, requirement.

A pe . rusal of the respondent taxpayer's pretrial brief reveals that among the issues
raised is that CIR did not afford the taxpayer its right to due process. Also, the CTA
Division, a court of competent jurisdiction is vested with the authority to resolve even
unassigned issues and it can do so when such is indispensable or necessary to a just
resolution of issues raised in a particular pleading or when the unassigned issues are
inextricably linked or germane to those that have been pleaded.

6. PAL v CIR
 Yes. Petitioner was able to comply with all the requisites under Section 13 ofPD No. 1590 for it
to be exempt from payment of the specific taxes on its importations of Jet A-1 used for its
transport operations, but in the reduced amount of Php897,445,271.84. Imported Jet A-1 was
used in petitioner's transport and non- transport operations, and other activities incidental
thereto was able to sufficiently show that the imported Jet A-1 was not locally available in
reasonable quantity and price at the time of the importations. But those excise tax on the
importation of Jet A-1 whixh was not supported with any IERD shall be deducted.

7. PREMIUM LEISURE v CIR

Mere distribution of liquidating dividends of a corporation is not to be treated as sale for

purposes of the imposition of CGT. The Court in Division held that CGT is a tax on the gain from
sale of taxpayer's property from part of capital assets and such definition implies that in order to
be liable for payment of CGT, one has to profit or gain from sale, exchange or disposition of the
real property. Thus, in the absence of income from or the absence of sale, disposition or
conveyance of real property, the imposition of CGT does not arise. Receipt by a stockholder,
whether corporate or individual, of liquidating dividends is not subject to CGT. The basis for this
position is not because of the absence of income from or the absence of sale, disposition or
conveyance of real property, but because such transaction is subject to ordinary income tax on
the part of the individual stockholders, or corporate income tax for corporate stockholders.
Section 73(A) of the 1997 NIRC definitely provides that any gain derived, or any loss sustained by
a stockholder from its receipt of liquidating dividends shall be treated as taxable income or
deductible loss, as the case may be.

8. SOLD ONE MILLS v CIR

NO, the CTA has no jurisdiction. Sec. 11 of RA 1125, as amended by RA 9282 states that a
party adversely affected by a decision or inaction of the CIR may file an appeal with the CTA
within 30 days after receipt of such decision ruling. Sec. 3.1.4 of RR No. 12-99, as amended,
provides that if the protest is denied, in whole or in part, by the CR, the taxpayer may appeal to
the CTA within 30 days from receipt of said decision. Petitioner received the BIR
categoricaissued letter on March 16, 2012. Based on that letter, it was lly stated that the
assessment had already become final and executory. The letter already informed the
petitioner that its case shall already be forwarded to the BIR’s collection division. Oceanic
Wireless Network v. CIR : A demand letter may be considered the final decision on a disputed
assessment, if the language used or the tenor thereof shows a character of finality, which is
tantamount to a rejection of the request for reconsideration.

In this case, the letter constitutes the final decision of respon dent that is appealable to the
CTA. There is no doubt that respondent had already made a conclusion to deny petitioner’s
request and he had the clear resolve to collect the subject taxes. Petitioner had 30 days from
March 16, 2012 or until April 15, 2012, within which to file its Pet Rev. However, petitioner
filed its petition only on October 18, 2012.

9. PETRON CORP v CIR

CTA has jurisdiction. While generally, no recourse to courts can be had until all administrative
remedies have been exhausted, petitioner submits that this rule is not applicable where the
 challenged / administrative act is patently illegal, amounting to lack or in excess of jurisdiction
and where the question(s) involved is essentially judicial. Petitioner opines that its immediate
resort to the CTA is justified under attendant circumstances as an exception to the rule on non-
exhaustion of administrative remedies.

10. CIR v LUDO & LUYM

Finally, petitioner asserts that his right to assess respondent's deficiency VAT has not yet
prescribed because respondent filed false or fraudulent return. Thus, the tax may be assessed
within ten (10) years after the discovery of the falsity. According to petitioner, this is evident
from the final decision signed by former Commissioner Kim Jacinto Henares where she imposed
a fifty percent (50%) surcharge against petitioner.

In the instant case, there is no showing that respondent has substantially underdeclared
its sales, receipt or income. Meanwhile, the presumption of falsity of returns cannot arise
by mere assertion that the former commissioner imposed surcharge against respondent.
Hence, in the abs ence of proof of substantially underdeclared sales, receipt or income,
the presumption of falsity of returns cannot be applied. Therefore, respondent had only
three (3) years to assess respondent's deficiency VAT under Section 203 of the NIRC of 1997,
as a mended.

11. GENERAL FOODS v CIR

Before an expense is allowed as deduction from gross income, it must satisfy the following
requirements: 1. It must be both ordinary and necessary; 2. It must be paid or incurred within
the taxable year; 3. It must be incurred in carrying on a trade or business

The CTA held in Visayan Cebu Terminal Co., Inc. v. Collector of Internal Revenue that an
expense is necessary when the expenditure is appropriate or helpful in the development of the
taxpayer’s business or that the same is proper for the purpose of realizing a profit or minimizing
a loss, as distinguished from one not pertinent to the business of the taxpayer

General Rule: Advertising expenses are deductible in the year when paid or incurred.
Limitations: 1. The reasonableness of the amount. 2. Whether or not the questioned advertising
expenses are actually capital outlays to create “goodwill” to the product and/or business, and
hence, considered as capital expenditure to be spread over the life of the asset.

The CTA held that the said amount was incurred to create some form of goodwill for petitioner’s
trade or business, and thus, is not a deductible business expense but rather a capital
expenditure.

12. ARMCO MARSTEEL v CIR

The corporate quarterly and annual income tax return for the fiscal year ending October 31,
1989 as well as the confirmation receipts and payment orders showing the amount of taxes
paid, were all attached to the petition. It clearly shows the date when said taxes in questioned
were paid – the petitioner therefore, states a cause of action The quarterly income tax
payments for the first and second quarters of fiscal year 1989 should only be considered mere
 instalments of the annual tax due. R.A. 5186 prescribes a minimum requirement of notification
and not approval by the BIR of the availment of the incentive adopting the accelerated
depreciation. The option to use the accelerated depreciation is on the preferred pioneer
enterprise. Having exercised its power of choice, petitioner's only obligation is to notify
respondent of that choice. Petitioner can validly deduct the accelerated depreciation from its
income.

13. CIR v ST LUKES

The Court held that charitable institutions were not automatically granted tax exemptions. Tax
exemptions are given by the Congress under specific laws (except for exemption from real
property taxation which was given by the Constitution of the Philippines). Section 30(E) of the
NIRC defines a charitable institution as: (1) a non-stock corporation or association; (2)
organised exclusively for charitable purposes; (3) operated exclusively for charitable purposes;
and (4) with no part of its net income or assets belonging to or inuring to the benefit of any
member, organiser, officer or any specific person. There was no doubt that St Luke’s was
organised as a non-stock, non-profit charitable institution. However, this did not automatically
exempt it from paying taxes. The last paragraph of section 30 of the NIRC stated that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code. (emphasis added) Therefore, the Court said
that ‘if a tax exempt charitable institution conducts ‘any’ activity for profit, such activity is not
tax exempt even if its not-for profit activities remain tax exempt’

The Court therefore held that St Luke’s was not operated exclusively for charitable or social
welfare purposes. It received income from paying patients. This income was subject to 10%
taxation under section 27(B) of the NIRC

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

14. SOUTH AFRICAN AIRWAYS v CIR

Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for
32% tax on all income from sources within the Philippines. Sec. 28(A)(3) is an exception to this
general rule. In the instant case, the general rule is that resident foreign corporations shall be
liable for a 32% income tax on their income from within the Philippines, except for resident
foreign corporations that are international carriers that derive income from carriage of persons,
excess baggage, cargo and mail originating from the Philippines which shall be taxed at 2 1/2%
of their Gross Philippine Billing
 Petitioner, being an international carrier with no flights originating from the Philippines, does
not fall under the exception. As such, petitioner must fall under the general rule. This principle is
embodied in the Latin maxim, exception firmat regula

in casibus non exceptis, which means, a thing not being excepted must be regarded as coming
within the purview of the general rule. As to REFUND: Here, petitioners similar tax refund
claim assumes that the tax return that it filed was correct. Given, however, the finding of the
CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under
Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt. As such, we
cannot grant the prayer for a refund.

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

15. CIR v GCL RETIREMENT PLAN

Yes. Exemption upheld. The taxexemption privilege of employees' trusts, as distinguished

from any other kind of property held in trust, springs from the foregoing provision (Sec.
56(b) of the Tax Code, as amended by RA 1983 which took effect June 22, 1957 and RA
4917 which was approved on June 17, 1967) . e It is unambiguous. Manifest therefrom is
that the tax law has singled out mployees' trusts for tax exemption. And rightly so, by
virtue of the raison de'etre behind the creation of employees' trusts. Employees' trusts or
benefit plans normally provide economic assistance to employees upon the occurrence of
certain contingencies, particularly, old age retirement, death, sickness, or disability. It
provides security against certain hazards to which members of the Plan may be exposed.
It is an independent and additional source of protection for the working group. What is
more, it is established for their exclusive be nefit and for no other purpose