Tax 2 Case Digests Part 1 Remedies Under the NIRC of Atty. Lock's Syllabus Complete

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

ASSESSMENT OF INTERNAL REVENUE TAXES A. DEFINITION/NATURE/EFFECT/BASIS Commissioner of Internal Revenue vs. Sony Philippines, Inc., 635 SCRA 234, G.R. No. 178697. November 17, 2010 Mendoza, J. Facts: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue officers to examine Sony’s books of accounts and other accounting records regarding revenue taxes for “the period 1997 and unverified prior years.” After the examination of said books, the CIR found out, among others, that Sony Philippines is liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41. Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said deficiency were the records covering the period of January 1998 through March 1998 which was a period not covered by the letter of authority so issued. The CIR countered that the LOA phrase “the period 1997 and unverified prior years” should be understood to mean the fiscal year ending on March 31, 1998. Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony Philippines on this one. So did the CTA en banc. Issue: Whether or not the deficiency assessments against Sony Philippines is valid? Held: No. The LOA issued is clear on which period is covered by the examination to be conducted. It’s only meant to cover the year “1997 and unverified prior years” not the year 1998. The revenue officers who examined the records covering the period of January to March 1998 had exceeded the jurisdiction granted to them by the LOA. Further, the LOA which covered “1997 and unverified prior years” is in violation of the principle that a Letter of Authority should cover a taxable period not exceeding one taxable year. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the LOA (as embodied in Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990). CASE SYLLABI: Taxation; Assessment; Letter of Authority (LOA); A Letter of Authority or (LOA) is the authority given to the appropriate revenue officer assigned to perform assessment functions.—Based on Section 13 of 1|Ms. Nolaida Aguirre


the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer. Same; Same; Same; In the absence of such an authority, the assessment or examination is a nullity.— There must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 309 SCRA 402, G.R. No. 128315. June 29, 1999 Panganiban, J. Facts: Pascor Realty and Development Corporation (PRDC) was found out to be liable for a total of P10.5 million tax deficiency for the years 1986 and 1987. In March 1995, the Commissioner of Internal Revenue (CIR) filed a criminal complaint against PRDC with the Department of Justice. Attached to the criminal complaint was a joint affidavit executed by the tax examiners. PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC averred that the affidavit attached to the criminal complaint is tantamount to a formal assessment notice (FAN) hence can be subjected to protest; that there is a simultaneous assessment and filing of criminal case; that the same is contrary to due process because it is its theory that an assessment should come first before a criminal case of tax evasion should be filed. The CIR then filed a motion to dismiss (MTD) on the ground that the CTA has no jurisdiction over the case because the CIR has not yet issued a FAN against PRDC; that the affidavit attached to the complaint is not a FAN; that since there is no FAN, there cannot be a valid subject of a protest. The CTA however denied the MTD. It ruled that the joint affidavit attached to the complaint submitted to the DOJ constitutes an assessment; that an assessment is defined as simply the statement of the details and the amount of tax due from a taxpayer; that therefore, the joint affidavit which contains a computation of the tax liability of PRDC is in effect an assessment which can be the subject of a protest. This ruling was affirmed by the Court of Appeals. Issues: (1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. Held: No. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on 2|Ms. Nolaida Aguirre


and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the CTA. Further, such affidavit was not issued to the taxpayer, it was submitted as an attachment to the DOJ. It must also be noted that not every document coming from the Bureau of Internal Revenue which provides a computation of the tax liability of a taxpayer can be considered as an assessment. An assessment is deemed made only when the CIR releases, mails or sends such notice to the taxpayer. Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal Revenue Code specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the NIRC clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. CASE SYLLABI: Courts; Taxation; National Internal Revenue Code; Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return.—The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. Same; Same; Same; Assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.—It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers’ Affidavit merely contained a computation of respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return, proceedings in court may be commenced without an assessment.—Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion

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cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge can be filed.—Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.—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. Sy Po vs. Court of Tax Appeals, 164 SCRA 524, No. L-81446. August 18, 1988 Sarmeinto, J. Facts: Po Bien Sing was the sole proprietor of Silver Cup Wine Factory engaged in the manufacture and sale of compounded liquors. On the basis of a denunciation against Silver Cup allegedly “for tax evasion amounting to millions of pesos,” an investigation was conducted by the BIR. A subpoena duces tecum was issued against Silver Cup requesting the production of accounting records and other related documents. Po Bien Sing did not produce the said documents so the BIR investigation team entered the factory and seized the different brands of alcohol products inside. On the basis of the investigation teams’ report, Silver Cup was assessed deficiency income tax of P5,596,003.68 which Po Bien Sing protested. However, since he still did not present the documents requested, the assessment remained. BIR then issued warrants of distraint and levy. In short, the protests were denied so Po Bien Sing (represented by his wife because he was already dead) brought the case to the Supreme Court. Issue: Whether or not the assessment is valid and has legal basis. Held: Yes. The Supreme Court ruled that the assessment was valid. One of the powers of the Commissioner of Internal Revenue under the NIRC is to make an assessment with the available information in case the taxpayer makes a fraudulent return or does not make a return at all. This basically speaks of the principle 4|Ms. Nolaida Aguirre


of “best evidence obtainable.” In this case, the failure of Po Bien Sing to produce the required documents left the Commissioner with no choice but to exercise the said power. The assessment was not arbitrary as alleged by So Bien Sing because it was based on the number bottles of wines seized during the raid and sworn statements of the employees. Tax assessments by tax examiners are presumed correct and made in good faith. The burden to prove otherwise is on the taxpayer. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of the tax. Furthermore, the taxpayer should not only prove that the tax assessment is wrong. He must also prove what is the correct and just liability by a full and fair disclosure of all pertinent data in is possession. Otherwise, the tax court proceedings would settle nothing and the whole process may be repeated again if the taxpayer does not like the subsequent assessment. CASE SYLLABI: Same; Same; Rule on the “best evidence obtainable,” when applicable.—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 the tax report is incomplete or fraudulent. Same; Same; The failure of the taxpayers to present their books of accounts for examination for taxable years compelled the Commissioner of Internal Revenue to resort to the power conferred on him under the Tax Code.—In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books of accounts for examination for the taxable years involved left the Commissioner of Internal Revenue no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code. Same; Same; Tax assessments; Presumption in favor of the correctness of tax assessments.—Tax assessments 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 any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. Same; Same; Same; Fraudulent acts attributed to the taxpayer had not been satisfactorily rebutted.—On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer to deprive the Goverment of the taxes due. Fitness by Design, Inc. vs. Commissioner of Internal Revenue, 569 SCRA 788, G.R. No. 177982. October 17, 2008 Carpio-Morales, J. Facts: Commissioner on Internal Revenue (respondent) assessed Fitness by Design, Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner protested and filed a Petition for Review with 5|Ms. Nolaida Aguirre


Motion to Suspend Collection of Income Tax, before the Court of Tax Appeals and raised prescription as a defense. A preliminary hearing on the issue of prescription was conducted during which petitioner’s former bookkeeper attested that certified public accountant Leonardo Sablan – illegally took custody of petitioner’s accounting records, invoices, and official receipts and turned them over to the BIR. Petitioner requested for the issuance of subpoena ad testificandum to Sablan for the hearing and of subpoena duces tecum to the BIR for the production of the Affidavit of the Informer bearing on the assessment in question. In addition, petitioner submitted written interrogatories addressed to Sablan. The CTA denied petitioner’s motion for Issuance of Subpoenas and disallowed the submission by petitioner of written interrogatories to Sablan. The CTA found that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of violations of internal revenue laws, except when the information is proven to be malicious or false. Petitioner filed a rule 65. Issue: Whether or not the of petitioner’s accounting records, invoices, and official receipts were obtained by the BIR illegally? Held: No. Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.33 To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. Petitioner’s invocation of the rights of an accused in a criminal prosecution to cross examine the witness against him and to have compulsory process issued to secure the attendance of witnesses and the production of other evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal prosecution, and even granting that it is related to I.S. No. 2005-203, the respondents in the latter proceeding are the officers and accountant of petitioner-corporation, not petitioner. From the complaint and supporting affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness against the respondents therein. CASE SYLLABI: Taxation; In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized.—Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of 6|Ms. Nolaida Aguirre


consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. Thus Section 5 of the Tax Code provides: In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized. Same; The law thus allows the Bureau of Internal Revenue (BIR) access to all relevant or material records and data in the person of the taxpayer, and the Bureau of Internal Revenue (BIR) can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.—The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. B. PERIOD TO ASSESS DEFICIENCY TAX Republic of the Phils. vs. Ablaza, 108 Phil. 1105, No. L-14519 July 26, 1960 Labrador, J.

Facts: The Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee to a total P5,254.70.Respondent requested a reinvestigation of tax liability which was granted by the Collector of Internal Revenue. Final assessment was fixed at P2,066.56. Respondent protested the assessment contending that the income taxes are no longer collectible for the reason that they have already prescribed. As the Collector did not agree to the alleged claim of prescription, action was instituted for the recovery of the amount assessed. The Court of First Instance upheld the contention of Ablaza that the action to collect the said income taxes had prescribed. Thus this appeal. Issue: Whether or not the letter in question (Exhibit L) is a letter asking for another investigation that would warrant the suspension of the prescriptive period. Held: Judgment of the lower court dismissing the action is affirmed. The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, lawabiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted liberally in a way conducive to bringing about the beneficial purpose of affording protection to the taxpayers 7|Ms. Nolaida Aguirre


CASE SYLLABI: INCOME TAX, COLLECTION, LIMITATION OF ACTIONS, PURPOSE; BENEFICIAL BOTH TO GOVERNMENT AND CITIZENS.—The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens, to the government because tax officers would be obliged to act properly in the making' of assessments and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability but to take advantage of every opportunity to molest peaceful law abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. ID.; ID.; ID.; REMEDIAL MEASURE; INTERPRETATION.—The law of prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. Commissioner of Internal Revenue vs. Primetown Property Group, Inc., 531 SCRA 436, G.R. No. 162155. August 28, 2007 Corona, J. Facts: Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a refund or credit of income tax which Primetown paid in 1997. He claimed that they are entitled for a refund because they suffered losses that year due to the increase of cost of labor and materials, etc. However, despite the losses, they still paid their quarterly income tax and remitted creditable withholding tax from real estate sales to BIR. Hence, they were claiming for a refund. On May 13, 1999, revenue officer Elizabeth Santos required Primetown to submit additional documents to which Primetown complied with. However, its claim was not acted upon which prompted it to file a petition for review in CTA on April 14, 2000. CTA dismissed the petition as it was filed beyonf the 2-year prescriptive period for filing a judicial claim for tax refund according to Sec 229 of NIRC. According to CTA, the two-year period is equivalent to 730 days pursuant to Art 13 of NCC. Since Primetown filed its final adjustment return on April 14, 1998 and that year 2000 was a leap year, the petition was filed 731 days after Primetown filed its final adjusted return. Hence, beyond the reglementary period. Primetown appealed to CA. CA reversed the decision of CTA. Hence, this appeal. Issues: (1) How should the two-year prescriptive period be computed? (2) Whether or not the claim for tax refund was filed within the two-year period? Held: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods. Under the Civil Code, a year is 8|Ms. Nolaida Aguirre


equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. We therefore hold that respondent’s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period. CASE SYLLABI: Taxation; Prescription; The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return; A year is equivalent to 365 days regardless of whether it is a regular year of a leap year.—The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. But how should the two-year prescriptive period be computed? As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, 29 SCRA 70 (1969), we ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap year. Same; Words and Phrases; Calendar Month; A calendar month is a month designated in the calendar without regard to the number of days it may contain.—A calendar month is “a month designated in the calendar without regard to the number of days it may contain.” It is the “period of time running from the beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month, and if there is not a sufficient number of days in the next month, then up to and including the last day of that month.” To illustrate, one calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008. Statutory Construction; Statutes; Repeals; A repealing clause like Sec. 27, Book VII of the Administrative Code of 1987 is not an express repealing clause because it fails to identify or designate the laws to be abolished; An implied repeal must have been clearly and unmistakably intended by the legislature.—A repealing clause like Sec. 27, Book VII of the Administrative Code of 1987 is not an express repealing clause because it fails to identify or designate the laws to be abolished. Thus, the provision above only impliedly repealed all laws inconsistent with the Administrative Code of 1987. Implied repeals, however, are not favored. An implied repeal must have been clearly and unmistakably intended by the legislature. The test is whether the subsequent law encompasses entirely the subject matter of the former law and they cannot be logically or reasonably reconciled. Same; Same; Same; Court holds that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods.—Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it 9|Ms. Nolaida Aguirre


be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Commissioner of Internal Revenue vs. Ayala Securities Corporation, 101 SCRA 231, No. L -29485. November 21, 1980 Teehankee, J. Facts: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioner’s decision and held that the assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against the right of the Commissioner to assess the surtax. Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after five years. Held: No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express statutory provision limiting such right or providing for its pre scription. Hence, the collection of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the CTA. Notes: “Although petitioner filed an income tax return, no return was filed covering its surplus profits which were improperly accumulated. In fact, no return could have been filed, and the law could not possibily require, for obvious reasons, the filing of a return covering unreasonable accumulation of corporate surplus profits. A tax imposed upon unreasonable accumulation of surplus is in the nature of a penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law to compel a corporation to report improper accumulation of surplus. Accordingly, Section 331 limiting the right to assess internal revenue taxes within five years from the date the return was filed or was due does not apply. “It will be noted that Section 332 has reference to national internal revenue taxes which require the filing of returns. This is implied from the provision that the ten-year period for assessment specified therein treats of the filing of a false or fraudulent return or of a failure to file a return. There can be no failure or omission to file a return where no return is required to be filed by law or by regulations. It is, therefore, our

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opinion that the ten-year period for making an assessment under Section 332 does not apply to internal revenue taxes which do not require the filing of a return. “It is well settled limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond which the government may recover unpaid taxes is purely dependent upon some express statutory provision, (51 Am. Jur. 867; 10 Mertens Law on Federal Income Taxation, par. 57. 02.). It follows that in the absence of express statutory provision, the right of the government to assess unpaid taxes is imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner of Internal Revenue to assess the tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be assessed at any time.”

CASE SYLLABI: Taxation; Prescription; Collection of surtax on excess profits does not prescribe there being no law providing a prescriptive period therefor.—The Court is persuaded by the fundamental principle invoked by petitioner that limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. Same; Same.—The Court, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect the assessment in question had prescribed after five years, and instead rules that there is no such time limit on the right of the Commissioner of Internal Revenue to assess the 25% tax on unreasonably accumulated surplus provided in section 25 of the Tax Code, since there is no express statutory provision limiting such right or providing for its prescription. The underlying purpose of the additional tax in question a corporation’s improperly accumulated profits or surplus is as set forth in the text of section 25 of the Tax Code itself to avoid the situation where a corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. The record amply shows that respondent corporation is a mere holding company of its shareholders through its mother company, a registered copartnership then set up by the individual shareholders belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code, therefore, applied without having been adequately rebutted by the respondent corporation. Butuan Sawmill, Inc. vs. Court of Tax Appeals, et al., 16 SCRA 277, No. L-20601. February 28, 1966. Reyes, J.B.L., J. Facts: During the period from January 31, 1951 to June 8, 1953, it sold logs to Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit, also in Agusan); that the FOB prices included costs of loading, wharfage stevedoring and other costs in the Philippines; that the quality, quantity 11 | M s . N o l a i d a A g u i r r e


and measurement specifications of the logs were certified fry the Bureau of Forestry that the freight was paid by the Japanese buyers; and the payments of the logs were effected by means of irrevocable letters of credit in favor of petitioner and payable through the Philippine National Bank or any other bank named by it. Upon investigation by the Bureau of Internal Revenue, it was ascertained that no sales tax return was filed by the petitioner and neither did it pay the corresponding tax on the sales. . On the basis of agent Antonio Mole’s report dated September 17, 1957, respondent, on August 27, 1958, determined against petitioner the sum of P40,004.01 representing sales tax, surcharge and compromise penalty on its sales [tax, surcharge and compromise penalty on its sales] of logs from January 1951 to June 1953 pursuant to Sections 183, 186 and 209 of the National Internal Revenue Code . And in consequence of a reinvestigation, respondent, on November 6, 1958, amended the amount of the previous assessment to P38,917.74. Subsequent requests for reconsideration of the amended assessment having been denied, petitioner filed the instant petition for review on November 7, 1960. Issues: (1) Whether or not petitioner herein is liable to pay the 5% sales tax as then prescribed by Section 186 of the Tax Code on its sales of logs to the Japanese buyers; and (2) Whether or not the assessment thereof was made within the prescriptive period provided by law therefor. Held: (1) Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been consummated in the Philippines and were, accordingly, subject to sales tax therein.” (Taligaman Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-15716, March 31, 1962). With respect to petitioner’s contention that there are proofs to rebut the prima facie finding and circumstances that the disputed sales were consummated here in the Philippines, we find that the allegation is not borne out by the law or the evidence. (2) An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within tho time stated in Section 332 (a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, May 29, 1959). The principle enunciated in this last cited case is applicable by analogy to the case at bar.



It being undisputed that petitioner failed to file a return for the disputed sales corresponding to the years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332 (a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, it is evident that the lower court correctly held that the assessment and collection of the sales tax in question has not yet prescribed. CASE SYLLABI: Taxation; Sales tax; Sale of logs “F.O.B., Agusan”.—Petitioner sold logs to Japanese firms at prices FOB Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales being domestic or local, they are subject to sales tax under Section 186 of the Tax Code, as amended. Same; Title to goods deliverable to order of seller or his agent may pass upon delivery to the carrier.— The specification in the bill of lading that the goods are deliverable to the order of the seller or his agent does not necessarily negative the passing of title to the goods upon delivery to the carrier. (Art. 1503, New Civil Code). Same; Prescription; Income tax return is not deemed a return for sales tax purposes.—For purposes of computing the period of prescription under Section 331 of the Tax Code, an income tax return cannot be considered as a return for compensating tax or sales tax purposes. The taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of the law. If he does not file such a return, an assessment may be made within ten (10) years from and after the discovery of the omission to file the return. (Section 332[a] of the Tax Code; Cf. Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue and Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L12100 & L-11812, May 29, 1959.) Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd., 14 SCRA 52, No. L -19727. May 20, 1965 Bengzon, J.P., J. Facts: Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is licensed to do business in the Philippines with head office in London. Through its head office, it entered in London into worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability from such original insurances. On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd. The assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross Philippine income as claimed in the returns. 13 | M s . N o l a i d a A g u i r r e


Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied such protest. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of withholding tax return. Issues: (1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed abroad are subject to withholding tax; (2) Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1952 against Phoenix Assurance Co., Ltd. has prescribed; Held: The question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to contracts executed abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54 of the Tax Code has already been resolved in the affirmative in British Traders’ Insurance Co., Ltd. v. Commissioner of Internal Revenue, L-20501, April 30, 1965.1 Notes: The question is: Should the running of the prescriptive period commence from the filing of the original or amended return? ‘xxx the deficiency income tax in question could not possibly be determined, or assessed, on the basis of the original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93, the mere disallowance of part of the head office expenses could not possibly result in said loss being completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on August 30, 1955 could the Commissioner assess the deficiency income tax in question.” Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the amended return. Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed. CASE SYLLABI: Taxation; Income tax; Reinsurance premiums subject to withholding tax.—Reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed 14 | M s . N o l a i d a A g u i r r e


abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54 of the Tax Code. Same; Same; Period of prescription to assess deficiency income tax commences from filing of amended return.—Where the deficiency assessment is based on the amended return, which is substantially different from the original return, the period of prescription of the right to issue the same should be counted from the filing of the amended, not the original income tax return. Same; Same; Taxpayer may claim lesser deduction than allowed by law.—For income tax purposes a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. Same; Same; Items of income not belonging to Philippines excluded in determining expenses allocable to Philippines.—Since the items of income not belonging to its Philippine business’ are not taxable to its Philippine branch, they should be excluded in determining the head expenses allocable to a Philpine branch of a foreign corporation. Same; Same; Interest on taxes unpaid due to Commissioner’s opinion imposed only from failure to comply with court’s final judgment.—Where the taxpayer’s failure to pay the withholding tax was due to the Commissioner’s opinion that no withholding tax was due, the taxpayer can be held liable for the payment; of statutory penalties only upon its failure to comply with the Court’s final judgment.

Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757, No. L-19495. November 24, 1966 Bengzon, J.P., J. Facts: In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958. Issue: Whether or not the state and inheritance tax return file by Jose Yusay was defective and hence the right of the CIR to make an assessment has not prescribe. Held: It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment 15 | M s . N o l a i d a A g u i r r e


(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died). CASE SYLLABI: Taxation; Evidence of fraud.—Fraud is a question of fact. The circumstances constituting it must be alleged and proved in the Court of Tax Appeals. And the finding of said court as to its existence or nonexistence is final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713). As the court 'a quo found that no fraud was alleged and proven therein, the Commissioner's assertion that the return was fraudulent cannot be entertained. Same; When tax return is considered sufficient.—A return need not be complete in all particulars. It is sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3) when it contains information as to the various items of income, deductions and credits with such definiteness as to permit the computation and assessment of the tax. (Mertens, Jr., 10 Law of Federal Income Taxation, 1958 ed., Sec. 57.13). Same; Sufficiency of estate and inheritance tax return.— An estate and inheritance tax return was substantially defective when it was incomplete; it declared only ninety-three parcels of land, representing about 400 hectares, and left out ninety-two parcels covering 503 hectares and said huge underdeclaration could not have been the result 01 an oversight or mistake. Moreover, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no occasion for the imposition of estate and inheritance taxes. When there is no heir, the estate is escheated to the State. The State does not tax itself. Same; Sufficient tax return; Prescription.—Where the return was made on the wrong form, it was held that the filing thereof did not start the running of the period of limitations, and where the return was very deficient, there was no return at all as required in Section 93 of the Tax Code. If the taxpayer failed to observe the law, Section 332 of the Tax Code, which grants the Commissioner of Internal Revenue ten years period within which to bring an action "f or tax collection, applies. Section 94 of the Tax Code obligates him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code should be reckoned "from the date the "fraud was discovered. Republic vs. Ret, 4 SCRA 783, No. L-13754. March 31, 1962 Paredes, J. Facts:



On February 23, 1949, Damian Ret filed with the Bureau of Internal Revenue his Income Tax Return for the year 1948, where he made it appear that his net income was only P2,252.53 with no income tax liability at all. The BIR found out later that the return was fraudulent since Ret's income, derived from his sales of office supplies to different provincial government offices, totaled P94,198.76. Defendant Ret failed to file his Income Tax return for 1949, notwithstanding the fact that he earned a net income of P150,447.32, also from sale of office supplies. The BIR assessed him P34,907.33 and P68,338.40 as deficiency income tax, inclusive of the 50% surcharge for rendering a false and/or fraudulent return for the 1948 and 1949 respectively. On January 13, 1951, the Collector of Internal Revenue demanded from Ret the payment of the above sums, but he failed and/or refused to pay said amounts. Upon recommendation of the Collector, Ret was prosecuted for a violation of Sections 45[a], 51 [d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof After his conviction, on September 21, 1957, the Republic filed the present complaint for the recovery of Ret's deficiency taxes in the total sum of P103,245.73, plus 5% surcharge and 1% monthly interest. Instead of answering, he presented a Motion to Dismiss on February 8, 1958, claiming that the "cause of action had already prescribed". Issue: Whether or not appellant's right to collect the income taxes due from appellee through judicial action has already prescribed. Held: The answer is in the affirmative. After going over the law and jurisprudence pertinent to the issues raised, the Court have come to the conclusion that the cause of action has already prescribed. Section 332 of the Tax Code provides: "the running of the statutory limitation xxx shall be suspended for the period during which the Collector of Internal Revenue is prohibited from making the assessment, or beginning distraint or levy or a proceeding in court, and for sixty days thereafter". As heretofore stated, the plaintiff-appellant was not prohibited by any order of the court or by any law from commencing or filing a proceeding in court. In the instant case, there is no such written agreement, and there was nothing to agree about. The letter of demand by the Collector on January 13, 1951, was made prior to the issuance of the assessment notice to the defendant-appellee, made on January 20, 1951, from which date, the 5-year period was to be counted, The letter of demand could not suspend something that started to run only on January 20, 1951. CASE SYLLABI Taxation; Income taxes; Prescription of judicial action; Section 332 of Tax Code not applicable if collection of income taxes will be made by summary proceedings.—Section 332 of the Tax Code does not apply in the collection of income by summary proceedings. But when the collection of income taxes is to be effected by court action, said provision is controlling. Same; Same; Same; Alternatives of Collector under Section 332(a) of Tax Code; Effect of assessment against taxpayer.—Under Section 332 (a) of the Tax Code, the Collector is given two alternatives: (1) to assess the tax within 10 years from the discovery of the falsity, fraud or omission, or (2) to file an action in 17 | M s . N o l a i d a A g u i r r e


court for the collection of such tax without assessment also within 10 years from the discovery of the falsity, fraud or omission. An assessment against the taxpayer takes the case out of the realms of the provisions of the said section and places it under the mandate of section 332(c). Same; Same; Same; Theory of prescriptibility supported by Sections 331, 332 and 393 of Tax Code.— Sections 331, 332, and 333 of the Tax Code support the theory of prescriptibility of a judicial action to collect income tax. To hold otherwise would render said provisions idle and useless. Same; Same; Section 1, Rule 107, Rules of Court not applicable if complaint is not for recovery of civil liability arising from criminal offense.—Where the complaint against the taxpayer is not for the recovery of civil liability arising from the offense of falsification, but for the collection of deficiency income tax, the provisions of Section 1, Rule 107, Rules of Court, that "after a criminal action has been commenced, no civil action arising from the same offense can be prosecuted" will not apply. Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 473 SCRA 205, G.R. No. 139736. October 17, 2005 Chico-Nazario, J. Facts: Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank. Petitioner BPI received the Assessment, together with the attached Assessment Notice, on 20 October 1989. Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy against BPI only on 23 October 1992 Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its “request for reconsideration,”. Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997 Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest.



The CTA held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that— In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a “protest” is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . . The CA affirmed the decision of the CTA. Hence, the instant case. Issues: 1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and 2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect on an assessment; Held: There is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI. Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor. Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended. The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended “when the taxpayer requests for a reinvestigation which is granted by the Commissioner.” This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 19 | M s . N o l a i d a A g u i r r e


November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows— (a)Request for reconsideration.—refers to a plea for a reevaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b)Request for reinvestigation.—refers to a plea for reevaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. Add Notes as Emphasized by Atty. Lock: In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court— “Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . . ... Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words “reinvestigation” and “reconsideration,” the same are to be treated as letters of reinvestigation and reconsideration…



These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the re cords of Wyeth Suaco, in accordance with its request for rein vestigation, rendered a final assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.” The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, “settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.” It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence. The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended. To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted. The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation. This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, “[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division…” The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment. The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestiga-tion, provided that, as clarified and qualified herein, such request is granted by the BIR Commissioner. Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. 21 | M s . N o l a i d a A g u i r r e


As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR. CASE SYLLABI: Taxation; Distraint; Levy; The Bureau of Internal Revenue (BIR) has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment.—The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or tenyear period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer. Same; Same; Same; Statute of Limitations; Statutes; Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax.—Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy 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 began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be 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. Same; Same; Same; Same; Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.—Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the 22 | M s . N o l a i d a A g u i r r e


assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, identifies specifically in Sections 223 and 224 the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted.—In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 224 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted. Same; Same; Same; Same; Same; Paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement.—According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit—SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes.—x x x (b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. . . . (d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally. Same; Same; Same; Same; Same; RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with.—A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with. 23 | M s . N o l a i d a A g u i r r e


Same; Same; Same; Same; The Supreme Court had consistently ruled in a number of cases that a request for reconsideration or 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.—This Court had consistently ruled in a number of cases that a request for reconsideration or 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. Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver.— The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof, which reads—SEC. 224. Suspension of running of statute.—The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. Same; Same; Same; Same; Same; Under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration.—With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. Same; Same; Same; Same; That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence.—That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records 24 | M s . N o l a i d a A g u i r r e


and documents were not at all examined. Considering the given facts, this Court pronounced that—. . . The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . . Same; Same; Same; Same; The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner.—The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation. Same; Same; Same; Same; The Supreme Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof.—As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax. Same; Same; Same; Same; The repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax.—The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended. Continental Micronesia, Inc., vs. CIR, CTA Case No. 6191, March 22, 2006 Casanova, J. Facts: 25 | M s . N o l a i d a A g u i r r e


The Petitioner is a non-resident foreign corporation. On December 12, 1996 petitioner received a Letter of Authority to examine the petitioner’s books of accounts and other accounting records for all internal revenue taxes. On March 17, 1998, an invitation for informal conference was sent to petitioner requesting it to submit whatever documentary evidence in its possession that may support any objection against the proposed assessment. On March 27, 1998, a conference with the representative of petitioner was held. Petitioner expressed its willingness to settle the deficiency gross Philippine billings and common carrier’s tax but would protest the remaining deficiency taxes upon receipt of the notice of assessment. On May 15, 1998, an assessment notice of deficiency withholding tax on compensation and deficiency expanded withholding tax was issues against the petitioner. Instead of attending another conference, the petitioner opted to file its objection on the assessment and thus, it resulted to the reinvestigation of the case. After the reinvestigation a PAN was issued, and on December 29, 1999 assessment notices and demand letters were sent to the petitioner. These letters were received on January 5, 2000. On February 4, 2000, petitioner filed its administrative protest seeking the cancellation and withdrawal thereof due to prescription and lack of legal bases. Issue: Whether or not the assessments are barred by prescription Held: The answer is in the negative. In as much as the assessment notices for both deficiency withholding tax on compensation and expanded withholding tax were isssues on December 29, 1999, it would appear that both subject deficiency assessments are time barred. However, since petitioner requested for reinvestigation on October 15, 1998, and which was granted by respondent in November 9, 1998, the running of the threeyear period to assess was suspended pursuant to Section 223 of the Tax Code. Settled is the rule that when a taxpayer requests for a reinvestigation of an assessment which was granted by respondent, the running of the period to assess under Section 203 and 222 is suspended.

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No. 162852. December 16, 2004 Ynares-Santiago, J. Facts: In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year 1994. In 1995, a tax audit was conducted by the Bureau of Internal Revenue (BIR) where it was found that PJI was liable for a tax deficiency. In September 1997, PJI asked that it be allowed to present its evidence to dispute the finding. In the same month, the Comptroller of PJI (Lorenza Tolentino) executed a waiver of the statute of limitations whereby PJI agreed waived the running of the prescriptive period of the government’s right to make an assessment. Said right was set to expire on 26 | M s . N o l a i d a A g u i r r e


April 17, 1998 but due to the additional evidence that PJI sought to present, the government needed more time. And so a reinvestigation took place which yielded the same result – PJI is liable for tax deficiencies. In December 1998, a formal assessment notice (FAN) was sent via registered mail to PJI. Subsequently, a warrant for distraint/levy was issued against the assets of PJI. PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the waiver executed by Tolentino was incomplete; that no acceptance date was indicated to show that the waiver was accepted by BIR; that no copy was furnished PJI; that the waiver was an unlimited wai ver because it did not indicate as to how long the extension of the prescriptive period should last. As such, there was no valid waiver of the statute of limitations which in turn make the FAN issued in December 1998 void. The Commissioner of Internal Revenue (CIR) argued that the placing of the acceptance date is merely a formal requirement and not vital to the validity of the waiver; that there is no need to furnish PJI a copy of the waiver because in the first place, it was PJI, through its representati ve, who was making the waiver so it should know about it; and that there is no need to place a specific date as to how long the prescriptive period should be extended because PJI was waiving the prescriptive period and was not asking to extend it. The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed the CTA as it ruled in favor of the CIR. Issues: 1. Whether or not that the assessment having been made beyond the 3-year prescriptive period is null and void; and 2. Whether or not the CTA gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations Held: The answers are in the Negative. The requirement to place the acceptance date is not merely formal. The waiver of the statute of limitations is not a unilateral act by the taxpayer. The BIR has to accept it hence the need for a BIR representative to affix his signature and the date of acceptance. There is also therefore a need to furnish a copy to the taxpayer for the latter to be apprised that his waiver has been accepted. It must be noted that the waiver is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain and not to waive the right to invoke the defense of prescription. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. 27 | M s . N o l a i d a A g u i r r e


CASE SYLLABI: Same; Same; A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed; The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection.—A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. Commissioner of Internal Revenue vs. Kudos Metal Corporation , 620 SCRA 232, G.R. No. 178087. May 5, 2010 Del Castillo, J. Facts: On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpoena Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the Defense of Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar). This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar. A Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assess-ment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its “Protest on Various Tax Assessments” on December 3, 2003 and its “Legal Arguments and Documents in Support of Protests against Various Assessments” on February 2, 2004. 28 | M s . N o l a i d a A g u i r r e


Believing that the government’s right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for Review7 with the CTA. On October 4, 2005, the CTA Second Division issued a Resolution canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. CTA en banc affirmed the decision of the CTA Second Division. Hence, the present petition. Issue: Whether or not the government’s right to assess unpaid taxes of respondent has prescribed Held: The Government is barred by prescription. The waivers executed by respondent’s accountant did not extend the period within which the assessment can be made Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims that the period was extended by the two waivers executed by respondent’s accountant. Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void. In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments. The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 2090 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the threeyear period because with or without the required documents, the CIR has the power to make assessments based on the best evidence obtainable. CASE SYLLABUS Civil Law; Doctrine of Estoppel; The doctrine of estoppel is predicated on, and has its origin in equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.—The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of 29 | M s . N o l a i d a A g u i r r e


estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate. Simply put, the doctrine of estoppel must be sparingly applied.

Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 657 SCRA 70, G.R. No. 170257. September 7, 2011 Mendoza, J. Facts: On August 15, 1996, RCBC received Letter of Authority to examine the books of accounts and other accounting records for all internal revenue taxes from January 1, 1994 to December 31, 1995.4 On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. On January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices from the BIR. Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000 and later submitted the relevant documentary evidence to support it. A reinvestigation followed based on the newly submitted documentary evidence. On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount of deficiency taxes .On the same day, RCBC paid the following deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary stamp tax RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not valid because the same were not signed or conformed to by the respondent CIR as required under Section 222(b) of the Tax Code. The CTA en banc denied the petition for lack of merit ruling that RCBC was estopped from questioning the validity of the waivers. While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the Court that this petition, relative to the DST deficiency assessment, had been rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its applications for tax abatement. Issue: Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax. 30 | M s . N o l a i d a A g u i r r e


Held: Petitioner is estopped from questioning the validity of the waivers. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBC’s subsequent action effectively belies its insistence that the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds dear. CASE SYLLABI: Estoppel; A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood.—Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. Taxation; Withholding Tax System; The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government—the liability for the tax, however, remains with the taxpayer because the gain was realized and received by him; The taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the non-payment of the withholding tax due.—Based on the foregoing, the liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him. While the payor-borrower can be held accountable for its negligence in performing its duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer and the one which earned income on the transaction, remains liable for the payment of tax as the taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the non-payment of the withholding tax due. RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent.



Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23, 1974 Esguerra, J. Facts: The late Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis from1945 TO 1951. The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously wealthy, caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income for said years by using the net worth and expenditures method of tax investigation. The assets and liabilities of the taxpayer during the above-mentioned years were ascertained 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. Based on the above findings the BIR notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency. The taxpayer requested a reinvestigation which was granted for the purpose of verifying the merits of the various objections of the taxpayer to the deficiency income tax assessment of November 28, 1952. The notice of final and last assessment was receive by the petitioner on March 2, 1955. Petitioner contends that 8 years had elapsed and the five year period provided by law. Issue: Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952. Held: The CIR is not barred. 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 provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, the Court 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. CASE SYLLABI: Taxation; Income Tax; Assessments; Prescription; Proceeding for collection of deficiency taxes based on false return, fraudulent return or failure to file a return prescribes in ten years.—In the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, 32 | M s . N o l a i d a A g u i r r e


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. Same; Same; Words and phrases; Distinction between false return and fraudulent return explained.— Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely—“falsity”, “fraud” and “omission”. That there is a difference between “false return” and “fraudulent return” cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. Same; Same; Assessments; Prescription; Ten year period of prescription applies where the government is prevented from making proper assessments.—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 whether 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 returns intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. Republic vs. Ker & Company, Ltd., 18 SCRA 207, No. L-21609. September 29, 1966 Bengzon, J. Facts: Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the years 1947, 1948, 1949 and 1950. In 1953 the Bureau of Internal Revenue examined and audited Ker & Co., Ltd.'s returns and books of accounts and subsequently issued notices of assessment. On March 15, 1962, the Bureau of Internal Revenue demanded payment of the aforesaid assessments together with a surcharge of 5% for late payment and interest at the rate of 1% monthly. Ker & Co., Ltd. refused to pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up the defense of prescription of the Commissioner's right to collect the tax. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint with the Court of First Instance of Manila seeking collection of the aforesaid deficiency income tax for the years 1947, 1948, 1949 and 1950. The complaint did not allege fraud in the filing of any of the income tax returns for the years involved, nor did it pray for the payment of the corresponding 50% surcharge, but it prayed for the payment of 5% surcharge for late payment and interest of 1% per month without however specifying from what date interest started to accrue. On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez & Associates, moved for the dismissal of the complaint on the ground that the court did not acquire jurisdiction over the person of the defendant and that plaintiff's cause of action has prescribed. This motion was denied and defendant filed a motion for reconsideration. Resolution on said motion, however, was deferred until trial of the case on the merits. The CFI dismisses the claim for the collection of deficiency income taxes for 1947, but orders defendant taxpayer to pay the deficiency income taxes for 1948, 1949 and 1950. 33 | M s . N o l a i d a A g u i r r e


On February 20, 1963 the Republic of the Philippines filed a motion for reconsideration contending that the right of the Commissioner of Internal Revenue to collect the deficiency assessment for 1947 has not prescribed by a lapse of merely five years and three months, because the taxpayer's income tax return was fraudulent in which case prescription sets in ten years from October 31, 1951, the date of discovery of the fraud, pursuant to Section 332 (a) of the Tax Codes and that the payment of delinquency interest of 1% per month should commence from the date it fell due as indicated in the assessment notices instead of on the date the complaint was filed. On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration reiterating its assertion that the Court of First Instance did not acquire jurisdiction over its person, and maintaining that since the complaint was filed nine years, one month and eleven days after the deficiency assessments for 1948, 1949 and 1950 were made and since the filing of its petition for review in the Court of Tax Appeals did not stop the running of the period of limitations, the right of the Commissioner of Internal Revenue to collect the tax in question has prescribed. Issue: 1. Whether or not right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1947 prescribe; and 2. Whether or not taxpayer's income tax return for 1947 was fraudulent. 3. Whether or not the filing of a petition for review by the taxpayer in the Court of Tax Appeals suspend the running of the statute of limitations to collect the deficiency income for the years 1948, 1949 and 1950 Held: On the first and second issues- the Court resolves the issues in the negative. The Court resolved the issue without touching upon fraudulence of the return. The reason is that the complaint alleged no fraud, nor did the plaintiff present evidence to prove fraud. This contention suffers from a flaw in that it fails to consider the well-settled principle that fraud is a question of fact6 which must be alleged and proved. Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof. Accordingly, fraud should have been alleged and proved in the lower court. On these premises the Supreme Court therefore sustain the ruling of the lower court upon the point of prescription. In this case however, Ker & Co., Ltd. raised the defense of prescription in the proceedings below and the Republic of the Philippines, instead of questioning the right of the defendant to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the Republic of the Philippines should be considered to have waived its right to object to the setting up of such defense. On the third issue the pendency of the taxpayer’s appeal toll the running of the prescriptive period. The running of the prescriptive period to collect the tax shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. 34 | M s . N o l a i d a A g u i r r e


From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals contesting the legality of the assessments in question, until the termination of its appeal in the Supreme Court, the Commissioner of Internal Revenue was prevented. Besides, to do so would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Thus, did the taxpayer produce the effect of temporarily staying the hands of the Commissioner of Internal Revenue simply through a choice of remedy. And, if the Court were to sustain the taxpayer's stand, We would be encouraging taxpayers to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the Commissioner of Internal Revenue was in effect prohibited from collecting the tax in question. This being so, the provisions of Section 333 of the Tax Code will apply. CASE SYLLABI: Taxation; Deficiency income tax; Prescription of actions; Degree of proof required to establish fraud.— Fraud is a question of fact (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713) which must be alleged and proved (Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is a serious charge and, to be sustained, it must be supported by clear and convincing proof (Collector of Internal Revenue vs. Benipayo, L-13656, January 31, 1962). In the instant case the filing by the taxpayer of a false return was neither alleged in the complaint nor proved in court. Hence, the lower court correctly resolved the issue of prescription without touching upon fraudulence of the return. Same; Failure to object to the setting up of defense of prescription.—The assessment for deficiency income tax for 1947 has become final and executory, and, therefore, defendant may not anymore raise defenses which go into the merits of the assessment, i.e., prescription of the Commissioner's right to assess the tax. (Republic of the Philippines vs. Albert, L-12996, December 28, 1961; Republic of the Philippines vs. Lim Tian Teng Sons ,& Co., Inc., L-21731, March 31, 1966). However, defendant raised the defense of prescription in the proceedings below, and the Republic of the Philippines, instead of questioning the right of the defendant to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the government should be considered to have waived its right to object to the setting up of such defense. Same; Suspension of prescriptive period; Effect of pendency of appeal.—Under Section 333 of the Tax Code the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner. If the taxpayer's stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case is upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the running of the prescriptive period was suspended. Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, et al., 104 Phil. 819, No. L-11527. November 25, 1958 Bautista Angelo, J.



Facts: Due to the chaos caused by World War II, Congress extended the filing of income tax returns for the year 1941. The extension was up to December 31, 1945. However, Suyoc Consolidated Mining Company (SCMC) due to lost records requested the Commissioner of Internal Revenue (CIR) for further extension. The same was granted and SCMC was allowed to file its return until February 15, 1946. On February 12, 1946, SCMC filed a tentative income tax return. On November 28, 1946, SCMC filed a second final return. In February 1947, the CIR made an assessment notifying SCMC that is liable for P33k in taxes. The CIR gave SCMC 3 months to pay but the latter failed to make payment. What followed was a series of negotiations as SCMC repeatedly asked for reconsideration and reinvestigation. Due to SCMC’s requests, the CIR had to revise the assessment several times. Eventually in July 1955, the CIR made a final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes. This time, SCMC questioned the validity of the assessment as it now alleged that it was issued beyond the 5 year prescriptive period. The issue reached the Court of Tax Appeals (CTA) which ruled that the assessment issued is void because in the first place, when SCMC requested for a reinvestigation, there was no agreement as to the extension of the prescriptive period; that a mere request for reinvestigation does not automatically suspend the running of the prescriptive period. The CTA ruled that the FAN issued in 1955 was already way beyond the 5 year prescriptive period. Issue: Whether or not the right of the BIR has prescribed Held: This is one case where a taxpayer is barred from setting up the defense of prescription even though there was not a written agreement. It is true that when a request for reinvestigation is made by the taxpayer, the same does not toll the running of the prescriptive period unless there is a written agreement between the CIR and the taxpayer. However, in this case, due to the repeated requests of SCMC which were acted upon by the government for good reasons the government was persuaded to delay the final assessment. The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.” The tax could have been collected, but the government withheld action at the specific request of SCMC. SCMC is now estopped and should not be permitted to raise the defense of the Statute of Limitations. CASE SYLLABI: Income Tax; Collection; Period of Limitation; Reexamina-tion or Reinvestigation of Assessment does not Suspend Period of Limitation; Exceptions.—A mere request for re-examination or reinvestigation of assessment may not suspend the running of the period of limitation for in such a case there is need of a written agreement to extend the period between the Collector and the taxpayer. There are cases, however, where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, per-suaded to postpone collection to make himself feel that the demand was not 36 | M s . N o l a i d a A g u i r r e


unreasonable or that no harassment or in-justice is meant by the Government. And when such situa-tion comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government. Id.; Id.; Id.; Government’s Action Withheld at Taxpayer’s Request; Estoppel.—He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned, for the law says to him in effect “this is your own act and therefore you are not damnified.” (R.H. Stearns Co. vs. U.S. 78 L Ed. 6647). Or, as was aptly said, “The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the statute of limitations.” (Newpoint Co. vs. U.S. (Dc-wis), 34 Off. Supp. 588.) Commissioner of Internal Revenue vs. Philippine Global Communication, Inc., 506 SCRA 427, G.R. No. 167146. October 31, 2006 Chico-Nazario, J. Facts: The Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondent’s 1990 income tax liability. On April 22 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00 On May 6, 1994 and May 23, 1994 respondent, through its counsels filed two separate letters of protest. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged was invalid for lack of factual and legal basis. On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002 denying the respondent’s protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto The CTA ruled on the primary issue of prescription and found it unnecessary to decide the issues on the validity and propriety of the assessment. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax. Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the aforesaid Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA Issue: Whether or not CIR’s right to collect respondent’s alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977 Held: 37 | M s . N o l a i d a A g u i r r e


The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.

The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. CASE SYLLABI:

Taxation; Prescription; The law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all.—The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. Same; Same; The law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings—the three year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.—If the BIR issued this assessment within the threeyear period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. Same; Same; The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines.—The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and protect taxpayers. Same; Statute of Limitations; The statute of limitations on the collection of taxes should benefit both the Government and the taxpayers.—In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 38 | M s . N o l a i d a A g u i r r e


819 (1958), Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment and collection of taxes are not promptly made. Same; Same; The statute of limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible harassment.—In Republic of the Philippines v. Ablaza, 108 Phil. 1105 (1960), this Court emphatically explained that the statute of limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible harassment. Same; Same; Though the statute of limitations for the collection of taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.—In the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), this Court, in confirming these earlier rulings, pronounced that: Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Same; Same; Prescription; The law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed.—In Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546 (1999), this Court affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed. Same; Same; Same; Section 271 of the 1997 Tax Code provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended even in the absence of waiver.—The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 271 thereof which reads: Section 224. Suspension of running of statute.—The running of the statute of limitation provided in Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a proceeding in court for collection in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected x x x. Same; Same; Same; Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, defines two types of protest, the request for reconsideration and the request for reinvestigation.—Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner: x x x Same; Same; Same; The main difference between the two types of protests lies in the records or evidence to be examined by internal revenue officers, whether there are existing records or newly discovered or 39 | M s . N o l a i d a A g u i r r e


additional evidence; A request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax.—The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax. C. REQUISITES OF A VALID ASSESSMENT Collector of Internal Revenue vs. Benipayo, 4 SCRA 182, No. L-13656. January 31, 1962 Dizon, J. Facts: Respondent is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon. On October 3, 1953 Internal Revenue Agent Romeo de Guia investigated respondent's amusement tax liability in connection with the operation of said theater during the period from August, 1952 to September, 1953. His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period in question. the proportion was reversed—three children to one adult. From this he concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the amusement tax prescribed in Section 260 of the National Internal Revenue Code. On July 14, 1954. petitioner issued a deficiency amusement tax assessment against respondent, demanding from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On August 16, 1954, respondent filed the corresponding protest with the Conference Staff of the Bureau of Internal Revenue. Issue: Whether or not there is sufficient evidence in the record showing that respondent, during the period under review, sold and issued to his adult customers two tax-free 20-centavo children's tickets, instead of one 40centavo ticket for each adult customer; to cheat or defraud the Government. Held: The assessment has no factual bases. Assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. Assuming arguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (1952 and 1953). The fact that almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953. x x x 40 | M s . N o l a i d a A g u i r r e


"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 that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July 1955. In the case under consideration there are no substantial facts to support the assessment in question. x x x." Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the present case, is 'lacking. CASE SYLLABUS: Taxation; Amusement taxes; Fraud should be supported by clear and convincing proof.—To sustain the defective assessment against respondent would amount to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling to each adult patron two children's tax-free tickets instead of one ticket subject to the amusement tax provided for in Section 260 of the National Internal Revenue Code. Fraud is a serious charge and, to be sustained, must be supported by clear and convincing proof which, in this case, is lacking. Commissioner of Internal Revenue vs. Enron Subic Power Corporation, 576 SCRA 212, G.R. No. 166387. January 19, 2009 Corona, J. Facts: Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise, filed its annual income tax return for the year 1996 on April 12, 1997. On May 26, 1999, Enron received from the CIR a formal assessment notice6 requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended,8 and Section 3.1.4 of Revenue Regulations (RR) No. 12-999 by not providing the legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment. Issue: Whether or not the notice of assessment complied with the requirements of NIRC and RR No. 12-99 Held: The CIR did not complied with requirements laid down by NIRC and RR No. 12-99. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the 41 | M s . N o l a i d a A g u i r r e


existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made. The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. “Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.” CASE SYLLABI: Taxation; A taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him.—It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. The use of the word “shall” in these legal provisions indicates the mandatory nature of the requirements laid down therein. We note the CTA’s findings: In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron. Same; The advice of tax deficiency, given by the Commissioner of Internal Revenue (CIR) to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment.—The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made. Same; Tax Assessment; The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice.—The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” 42 | M s . N o l a i d a A g u i r r e


did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. Same; Same; In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void.—We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al., 196 SCRA 322 (1991): Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself. Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No. 159694. January 27, 2006 Panganiban, CJ. Facts: In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment. Issue: Whether or not the formal assessment notice is valid. Held: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy. CASE SYLLABI: 43 | M s . N o l a i d a A g u i r r e


Taxation; Assessment; Taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void.—The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides as follows: “Sec. 228. Protesting of Assessment.—x x x x x x x x x “The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void.” Same; Same; The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law but also of the facts on which an assessment would be made.—RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. Same; Same; Statutes; Statutory Construction; Statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes; RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights.—The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes. Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights. Same; Same; Same; Same; A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code; The absence of the regulation does not automatically mean that the law itself would become inoperative.—The non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements the law. A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative. Same; Same; Same; Same; An administrative rule interpretive of a statute and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute.—An administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 1299 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998—a date prior to the issuance of the preliminary assessment notice and demand letter. Same; Same; Same; Same; In case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails; Between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law.— Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. 44 | M s . N o l a i d a A g u i r r e


Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails. Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. Same; Same; 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.—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. In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter chicanery. Same; Same; Although taxes are the lifeblood of the government, their assessment and collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.— Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for—not to mention the insufficiency of—the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection “should be made in accordance with law as any arbitrariness will negate the very reason for government itself.” Same; Same; Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code.—Tax laws are civil in nature. Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts. Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding. A Brown Co., Inc., vs Commissioner of Internal Revenue, CTA Case No. 6357, June 7, 2004 Acosta, J. Facts: In November 1998, the Bureau of Internal Revenue, through one of its Revenue District Office conducted a tax investigation on the books of accounts of A. Brown Co., Inc. (ABCI) for the period of 1997. The examiner found that ABCI is liable for a tax deficiency amounting to P4.5 million. On January 4, 2001, the Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment Notice against ABCI advising the latter that it is liable to pay an amount more than P132 million for tax deficiencies. The said notice was however sent to ABCI’s former business address even though 45 | M s . N o l a i d a A g u i r r e


the CIR has been informed of ABCI’s change of address. ABCI was only able to receive said letter on January 15, 2001. On January 19, 2001, the CIR issued another set of Assessments with Formal Demand against ABCI. Thereafter, ABCI filed a protest. Issue: Whether or not ABCI was deprived of procedural due process. Held: The CIR violated Section 228 of the National Internal Revenue Code as well as Revenue Regulations 12-85 and 12-99 and Revenue Memorandum Order 37-94. Among the violations committed by the CIR are: Demanding a tax deficiency not reflective of the tax investigation conducted. Here, the investigation found ABCI liable for P4.5 million yet the CIR is demanding P132 million plus. No valid service of the pre-assessment notice because the Pre-assessment notice were sent to the wrong address. The notice should have been delivered by registered mail or personally to ABCI, and ABCI or its representative should receive personally. Assuming arguendo that there was a valid service of the notice, ABCI was deprived its right to present its side of the case. ABCI finally received the notice on January 15, 2001. Thereafter, ABCI should have 15 days to file a reply yet on January 19, 2001, the CIR immediately made an Assessment with Formal Demand. These lapses rendered the subject assessments null and void. Taxation is indeed indispensable but nevertheless, the prescribed procedure pursuant thereto should be complied with. . If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. Commissioner of Internal Revenue vs. Menguito, 565 SCRA 461, G.R. No. 167560. September 17, 2008 Austria-Martinez, J. Facts: Dominador Menguito and his wife are the owners of Copper Kettle Catering Services, Inc. (CKCSI). They also operate several restaurant branches in the Philippines. One such branch was the Copper Kettle Cafeteria Specialist (CKCS) in Club John Hay, Baguio City. The branch was registered as a sole proprietorship. In September 1997, a formal assessment notice (FAN) was issued against the spouses and they were adjudged to pay P34 million in deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue found that in order for CKCS to operate in Club John Hay, a contract was entered into by CKCSI and Club John Hay; hence, CKCS and CKCSI are one and the same. Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the assessment notice. She asked for more time to sort the issue. Later, when Menguito eventually filed a protest, he denied, through his witness 46 | M s . N o l a i d a A g u i r r e


(Ma. Therese Nalda, CKCS employee), receiving the FAN; that the FAN was addressed to the wrong person because it was addressed to CKCSI not CKCS. He presented as evidence a photocopy of the articles of incorporation (AOI) of CKCSI. On the other hand, the Commissioner of Internal Revenue (CIR) presented proof of the due mailing of the FAN. It however was not able to prove that it issued a pre-assessment notice (PAN) or a post-assessment notice. Issue: Whether or not respondent was denied due process for failure of petitioner to validly serve respondent with the post-reporting and pre-assessment notices as required by law HELD: The assessment notices are valid. More importantly, Menguito and his wife are in estoppel because they already acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito to the BIR. They cannot later on deny the receipt of the FAN. Worse, it should be Menguito who should be directly denying the receipt and not through an employee (Nalda) who was not even an employee of the spouses when the FAN was issued and received in 1997. It was only in 1998 that Nalda was employed by CKCS. Since Menguito did not legally deny the receipt of the FAN, the presumption that he actually received it still subsists. Further, based on the records, Menguito, in the stipulation of facts, acknowledged the receipt of the FAN. Anent the issue of the non-issuance of the PAN, the same is not vital to due process. The Supreme Court ruled that the strict requirement of proving that an assessment is sent and received by the taxpayer is only applicable to FANs and to PANs. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. A PAN or a post-assessment notice does not bear the gravity of a FAN. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. CASE SYLLABI: Same; Taxation; When the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other, or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, as substantial evidence in support of the finding that the two are actually one juridical taxable personality.—The Court considers the presence of the following circumstances, to wit: when the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other; or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, as substantial evidence in support of the finding that the two are actually one juridical taxable personality.



Taxation; Under Section 11 of Revenue Regulation No. 12-85, respondent’s failure to give written notice of change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in the investigation.—As to the address indicated on the assessment notices, respondent cannot question the same for it is the said address which appears in its percentage tax returns. While respondent claims that he had earlier notified petitioner of a change in his business address, no evidence of such written notice was presented. Under Section 11 of Revenue Regulation No. 12-85, respondent’s failure to give written notice of change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in the investigation. Same; It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices.—While the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of assessment. It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer. Same; Notices; A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice.—A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an “informal” conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA. Commissioner of Internal Revenue vs. Metro Star Superama Inc., 637 SCRA 633, G.R. No. 185371. December 8, 2010 Mendoza, J. Facts: In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro 48 | M s . N o l a i d a A g u i r r e


Star assailed the issuance of the formal assessment notice as it averred that due process was not observed when it was not issued a pre-assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star. Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in favor of Metro Star. Issue: Whether or not due process was observed in the issuance of the formal assessment notice against Metro Star. Held: No. It is true that there is a presumption that the tax assessment was duly issued. However, this presumption is disregarded if the taxpayer denies ever having received a tax assessment from the Bureau of Internal Revenue. In such cases, it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee-taxpayer. The onus probandi was shifted to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of mail. In the case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR could have simply presented the registry receipt or the certification from the postmaster that it mailed the pre-assessment notice, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the pre-assessment notice. The Supreme Court emphasized that the sending of a pre-assessment notice is part of the due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Add notes as empahasized by Atty. Lock: The case of CIR v. Menguito cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made. Otherwise, the assessment itself would be invalid. The regulation then, on the other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is wellsettled that a void assessment bears no fruit. CASE SYLLABI:



Taxation; Court of Tax Appeals; Appeals; Court will not lightly set aside the conclusions reached by the Court of Tax Appeals (CTA) which by the very nature of its functions has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority.—The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, the Court wrote: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. Same; Assessment; If the taxpayer denies ever having received an assessment from the Bureau of Internal Revenue (BIR), it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee.—Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Same; Same; Section 228 of the Tax Code clearly requires that the taxpayer must be informed that he is liable for deficiency taxes through the sending of a Preliminary Assessment Notice (PAN).—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. 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. Same; Same; The sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which senders nugatory any assessment made by the tax authorities.—It is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities. The use of the word “shall” in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both 50 | M s . N o l a i d a A g u i r r e


substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void. Same; Same; While taxes are the lifeblood of the government, the power to tax has its limits in spite of all its plenitude.—It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while “taxes are the lifeblood of the government,” the power to tax has its limits, in spite of all its plenitude. ADDITIONAL CASE UNDER DUE PROCESS: CIR vs. United Salvage and Towage (Phils.), Inc., G.R. No. 197515. July 5, 2014 Peralta, J. Facts: Respondent is engaged in the business of sub-contraction work for service contractors engaged in petroleum operations in the Philippines. In the course of respondent’s operations, petitions found respondent liable for deficiency income tax, withholding tax, and value-added tax (VAT) and documentary stamp tax (DST) for taxable years 1992, 1994, 1997, and 1998. Particularly, petitioner, through BIR officials, issued demand letters with attached assessment notices for withholding tax compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994, and 1998. On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and 1998 assessments, respectively. On February 21, 2003, USTP appeals by way of Petition for Review before the Court in action (which was thereafter raffled to the CTA-Special First Division) alleging, among others, that the Notices of Assessment are bereft of any facts, law, rules, and regulations or jurisprudence; thus, the assessment are void and the right of the government to assess and collect deficiency taxes from it has prescribed on account of the failure to issue a valid notice of assessment within the applicable period. As, regards the FANs for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law and the facts on which the assessments were based. Said assessments were, therefore, declared void for failure to comply with Section 228 of the NIRC. From the foregoing the only remaining valid assessment is for the taxable year 1992. Issue: Whether or not the EWT for the year 1994 issued by petitioner against respondent was without any factual and legal basis. Held: 51 | M s . N o l a i d a A g u i r r e


In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994 will show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by petitioner. Only the resulting interest, surcharge, and penalty were anchored with legal basis. Petitioner should have at least attached a detailed notice of discrepancy or stated an explanation why the amount of P 48, 461.76 is collectible to respondent and how the same was arrived at. Any short-cuts to the prescribed content of the assessment or the process thereof should not be countenanced, in consonance with the ruling in CIR vs Enron Subic Power Corporation to wit: The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. It is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of the RR 12-99 by not providing legal and factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment issued relative thereto are void. Meralco Securities Corporation vs. Savellano, 117 SCRA 804, No. L-36181. 23, 1982 Teehankee, J. Facts: In 1967, Juan Maniago informed the Commissioner of Internal Revenue (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 or not the CIR can be compelled by Mandamus to impose a deficiency tax assessment against MERALCO. Held: 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. 52 | M s . N o l a i d a A g u i r r e


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. CASE AYLLABI: Taxation; Jurisdiction; Matters involving failure or refusal of the Commissioner of Internal Revenue to make a tax assessment belongs to the jurisdiction of the Court of Tax Appeals, not the CFI.— Respondent judge has no jurisdiction to take cognizance of the case because 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. The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . ." Same; Same; Same.—Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from receipt thereof pursuant to section 11 of Republic Act No. 1125. He failed to take such an appeal to the tax court. The ruling is clearly final and no longer subject to review by the courts. Same; Mandamus; Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper.—Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. As we held in the case of Commissioner of Immigration vs. Arca anent this principle, "the administration of immigration laws is the primary responsibility of the executive branch of the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to extend the stay of an alien whose period to stay has expired. Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to contrary judgment or control of the courts. "Discretion" of public officers defined.—Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go 53 | M s . N o l a i d a A g u i r r e


beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion' when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." Maceda vs. Macaraig, Jr., 197 SCRA 771, G.R. No. 88291 , May 31, 1991 Gancayco, J. Facts: The National Power Corporation (NAPOCOR) was created by Commonwealth Act No. 120. In 1949, it was given tax exemption by Republic Act No. 358. In 1984, Presidential Decree No. 1931 was passed removing the tax exemption of NAPOCOR and other government owned and controlled corporations (GOCCs). There was a reservation, however, that the president or the Minister of Finance, upon recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption. In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of Executive Order 93 which again provided that upon FIRB recommendation it can again be restored. In the same year, FIRB resolved to restore the exemption. The same was approved by President Corazon Aquino through Executive Secretary Catalino Macaraig, Jr. acting as her alter ego. Ernesto Maceda assailed the FIRB resolution averring that the power granted to the FIRB is an undue delegation of legislative power. Maceda’s claim was strengthened by Opinion 77 issued by then DOJ Secretary Sedfrey Ordoñez. Macaraig however did not give credence to the opinion issued by the DOJ secretary. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his ruling ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending claims for refund of respondent NPC with the Bureau of Internal Revenue covering the period from June 11, 1984 to June 17, 1987. Issue: Whether or not the CIR can be compelled to cancel the claims for credits/refunds of NPC Held: Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount to a usurpation of executive functions. Even in Meralco, the Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. 54 | M s . N o l a i d a A g u i r r e


CASE SYLLABI: Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to contrary judgment or control of the courts. "Discretion" of public officers defined.—Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion' when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, No. L-19470. January 30, 1965 Reyes, J.B.L., J. Facts: That on May 15, 1951, Nava filed his income tax return for the year 1950, and, on the same date, he was assessed by respondent Commissioner (formerly Collector) of Internal Revenue in the sum of P4,952.00, based solely on said return. Nava paid one-half of the tax due, leaving a balance of P2,491.00. Subsequently, Nava offered his backpay certificate to pay said balance, but respondent refused the offer. On July 28, 1953, he requested the respondent to hold in abeyance the collection of said balance until the question of whether or not he was entitled to pay the same out of his backpay shall have been decided, but this was also rejected by the latter in a reply letter dated January 5, 1954. This rejection was followed by two more letters or notices demanding payment of the balance thereof, the last of which was dated February 22, 1955. On March 30, 1955, after investigation of petitioner’s 1950 income tax return, respondent Collector issued a deficiency income tax assessment notice (Exhibit “4”) requiring petitioner to pay not later than April 30, 1955 the sum of P9,124.50, that included the balance of P2,491.00, still unpaid under the original assessment, plus a 50% surcharge. Several notices of this revised assessment are alleged to have been issued to the taxpayer, but Nava claims to have learned of it for the first time on December 19, 1956, more than five years since the original tax return was filed, and testified to that effect in the court below, In a letter of January 10, 1957, Nava called attention to the fact that more than six years had elapsed, protested the assessment, and contended that it was a closed issue. Issue: Whether the enforcement of the tax assessment has prescribed Held: It has already prescribed. Since none of these requirements have been shown, there has been no valid and “effective issuance or release of said deficiency income tax assessment notice dated March 30, 1955 and of 55 | M s . N o l a i d a A g u i r r e


the other demand letters or notices subsequent thereto, the latest of which was purportedly sent on August 25, 1956, and these dates cannot be reckoned with in computing the period of prescription within which a court action to collect the same may be brought. It being undisputed that an original assessment of Nava’s 1950 income tax return was made on May 15, 1951, and no valid and effective notice of the re-assessment having been made against the petitioner after that date (May 15, 1951), it is evident that the period under Section 331 of the Tax Code within which to make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was effectively made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on Nava’s 1950 income tax return has already prescribed under Section 332 (c) of the Tax Code, it having been found by the Tax Appeals court that said return was not false or fraudulent. Notes: WHEN ASSESSMENT IS MADE An assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense. Having reached the conclusion that the action to collect said deficiency income tax has already prescribed, it is unnecessary to discuss the other issues raised by petitioner Nava in the instant appeal. CASE SYLLABUS: Same; Same; Same; Same; Mere notations on records of tax collector not sufficient proof of mailing.— Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment to a taxpayer, made without .the taxpayer’s intervention, notice, or control, and without adequate supporting evidence, cannot suffice to prove that such notice was sent and received; otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate protection or defense. Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue, 498 SCRA 126, G.R. No. 157064. August 7, 2006 Chico-Nazario, J. Facts: On April 14, 1988, Barcelon, Roxas Securities, Inc. (BRSI, now called UBP Securities, Inc.) filed its annual income tax return. The last day for filing was April 15, 1988. BRSI was subjected to a tax audit and thereafter, the tax examiner determined that BRSI is liable for deficiency taxes amounting to P826k. On March 17, 1992, BRSI received a warrant of distraint and/or levy to satisfy said deficiency. BRSI then protested the said warrant as it averred that the same was issued without due process. BRSI contends that it never received a formal assessment notice (FAN) from the Commissioner of Internal Revenue (CIR); that since it never received a FAN, the government’s right to make an assessment has already prescribed at the time it received the warrant. 56 | M s . N o l a i d a A g u i r r e


The CIR maintained that a FAN dated February 1, 1991 was mailed on February 6, 1991; that the assessment was made within the prescriptive period; that it was made within the prescriptive period because under the law, the CIR has three years from the last day of filing of returns to issue an assessment. To prove the alleged mailing of the FAN, the CIR produced BIR record books which contains a list of taxpayers, inclusive of the name of BRSI, their reference numbers, nature of tax, and the tax amount due. Issue: Whether or not respondent’s right to assess petitioner’s alleged deficiency income tax is barred by prescription Held: No assessment was made. It is true that there is a presumption that when an assessment was sent via registered mail, the same is received by the taxpayer in the regular course of mail. However, this presumption ceases when the taxpayer denies the receipt of an assessment. It now becomes incumbent upon the CIR to prove that the taxpayer actually receives the assessment by showing (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. These can be further proved by presenting the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer; if this cannot be done, at least the CIR should have submitted a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. In the case at bar, the BIR record presented by the CIR is self-serving. It is not competent proof and does not meet the standard needed in proving the receipt of mail matters such as an assessment sent via registered mail. As a rule, an assessment is considered made when it is sent within the prescriptive period even if it is received by the taxpayer after the lapse of such period. This rule makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense. CASE SYLLABI: Taxation; Assessment Notices; An assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the Commissioner of Internal Revenue to the taxpayer within said period—receipt thereof by the taxpayer within the prescriptive period is not necessary but this rule does not dispense with the requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice.—Under Section 203 of the National Internal Revenue Code (NIRC), respondent had three (3) years from the last day for the filing of the return to send an assessment notice to petitioner. In the case of Collector of Internal Revenue v. Bautista, 105 Phil. 1326 (1959), this Court held that an assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary. At this point, it should be clarified that the rule does not dispense with the 57 | M s . N o l a i d a A g u i r r e


requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice which was timely released, mailed and sent. Same; Presumptions; While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.—In Protector’s Services, Inc. v. Court of Appeals, 330 SCRA 404 (2000), this Court ruled that when a mail matter is sent by registered mail, there exists a presumption, set forth under Section 3(v), Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed with postage prepaid; and (b) that it was mailed. While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Assessment Notices; While an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration, this rule makes it more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved—mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.— Independent evidence, such as the registry receipt of the assessment notice, or a certification from the Bureau of Posts, could have easily been obtained. Yet respondent failed to present such evidence. In the case of Nava v. Commissioner of Internal Revenue, 13 SCRA 104 (1965), this Court stressed on the importance of proving the release, mailing or sending of the notice. While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.



PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT A. HOW TO PROTESTS OR DISPUTE AN ASSESSMENT ADMINISTRATIVELY Marcos II vs. Court of Appeals, 273 SCRA 47, G.R. No. 120880. June 5, 1997 Torres, JR., J. Facts: Following the death of former President Marcos in 1989, a Special Tax Audit Team was created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC. The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. Copies of deficiency estate and income tax assessments were served personally and constructively on August 26, 1991 and September 12, 1991 upon Mrs. Marcos. Likewise, copies of the deficiency income tax assessments against petitioner Marcos were personally and constructively served. Formal assessment notices were served upon Mrs. Marcos on October 20, 1992. The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses. Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government. Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul and set aside the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed the petition ruling that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property. Issue: Whether or not the failure to protest to the assessment within the time prescribe by law makes deficiency tax assessment final, executory, and thus, demandable Held:



Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos. The Notice of Levy upon real property were issued within the prescriptive period and in accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy pursuant to Sec. 205 of the Tax Code. CASE SYLLABI: Same; Estates Taxes; The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal, as under Section 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax.—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 the above-cited provision, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three 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 now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes. Same; Same; Ill-Gotten Wealth; The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.—Petitioner further argues that “the numerous pending court cases questioning the late president’s ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents’ assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive.” He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent’s estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. Same; Same; Actions; Certiorari; Objections to assessments should be raised by means of the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, and not via a Petition for Certiorari, under the pretext of grave abuse of discretion.— Moreover, these objections to the assessments should have been raised, considering the ample remedies 60 | M s . N o l a i d a A g u i r r e


afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government. Due Process; Equity; Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of the government; He who comes to court must come with clean hands, otherwise he not only taints his name, but ridicules the very structure of established authority.— The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot therefore, countenance petitioner’s insistence that he was denied due process. Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority. Prulife of UK Insurance Corporation vs Commissioner of Internal Revenue, CTA Case No. 6774, September 11, 2007 Castañeda, J. Facts: Herein petitioner is a successor-in-interest of Allstate Life Insurance Company of the PH Inc. (Allstate), a duly registered corporation. Respondent issued Assessment/Demand Notices addressed to Allstate finding to be liable of the amount P 5, 756,316.21 which serves as the premium and documentary stamp taxes and compromise penalties. On 21 February 2003, petitioner seasonably protested the Assessment/Demand Notices and attached documents in support of its protests. Petitioner wrote a letter to the BIR District officer relative to the re-investigation of the case. The re-investigation has not been terminated as of 19 September 2003. Issue: Whether or not the petitioner failed to submit relevant supporting documents relative to the premium tax within 60 days from the filing of the protest on 21 February 2003, and if som whether such failure is in violation of Section 228 of the 1997 Tax Code so as to render the Assessment Notices and demand letters all dated 24 January 2003, final, executor and demandable. Held: Upon reviewing the assessment notices for the deficiency premium tax and documentary stamp tax, the court finds the same to be factual and legally supported. The assessment/demand notices showed detailed 61 | M s . N o l a i d a A g u i r r e


computations and applicable provisions of the NIRC arriving at the amount of the deficiency taxes. The figures used in the computation The same, however, cannot be said about the compromise penalties imposed by respondent. The Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. Absent any showing that petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the compromise penalty without the conformity of the taxpayer is illegal and unauthorized. Considering that respondent had not shown that petitioner conformed to the imposition of the compromise penalty, the compromise penalty is deleted. Notwithstanding petitioner's lack of relevant documents in support of its protest insofar as the premium tax assessment is concerned, that assessment did not attain finality as respondent argued. The only effect of petitioner's lack of supporting documents submitted is that it lost its chance of further contesting the premium tax assessment. "xxx [T]he finality of the assessment, as worded in the provision of law, simply means that where the taxpayer decides to forego with its opportunity to present the documents in support of its claim within sixty {60) days from the filing of its protest, it merely lost its chance to further contest the assessment. Effectively, its non-compliance with the submission of the necessary documents would either mean that the petitioner no longer wishes to further submit any document for the reason that its protest letter filed was more than enough to support its claim, or that the petitioner failed to comply thus it can no longer give justification with regard to its objections as to the correctness of the assessment notices. Nonetheless, the necessity of the submission of the supporting documents lies on the petitioner. It cannot be left to the discretion of the respondent for in doing so would leave the petitioner's case at the mercy of the whims of the respondent. In other words, it is for the petitioner to decide whether or not supporting documents are necessary to support its protest, for it is in the best position, being the affected party to the assessment, to determine which documents are necessary and essential to garner a favorable decision from the respondent." (Emphasis supplied) ABN-AMRO Savings Bank Corp. vs Commissioner of Internal Revenue, CTA Case Np. 7089, September 10, 2008 Acosta, P.J. Facts: Petitioner is a domestic corporation duly registered with SEC and duly authorized by the BSP to engage in commercial banking. On 30 December 2003, respondent sent to petitioner a FAN, assessing petitioner deficiency documentary stamp tax for the taxable year 1999 in the amount of P167, 886,906.79, inclusive of penalties. 62 | M s . N o l a i d a A g u i r r e


Respondent claims that petitioner failed to pay the DST due on reverse repurchase agreements with the BSP and that the said agreements are considered as “deposit substitutes” hence taxable pursuant to then Sec. 180 of 1997 Tax Code. On January 28, 2004, Petitioner filed its protest letter pursuant to Sec. 228 of the 1997 Tax Code. Due to the alleged failure of the respondent to act on the said protest, petitioner filed on 25 October 2004 a petition for review praying for the cancellation of the aforesaid deficiency documentary stamp tax assessment. Issue: Whether or not petitioner is liable to pay the deficiency documentary stamp tax assessment for taxable year 1999. Held: The CTA dismissed the case for lack of jurisdiction. The Court of Tax Appeals is a court of special jurisdiction and as such it can take cognizance only of such matters as are clearly within its jurisdiction. Its jurisdiction may only be invoked in the particular instances enumerated in Section 7 of Republic Act No. 1125 as amended by Section 7 of Republic Act No. 9282. The Court's exclusive appellate jurisdiction to review by appeal inaction by the Commissioner of Internal Revenue in cases involving disputed assessment is conferred under Section 7(a) (2) of Republic Act No. 9282. As an added requirement, Section 11 of the same law provides that "any party adversely affected by inaction of the Commissioner of Internal Revenue may appeal with the CTA within thirty (30) days after the expiration of the period fixed by law." The Supreme Court emphasized that the requirement to file a Petition for Review with the Court of Tax Appeals within 30 days is jurisdictional and failure to comply therewith would bar the appeal and deprive the said Court of its jurisdiction to entertain and determine the correctness of the assessment. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. The case at bar reveals that the petitioner filed its letter protest on January 28, 2004, therefore, it has sixty (60) days, until March 28, 2004, within which to submit the relevant supporting documents. Records of the case, however, is bereft of proof that petitioner had submitted the relevant documents on or before March 28, 2004,  therefore, applying the pronouncement in the Oceanic case, the 180-day period shall be reckoned from the filing of the protest on January 28, 2004, which ends on July 26, 2004. In the RCBC case, the Supreme Court held that in case the Commissioner failed to act on the disputed assessment within the 180-day period, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other. Commission of Internal Revenue vs. First Express Pawnshop Company, Inc., 589 SCRA 253, G.R. Nos. 172045-46, June 16, 2009 Carpio, J. Facts: 63 | M s . N o l a i d a A g u i r r e


CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA.

Issue: Has Respondent’s right to dispute the assessment in the CTA prescribed? Held: NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date. CASE SYLLABI: Same; Same; Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the Court of Tax Appeals (CTA) within 30 days from the lapse of the 180-day period.—Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180day period. Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a petition before the CTA. B. COMMISSIONER OF INTERNAL REVENUE RENDERS A DECISION ON THE DISPUTES ASSESSMENT Oceanic Wireless Network, Inc. vs. Commissioner of Internal Revenue, 477 SCRA 205, G.R. No. 148380. December 9, 2005. Azcuna, J. Facts: 64 | M s . N o l a i d a A g u i r r e


Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments. On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner’s request for reinvestigation in a letter dated January 24, 1991, Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 within ten (10) days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy without further notice. Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on October 10, 1991 and October 17, 1991, respectively. On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668. The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner. Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself. With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals .The Court of Appeals denied the petition in a decision dated October 31, 2000. Issue: Whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals. Held:



In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioner’s request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the “issuance of a warrant of distraint and levy to enforce its collection without further notice.” In addition, the letter contained a notation indicating that petitioner’s request for reconsideration had been denied for lack of supporting documents. The demand letter indeed attained finality despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR Commissioner. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. . . .” Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in this case. CASE SYLLABI: Taxation; A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.—A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. Same; The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.—We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. C. REMEDY OF THE TAXPAYER Lascona Land Co. Inc. vs. Commission of Internal Revenue, 667 SCRA 455, G.R. No. 171251. March 5, 2012 Peralta, J. Facts: On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 000004793-407against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56.



Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, in his Letter[ dated March 3, 1999. Said letter denied the protest for the reason that the case was not appealed to the CTA after the lapsed of 180 days from day of filing the said protests. On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory. The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the assessment. On January 4, 2000, the CTA, in its Decision, nullified the subject assessment. On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit. The CIR filed an appeal before the CA. The Court of Appeals granted the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, executory and demandable. Issue: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC. Held: The Court decided in favor of Lascona. In RCBC v. CIR, the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment. Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of



the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision. Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the protested assessment. It is imperative that the taxpayers are informed of its action in order that the taxpayer should then at least be able to take recourse to the tax court at the opportune time. CASE SYLLABI: Taxation; Taxpayer’s Remedies; Remedies of a taxpayer in case the Commissioner of Internal Revenue fails to act on the disputed assessment within the 180-day period from date of submission of documents.—In RCBC v. CIR, 522 SCRA 144 (2007), the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. Same; Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.—Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Thus, even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 522 SCRA 144, G.R. No. 168498. April 24, 2007 Ynares-Santiago, J. Facts: For resolution is petitioner’s Motion for Reconsideration of on the Decision dated June 16, 2006 affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for Reconsideration, respectively. Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable. Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary period was excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not aware of its issuance and that it had become final and executory. 68 | M s . N o l a i d a A g u i r r e


Issue: Whether or not the inadvertence of the petitioner’s counsel is excusable and thus, the petition to cancel the assessment against the petitioner should be given due course. Held: Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation. If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence in handling the case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution. Petitioner’s counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot support petitioner’s claim for relief from judgment. In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory. Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction. CASE SYLLABI: Same; Same; Same; The jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue.—It is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and 69 | M s . N o l a i d a A g u i r r e


determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. Same; Same; Same; Tax Remedies; In case the Commissioner fails to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.—In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other. Same; Same; Same; Same; After availing the first option, i.e., filing a petition for review which was however filed out of time, a taxpayer cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction.— Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction. Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No. L-23912. March 15, 1968 Fernando, J. Facts: In CTA Case No. 669, respondent Jose Concepcion, as ancillary administrator of the estate of Mary H. MitchellRoberts, and respondent Jack F. Mitchell-Roberts, husband of the deceased, sought a refund of the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses "as joint tenants with full rights of survivorship and not as tenants in common." The above assessment was made by petitioner Commissioner of Internal Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the death of the wife, the above shares being conjugal property. Respondents maintained on the other hand that there was no transmission of property since under English law, ownership of all property acquired during the marriage vests in the husband. Moreover, the shares of stock were issued to the spouses "as joint tenants with full rights of survivorship and not as tenants in common." Not being agreeable to the theory entertained by petitioner Commissioner of Internal Revenue, respondents, in a previous case, CTA Case No. 168, appealed such a decision under Republic Act No. 1125. The Court of Tax Appeals, however, 70 | M s . N o l a i d a A g u i r r e


dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of 30 days. That decision rendered on April 29, 1957, became final. Issue: Whether a taxpayer who had lost his right to dispute the validity of an assessment, the period for appealing to the Court of Tax Appeals having expired, as found by such Court in a previous case in a decision now final, and who thereafter paid under protest could then, relying on Section 306 of the National Internal Revenue Code sue for recovery on the ground of its illegality? Held: No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was reaffirmed categorically in this language: "Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable, And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on the merits. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense." Once the matter has reached the stage of finality in view of the failure to appeal, it logically follows, in the appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could no longer be reopened through the expedient of an appeal from the denial of petitioner's request for cancellation of the warrant of distraint and levy." In the same way then that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment, which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken. Clearly then, the liability of respondent Concepcion as an ancillary administrator of the estate of the deceased wife and of respondent Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate tax and P2,616.10 as inheritance tax was beyond question. Having paid the same, respondents are clearly devoid of any legal right to sue for recovery. CASE SYLLABUS: Taxation; Recovery of tax illegally collected, denied where taxpayer had failed to appeal in due time.— Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No. 162852. December 16, 2004 71 | M s . N o l a i d a A g u i r r e


---------------SUPRA--------------Under the case of Phil. Journalist, Inc. vs. CIR, wherein the taxpayer failed to file protest and appeal to CTA on time, since the waiver is held to be invalid, therefore the assessment is invalid; hence, further the rule that the defenses are waived which include the validity of the assessment and prescription will not apply. Here, you can still raise the defense of prescription. Fishwealth Canning Corporation vs. Commissioner of Internal Revenue, 610 SCRA 524, G.R. No. 179343. January 21, 2010 Carpio- Morales, J. Facts: The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000, ordered the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation disclosed that petitioner was liable in the amount of P2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies and other miscellaneous deficiencies. Petitioner eventually settled these obligations onAugust 30, 2000. On August 25, 2000, respondent reinvestigated petitioner’s books of accounts and other records of internal revenue taxes covering the same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to submit its records and books of accounts. Petitioner requested the cancellation of the subpoena on the ground that the same set of documents had previously been examined. Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year 1999, which assessment petitioner contested by letter of September 23, 2003. Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter of protest, and requesting the immediate payment thereof, “inclusive of penalties incident to delinquency.” Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA) “within thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value-added taxes assessments shall become final, executory, and demandable.” Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August 31, 2005. Petitioner filed a Motion for Reconsideration which was denied. The Resolution denying its motion for reconsideration was received by petitioner on October 31, 2006. On November 21, 2006, petitioner filed a petition for review before the CTA En Banc which, by Decision of July 5, 2007, held that the petition before the First Division, as well as that before it, was filed out of time. Issue: Whether or not CTA En Banc erred in holding that the petition it filed before the CTA First Division as well as that filed before it (CTA En Banc) was filed out of time. 72 | M s . N o l a i d a A g u i r r e


Held: The Court dismissed the petition. In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. CASE SYLLABUS: Taxation; Administrative Protest; Motion for Reconsideration; A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the Court of Tax Appeals (CTA).—In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. Allied Banking Corporation vs. Commissioner of Internal Revenue, 611 SCRA 692, G.R. No. 175097. February 5, 2010 Del Castillo, J. The key to effective communication is clarity. The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate clearly and unequivocally to the taxpayer whether an action constitutes a final determination on a disputed assessment. Words must be carefully chosen in order to avoid any confusion that could adversely affect the rights and interest of the taxpayer. Facts: On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004. On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner. Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004. 73 | M s . N o l a i d a A g u i r r e


On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its First Division and docketed as CTA Case No. 7062. On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005, he filed a Motion to Dismiss on the ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005. On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondent’s Motion to Dismiss. On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The case was docketed as CTA EB No. 167. Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition for Review ]as well as petitioner’s Motion for Reconsideration. The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment. Issue: Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282. Held: Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal decisions of the CIR in cases involving disputed assessments. The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction. The word “decisions” in the above quoted provision of RA 9282 has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments. Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting an assessment. In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper. However, In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is 74 | M s . N o l a i d a A g u i r r e


now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. The Formal Letter of Demand with Assessment Notices which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words “final decision” and “appeal”, taken together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA. CASE SYLLABI: Taxation; Assessment; Tax Protest; Pursuant to Section 228 of the National Internal Revenue Code (NIRC), the proper recourse of petitioners was to dispute the assessment by filing an administrative protest within 30 days from receipt thereof.—In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper. Same; Same; Same; Instant case is an exception to the rule on exhaustion of administrative remedies.— A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned. Same; Same; Same; Court have time and again reminded the Commissioner of Internal Revenue (CIR) to indicate in a clear and unequivocal language whether his action on a disputed assessment constitute his final determination thereon in order for the taxpayer concerned to determined when his or her right to appeal to tax count accrues.—In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. Same; Same; Same; It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days and not the Preliminary Assessment Notice (PAN).—We are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99. It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s School v. Collector of Internal Revenue, 104 Phil. 314 (1958) that the counting of the 30 days within which to institute an appeal in the CTA 75 | M s . N o l a i d a A g u i r r e


commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued. Republic vs. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, No. L-21731. March 31, 1966 Bengzon J.P., J. Facts: Lim Tian Teng Sons & Co., a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. The copra was weighted before shipment in the port of departure and upon arrival in the port of destination. The weight before shipment was called copra outturn. To allow for loss in weight due to shrinkage said exporter collected only 95% of the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final liquidation and adjustment. On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P55, 109.98. It took up as part of the beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as part of its outstanding stock as of December 31, 1951. In the audit and examination of taxpayer’s 1952 income tax return, the CIR eliminated the P95,500.00 outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. This increased taxpayer’s 1952 net taxable income. Accordingly, in a letter dated January 16, 1957 received by Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of P10,074.00 and 50% surcharge them amounting to 5,037.00 and demanded payment thereof not later than February 15, 1954. On January 31, 1957 Lim Tian requested for reinvestigation of its 1952 income tax liability. The CIR did not reply; instead he referred the case to the solicitor general for collection by judicial action. On September 20, 1957 the solicitor general demanded from Lim Tian the payment of P15,111.50 within five days, stating that otherwise judicial action would be instituted without further notice. Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waiver of the statute of limitations. As him Tian failed to file a waiver of the statute of limitations, the collector of I.R. instituted 8 months after, or on September 2, 1958 an action in the CFI for the collection of deficiency income tax. The CFI rendered decision ordering the defendant to pay the plaintiff as the assessment is valid. Both parties appealed, raising only question of law. Issue: Whether or not the Commissioner is required to rule first on the taxpayer’s request for reinvestigation before he can go to court for collecting the tax assessed. Held: Nowhere in the Tax Code is the Collector of Internal Revenue 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. On the contrary, 76 | M s . N o l a i d a A g u i r r e


Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, and it is of the utmost importance that the modes adopted to enforce collection of taxes levied should be summary and interfered with as little as possible. No government could exist if all litigants were permitted to delay the collection of its taxes. When the commissioner did not reply to the tax payer’s request for reinvestigation/reconsideration and instead referred the case to the solicitor general for judicial collection, this was indicative of his decision against reinvestigation. CASE SYLLABI: Same; Decision on request for reinvestigation is not a condition precedent to the filing of action for collection of tax already assessed.—Nowhere in the Tax Code is the Collector of Internal Revenue 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. On the contrary, Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. Same; Remedy of taxpayer who desires to contest assessment before and after the creation of Tax Court.—Before the creation of the Court of Tax Appeals the remedy of a taxpayer who desired to contest an assessment issued by the Collector of Internal Revenue was to pay the tax and bring an action in the ordinary courts for its recovery pursuant to Section 306 of the Tax Code. (Sarasola vs. Trinidad, 40 Phil. 252; Alhambra Cigar & Cigarette Manufacturing Co. vs. Collector of Internal Revenue, L-12026, May 29, 1959). Collection or payment of the tax was not made to wait until after the Collector of Internal Revenue has resolved all issues raised by the taxpayer against an assessment. Republic Act 1125 creating the Court of Tax Appeals allows the taxpayer to dispute the correctness or legality of an assessment both in the purely administrative level and in said court, but it does not stop or prohibit the Collector of Internal Revenue from collecting the tax through any of the means provided for in Section 316 of the Tax Code, except when enjoined by said Court of Tax Appeals. Advertising Associates, Inc. vs. Court of Appeals, 133 SCRA 765, No. L-59758. December 26, 1984 Aquino, J. Facts: This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing lessors of personal property. 77 | M s . N o l a i d a A g u i r r e


The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business. Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974. The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974 . Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes. The warrants were served upon the taxpayer on April 18 and May 25, 1978. More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint. Such letter constitutes the decision on the matter. That if the taxpayer does not agree, he may appeal to the CTA within 30 days from the receipt of the letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. Issue: Whether or not the petition for review was filed on time. Held: The Court held that the petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. CASE SYLLABI: Taxation; Appeals; The reviewable decision of the B.I.R. Commissioner is that letter where he clearly directed the taxpayer to appeal to the Tax Court, and not the warrants of distraint and levy.—No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner’s final decision within the meaning of section 7 of Republic Act No. 1125. The 78 | M s . N o l a i d a A g u i r r e


Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen’s Association and St. Stephen’s Chinese Girl’s School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. Same; Same; Same.—The directive is in consonance with this Court’s dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L25289, June 28, 1974, 57 SCRA 523). Commissioner of lnternal Revenue vs. Algue, Inc., 158 SCRA 9, No. L-28896. February 17, 1988 Cruz, J. Facts: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. 5Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. Issue: Whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law. Held: The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after 79 | M s . N o l a i d a A g u i r r e


Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served. As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. CASE SYLLABI: Same; Appeal; Appeal from a decision of the Commissioner of Internal Revenue with the Court of Tax Appeals is 30 days from receipt thereof.—The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. Same; Warrant of distraint and levy; Rule that the warrant of distraint and levy is proof of the finality of the assessment; Exception is where there is a letter of protest after receipt of notice of assessment.—It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and "renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served. Same; Same; Same; Same; Protest filed, not pro forma, and was based on strong legal considerations; Case at bar.—As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. Yabes vs. Flojo, 115 SCRA 278, No. L-46954. July 20, 1982 Concepcion, JR., J. Facts:



In May 1962, Doroteo Yabes received an assessment notice from the Commissioner of Internal Revenue (CIR) demanding him to pay P15k in taxes. Doroteo filed a protest within the prescribed period. The protest was initially denied in September 1962 however, a few days after the denial, the CIR advised Doroteo to execute a waiver of the statute of limitations (SOL) and to allow the CIR to hold in abeyance the ruling of his case until a similar case (Cirilo Constantino Case) which involves exactly the same issue would be decided by the Court of Tax Appeals (CTA). Doroteo complied but while waiting for the CTA to decide that case, Doroteo died. The CTA finally decided the Constantino Case but the same was appealed to the Supreme Court (SC). And so the CIR asked the successors-in-interest of Doroteo, Elpidio and Severino Yabes, to execute another waiver while waiting for the SC decision. The waiver was duly executed and it extended the period of prescription within which the CIR may collect the assessed tax to December 31, 1970. The Constantino Case was decided by the SC in February 1970. On December 4, 1970, before the lapse of the extended period (12/31/70), the CIR filed a tax collection suit against the estate of Doroteo Yabes with the Court of First Instance (CFI) of Cagayan. Elpidio et al received the summons on January 20, 1971. Elpidio et al then filed an appeal with the CTA on February 12, 1971. At the same time, Elpidio et al filed a motion to dismiss (MTD) the collection suit with CFI Cagayan on the ground that the filing of the collection suit is a denial by the CIR of the protest; that such denial is appealable to the CTA; that CFI Cagayan therefore has no jurisdiction over the case. However, Judge Napoleon Flojo of CFI Cagayan denied the MTD. Issue: Whether or not respondent Court of First Instance can lawfully acquire jurisdiction over a contested assessment made by the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes, which has not yet become final, executory and incontestable, and which assessment is being contested by petitioners in the Court of Tax Appeals, Case No. 2216, and still pending consideration. Held: The jurisdiction of the CFI is wanting in this case. The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed in Civil Case No. II-7. Absent jurisdiction over the case, it would be improper for the Court 81 | M s . N o l a i d a A g u i r r e


of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case, as well. The dismissal of the complaint, however, is not sufficient. The ends of justice would best be served by considering the complaint filed in Civil Case No. II-7 not only as a final notice of assessment but also as a counterclaim in CTA Case No. 2216, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability of the heirs of the deceased Doroteo Yabes for commercial broker's fixed and percentage taxes due from the said deceased. AQUINO, J., concurring: In 1970, the Government sued the heirs of Doroteo Yabes (he died in 1963), namely, his widow, Nicolasa, and his three children named, Elpidio, Severina and Julita, for the recovery of the sum of P15,976.82 as commercial broker's fixed and percentage taxes for the period from 1956 to 1960 (Civil Case No. II-7 of the CFI of Cagayan). The suit, which was brought to stop the running of the prescriptive period, was filed on the theory that the tax assessment was uncontested. If contested, it should have been filed in the Court of Tax Appeals. Ordinarily, such an action is not maintainable against the heirs because the remedy for asserting money claims against the deceased is to file a claim in the administration proceeding for the settlement of his estate, as indicated in Rule 86 of the Rules of Court. However, the estate of the deceased is not under administration and his heirs had settled it extrajudicially. Hence, Solicitor General Felix Q. Antonio and his assistants deemed it proper to sue directly the decedent's heirs. The taxes in question were assessed during the taxpayer's lifetime. The prescriptive period was extended and the enforcement of the taxes was held in abeyance by the Commissioner of Internal Revenue upon agreement with the Yabes heirs to await the outcome of a test case, the Constantino case, regarding the same kind of tax liability which was pending in this Court. After the Constantino case was decided in the Government's favor (Commissioner of Internal Revenue vs. Constantino, L-25926, February 27, 1970, 31 SCRA 779), the State filed the aforementioned collection case, Civil Case No. II-7. The Yabes heirs considered the filing of the collection suit as the Commissioner's decision which they could contest in the Tax Court (a view which was later sustained by the Tax Court). Hence, on February 12, 1971, the Yabes heirs filed a petition for review with the Tax Court. They contended that Doroteo Yabes was not a commercial broker. They asked for the cancellation of the tax assessment (CTA Case No. 2216). Respondent judge erred in setting Civil Case No. II-7 for trial. In my opinion, Civil Case No. II-7 should be transferred to the Tax Court. No rule allows the transfer to the Tax Court of a tax case pending in the Court of First Instance and vice-versa. But under the peculiar situation in this case, the pragmatic, expedient and sensible thing to do is to transfer Civil Case No. II-7 to the Tax Court and to consider it as a counterclaim to CTA Case No. 2216. The two cases involve the same parties, the same subject-matter and the same issue: the liability of the Yabes heirs for the commercial broker's fixed and percentage taxes allegedly due from Doroteo Yabes. 82 | M s . N o l a i d a A g u i r r e


That may be a novel and unprecedented solution but we have to be practical and should avoid duplicity of suits. Since it now appears that the Government erroneously assumed in filing Civil Case No. II-7 in the Court of First Instance that the tax assessment is uncontested when actually it is contested, then that case should be consolidated with the case in the Tax Court which is the proper forum for deciding contested tax assessments. DE CASTRO, J., dissenting: I vote to dismiss the complaint filed in the CFI, as well or to set aside all the questioned orders of said Court.

CASE SYLLABI: Taxation; Action; The filing by the Bureau of Internal Revenue of an action for collection of deficiency taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the Commissioner of Internal Revenue.—There is no reason for Us to disagree from or reverse the Court of Tax Appeals’ conclusion that under the circumstances of this case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the respondent Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals in CTA Case No. 2216 was filed on time. Same; Same; Jurisdiction; The Court of First Instance can acquire jurisdiction over a claim for collection of deficiency taxes only after the assessment made by the Commissioner of Internal Revenue has become final and unappealable; not where there is still and pending Court of Tax Appeals case.— The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals had exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. Same; Jurisdiction; Where a court has no jurisdiction dismissal of action, not a mere suspension of proceedings, must be made.—The recommendation of the Solicitor General that the lower court hold in abeyance any action or proceeding in Civil Case No. II-7 until after the Court of Tax Appeals shall have finally decided CTA Case No. 2216, is untenable since the lower court has no jurisdiction over the case. Jurisdiction over an action includes jurisdiction over all interlocutory matters incidental to the case and deemed necessary to preserve the subject matter of the suit or protect interests of the parties. Absent jurisdiction over the case, it would be improper for the Court of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case, as well. 83 | M s . N o l a i d a A g u i r r e


Commissioner of Internal Revenue vs. Union Shipping Corp., 185 SCRA 547(1990), G.R. No. 66160. May 21, 1990 Paras, J. Facts: The CIR assessed Yee Fong Hong, Ltd the total sum of P583, 155.22, as deficiency income taxes due for the years 1971 and 1972. Respondent Yee protested the assessment. November 25, 1976 – the CIR, without ruling on the protest by Yee, issued a Warrant of Distraint and Levy, which was served on private respondent's counsel. November 27, 1976 – Yee reiterated its request for the reinvestigation of the assessment. However the CIR, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before the CFI. January 10, 1976 – Respondent filed its Petition for Review of the petitioner's assessment of its deficiency income taxes in the Court of Tax Appeals. According to the petitioner, the Court of Tax Appeals has no jurisdiction over this case. It claims that the warrant of distraint and levy is proof of the finality of an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant was issued after the respondent filed a request for reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed assessments. Therefore, the period to appeal to the CTA commenced from the receipt of the warrant on November 25, 1976 so that on January 10, 1976 when respondent corporation sought redress, it has long become final and executory. Issue: Whether or not the CTA has jurisdiction over the case Held. The CTA has jurisdiction over the case. There is no dispute that petitioner did not rule on private respondent's motion for reconsideration but left private respondent in the dark as to which action of the Commissioner is the decision appealable to the CTA. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Under the circumstances, the CIR, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. CASE SYLLABI: Taxation; Appeal; The Commissioner of Internal Revenue must state whether his action on questioned assessment is final. It cannot be implied from mere issuance of warrant of distraint and levy.—There appears to be no dispute that petitioner did not rule on private respondent’s motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the 84 | M s . N o l a i d a A g u i r r e


Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent’s motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Same; Same; Same.—Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. Same; Same; Filing of collection suit may be considered a final denial of request for reconsideration of tax assessment.—The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. Commissioner of Internal Revenue vs. Isabela Cultural Corporation, 361 SCRA 71, G.R. No. 135210. July 11, 2001 Panganiban, J. Facts: In an investigation conducted in the 1986 books of account of Isabela, it preliminarily incurred a tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by Isabela’s counsel, the said preliminary assessment was reduced to the amount of P325,869.44.

On February 23, 1990, Isabela received from CIR an assessment letter demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. Isabela then filed a letter to CIR asking for reconsideration on the subject assessment. It even attached certain documents supporting its protest. On February 9, 1995, Isabela received from CIR a Final Notice Before Seizure. In said letter, CIR demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain CIR to collect the subject assessment through summary remedies. Isabela considered said final notice of seizure as [petitioner’s] final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, Isabela filed the instant petition anchored on the argument that CIR’s issuance of the Final Notice Before Seizure constitutes its decision on Isabela’s request for reinvestigation, which Isabela may appeal to the CTA. CA reversed CTA’s decision. CIR: Final Notice was a mere reiteration of the delinquent taxpayer’s obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested 85 | M s . N o l a i d a A g u i r r e


assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the taxpayer’s request for reconsideration and must likewise state the reason therefor. Isabela: Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner’s last act, since failure to comply with it would lead to the distraint and levy of respondent’s properties, as indicated therein. Issue: Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA. Held: No. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefore, and submitting such proof as may be necessary. That letter is considered as the taxpayer’s request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIR’s position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner’s decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy. Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have become final. 86 | M s . N o l a i d a A g u i r r e


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 (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.” In this case, the said period of 180 days had already lapsed when Isabela filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. In the instant case, the second notice received by Isabela verily indicated its nature – that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. CASE SYLLABI: Taxation; National Internal Revenue Code (NIRC); The Final Notice Before Seizure cannot but be considered as the commisioner’s decision disposing of the request for reconsideration.—In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner’s decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy. Same; Same; A delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof.—Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof, x x x In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. Same; Same; A final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.—Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. D. NON-RETROACTIVITY OF RULINGS (SEC.246, NIRC) Commissioner of Internal Revenue vs. Philippine Health Care Providers, Inc., 522 SCRA 131, G.R. No. 168129. April 24, 2007 Sandoval-Gutierrez, J. Facts: On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added Tax (VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.



Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. On June 8, 1988, petitioner CIR, issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical services, is exempt from the VAT coverage. This Ruling was subsequently confirmed by Regional Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994. On January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took effect, amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A. No. 8424 (National Internal Revenue Code of 1997) became effective. This new Tax Code substantially adopted and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT. In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997. On October 20, 1999, respondent filed a protest with the BIR. On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of "deficiency VAT" in the amount of P100,505,030.26 and DST in the amount of P124,196,610.92, or a total of P224,702,641.18 for taxable years 1996 and 1997. Attached to the demand letter were four (4) assessment notices. On February 23, 2000, respondent filed another protest questioning the assessment notices. Petitioner CIR did not take any action on respondent's protests. Hence, on September 21, 2000, respondent filed with the Court of Tax Appeals (CTA) a petition for review, docketed as CTA Case No. 6166. Issue: Whether VAT Ruling No. 231-88 exempting respondent from payment of VAT has retroactive application Held: We agree with both the Tax Court and the Court of Appeals that respondent acted in good faith. In Civil Service Commission v. Maala, we described good faith as "that state of mind denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious." According to the Court of Appeals, respondent's failure to describe itself as a "health maintenance organization," which is subject to VAT, is not tantamount to bad faith. We note that the term "health maintenance organization" was first recorded in the Philippine statute books only upon the passage of "The National Health Insurance Act of 1995" (Republic Act No. 7875). It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent's favor, the term "health maintenance organization" was yet unknown or had no significance for taxation purposes. Respondent, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88.



In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp. Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case. CASE SYLLABI: Same; Same; Same; Administrative Law; Rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the taxpayer; Exceptions. —Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: (1) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (3) where the taxpayer acted in bad faith. Same; Same; Same; Same; The Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer; The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer.—In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, 108 SCRA 142 (1981), this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases of Commissioner of Internal Revenue v. Borroughs, Ltd., 142 SCRA 324 (1986), Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., 166 SCRA 166 (1988), Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.), Inc., 249 SCRA 401 (1995), and Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557 (1997). The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case. Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 512 SCRA 124, G.R. No. 153205. January 22, 2007 89 | M s . N o l a i d a A g u i r r e


Carpio, J. Facts: Respondent is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City. It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of [NAPOCOR’s] two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance of NAPOCOR’s two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium pays [respondent] in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if [respondent] chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate. [Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District Office No. 113 of Davao City. For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among others, a total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14.

On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its case. On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%)." On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR.4 90 | M s . N o l a i d a A g u i r r e


On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of the two-year prescriptive period under the Tax Code. CTA RULING: In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of respondent. The CTA’s ruling stated: [Respondent’s] sale of services to the Consortium [was] paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas. These were established by various BPI Credit Memos showing remittances in Danish Kroner (DKK) and US dollars (US$) as payments for the specific invoices billed by [respondent] to the consortium. These remittances were further certified by the Branch Manager x x x of BPI-Davao Lanang Branch to represent payments for sub-contract fees that came from Den Danske Aktieselskab BankDenmark for the account of [respondent]. Clearly, [respondent’s] sale of services to the Consortium is subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code. x x x Considering the principle of solutio indebiti which requires the return of what has been delivered by mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for by [respondent]. x x x CA RULING: In affirming the CTA, the Court of Appeals rejected petitioner’s view that since respondent’s services are not destined for consumption abroad, they are not of the same nature as project studies, information services, engineering and architectural designs, and other similar services mentioned in Section 4.1022(b)(2) of Revenue Regulations No. 5-96 as subject to 0% VAT. Thus, according to petitioner, respondent’s services cannot legally qualify for 0% VAT but are subject to the regular 10% VAT. Issue: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996. Held: The petition is denied. At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent’s services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that respondent’s services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT. Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 00399, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondent’s 91 | M s . N o l a i d a A g u i r r e


status will deprive respondent of a refund of a substantial amount representing excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation. CASE SYLLABUS: Same; Same; A taxpayer’s reliance on Bureau of Internal Revenue (BIR) rulings binds the Commissioner of Internal Revenue; The BIR Commissioner’s filing of his Answer before the Court of Tax Appeals challenging a taxpayer’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95, but such revocation cannot be given retroactive effect since it will prejudice the taxpayer; Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer.—In seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondent’s status will deprive respondent of a refund of a substantial amount representing excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation. Philippine Bank of Communications vs. Commissioner of Internal Revenue, 302 SCRA 24, G.R. No. 112024. January 28, 1999 Quisumbing, J. Facts: Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.



On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). Issue: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years? Held: The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14 From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.: Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon



which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied) The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. CASE SYLLABUS: Same; Same; Same; Same; Same; Statutory Construction; A memorandum circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action, for there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same; The nonretroactivity of rulings by the Commissioner of Internal Revenue is not applicable where the nullity of a Revenue Memorandum Circular was declared by courts and not by the Commissioner of Internal Revenue.—Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal 94 | M s . N o l a i d a A g u i r r e


Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. Commissioner of lnternal Revenue vs. Court of Appeals, 267 SCRA 557, G.R. No. 117982. February 6, 1997 Bellosillo, J. Facts: Alhambra Industries, Inc, is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On May 7, 1991, Private respondent received a letter (26 of April,1991) from the CIR assessing its deficiency Ad Valorem Tax (AVT) in the total amount of (P488,396.62), inclusive of increments, on the removals of cigarette products from place of production during (November 2, 1990 to January 22, 1991).Alhambra filed a protest but the same was denied. CIR requested payment of the revised amount of P520, 835.39. Without waiting for CIR’s reply to its reconsideration. Alhambra filed a petition for review with CTA. Meanwhile, CIR denied the request for reconsideration. Alhambra then paid the disputed AVT in the sum of P520,835.29 under protest. CTA, in its jurisdiction, ordered CIR to refund to Alhambra the amount erroneously paid, explaining that the subject deficiency excise tax assessment resulted from Alhambra’s use of the computation mandated by BIR Ruling 017-473-88 dated October 4, 1998 as basis for computing the 15% AVT. BIR Ruling 017-91 revoked BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code; it included back the VAT to the gross selling price in determining the tax base for computing the AVT on cigarettes. Issue: Whether or not private respondent’s reliance on a void BIR ruling conferred upon the latter a vested right to apply the same in the computation of its AVT and claim for tax refund? Held: The present dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October 4, 1988 which EXCLUDED the VAT from the tax base in computing the 15% excise tax due; and (2) BIR Ruling 017-91 dated Feb 11, 1991 which INCLUDED back the Vat in computing the tax base for purposes of the 15% AVT. The question as to correct computation of the excise tax on cigarettes in the case at bar has been sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88. It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to domestic products and excludes the value added tax in the determination of the gross selling price, which is the tax base for purposes of the imposition of AVT. On the other hand, the last par., of Sec 142 of the same code which includes the VAT in the computation of the AVT refers specifically to cigar and cigarettes only. It does not include/apply to any other articles or goods subject to the AVT. Accordingly, Sec. 142 must perforce 95 | M s . N o l a i d a A g u i r r e


prevail over SEC 127 (B) which is a general provision of law insofar as the imposition of AVT on cigar and cigarettes is concerned, Moreover, the phrase unless otherwise provided in Sec 127(b) purports of exceptions to the general rule contained therein, such as that of Sec 142, last paragraph therof which explicitly provides that in the case of cigarettes, the tax base for purposes of the AVT shall include, the VAT. Private respondent did not question the correctness of the above BIR ruling. In fact, upon knowledge of the effectivity of BIR Ruling No. 017-91, private respondent immediately implemented the method of computation mandated therein by restoring the VAT in computing the tax base for purposes of the 15 % AVT. However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where the taxpayer acted in bad faith. Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it would be assessed deficiency excise tax. What is left to be resolved is petitioner’s claim that private respondent falls under the third exception in Sec. 246, i.e., that the taxpayer has acted in bad faith. Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. We find no convincing evidence that private respondent’s implementation of the computation mandated by BIR Ruling 473-88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of good faith, private respondent immediately reverted to the computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11 February 1991. As regards petitioner's argument that private respondent should have made consultations with it before private respondent used the computation mandated by BIR Ruling 473-88, suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of private respondent to consult petitioner does not imply bad faith on the part of the former.



Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. Concurring opinion of Justice Vitug: I concur in the ponencia written by my esteemed colleague, Mr. Justice Josue N. Bellosillo. I only would like to stress that the 1988 opinion of the Commissioner of Internal Revenue cannot be considered void, considering that it evinces what the former commissioner must have felt to be a real inconsistency between Section 127 and Section 142 of the Tax Code. The non-retroactivity proscription under Section 246 of the Tax Code can thus aptly apply. I reserve my vote, however, in a situation where, as the Solicitor General so points out, the revoked ruling is patently null and void in which case it could possibly be disregarded as being inexistent from the very beginning. CASE SYLLABI:

Taxation; Rulings and circulars, rules and regulations promulgated by the Commissioner of lnternal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers.—However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Same; Words and Phrases; Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong—it partakes of the nature of fraud, a breach of a known duty through some motive of interest or ill will.—Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. lt partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. We find no convincing evidence that private respondent’s implementation of the computation mandated by BIR Ruling 473–88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of good faith, private respondent immediately reverted to the computation mandated by BIR Ruling 017–91 upon knowledge of its issuance on 11 February 1991. Same; The failure of a taxpayer to consult the Bureau of Internal Revenue before using a computation mandated by a BIR Ruling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former.—As regards petitioner’s argument that private respondent should have made consultations with it before private respondent used the computation mandated by BIR Ruling 473–88, suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of private respondent to consult petitioner does not imply bad faith on the part of the former. Same; Estoppel; While the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer.—Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. 97 | M s . N o l a i d a A g u i r r e


Commissioner of Internal Revenue vs. Filinvest Development Corporation , 654 SCRA 56, G.R. No. 163653 & G.R. No. 167689, July 19, 2011 Perez, J. Facts: The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a holding company which also owned 67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). FDC and FAI entered into a Deed of Exchange with FLI whereby the former both transferred in favor of the latter parcels of land appraised at P4,306,777,000.00. In exchange for said parcels which were intended to facilitate development of medium-rise residential and commercial buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI. Later, FLI requested a ruling from the BIR to the effect that no gain or loss should be recognized in the aforesaid transfer of real properties. Acting on the request, the BIR issued Ruling No. S-34-046-97 dated 3 February 1997, finding that the exchange is among those contemplated under Section 34 (c) (2) of the old NIRC (Now Section 40, NIRC) which provides that “(n)o gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation." With the BIR’s reiteration of the foregoing ruling upon the request for clarification filed by FLI, the latter, together with FDC and FAI, complied with all the requirements imposed in the ruling.

On various dates during the years 1996 and 1997, in the meantime, FDC also extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI). Duly evidenced by instructional letters as well as cash and journal vouchers, said cash advances amounted to P2,557,213,942.60 in 1996 and P3,360,889,677.48 in 1997. FDC also entered into a Shareholders’ Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a Singapore-based joint venture company called Filinvest Asia Corporation (FAC), tasked to develop and manage FDC’s 50% ownership of its PBCom Office Tower Project (the Project). With their equity participation in FAC respectively pegged at 60% and 40% in the Shareholders’ Agreement, FDC subscribed to P500.7 million worth of shares in said joint venture company to RHPL’s subscription worth P433.8 million. Having paid its subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project worth P500.7 million, FDC eventually reported a net loss of P190,695,061.00 in its Annual Income Tax Return for the taxable year 1996. Then, FDC received from the BIR a Formal Notice of Demand to pay deficiency income and documentary stamp taxes, plus interests and compromise penalties, covered by the following Assessment Notices, viz.: (a) Assessment Notice for deficiency income taxes in the sum of P150,074,066.27 for 1996; (b) Assessment Notice for deficiency documentary stamp taxes in the sum of P10,425,487.06 for 1996; (c) Assessment Notice for deficiency income taxes in the sum of P5,716,927.03 for 1997; and (d) Assessment for deficiency documentary stamp taxes in the sum of P5,796,699.40 for 1997. The foregoing deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it 98 | M s . N o l a i d a A g u i r r e


executed with FAI and FLI, on the dilution resulting from the Shareholders’ Agreement FDC executed with RHPL as well as the “arm’s-length” interest rate and documentary stamp taxes imposable on the advances FDC extended to its affiliates. FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes in the sum of P1,477,494,638.23 for the year 1997. Covered by Assessment Notice, said deficiency tax was also assessed on the taxable gain purportedly realized by FAI from the Deed of Exchange it executed with FDC and FLI. Within the reglementary period of thirty (30) days from notice of the assessment, both FDC and FAI filed their respective requests for reconsideration/protest, on the ground that the deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual and legal basis. Having submitted the relevant supporting documents pursuant to the 31 January 2000 directive from the BIR Appellate Division, FDC and FAI filed a letter requesting an early resolution of their request for reconsideration/protest on the ground that the 180 days prescribed for the resolution thereof under Section 228 of the NIRC was going to expire on 20 September 2000. In view of the failure of petitioner CIR to resolve their request for reconsideration/protest within the aforesaid period, FDC and FAI filed a petition for review with the CTA. The petition alleged, among other matters, that as previously opined in BIR Ruling No. S-34-046-97, no taxable gain should have been assessed from the subject Deed of Exchange since FDC and FAI collectively gained further control of FLI as a consequence of the exchange; that correlative to the CIR's lack of authority to impute theoretical interests on the cash advances FDC extended in favor of its affiliates, the rule is settled that interests cannot be demanded in the absence of a stipulation to the effect; that not being promissory notes or certificates of obligations, the instructional letters as well as the cash and journal vouchers evidencing said cash advances were not subject to documentary stamp taxes; and, that no income tax may be imposed on the prospective gain from the supposed appreciation of FDC's shareholdings in FAC. As a consequence, FDC and FAC both prayed that the subject assessments for deficiency income and documentary stamp taxes for the years 1996 and 1997 be cancelled and annulled. CTA decision - went on to render the decision dated 10 September 2002 which, with the exception of the deficiency income tax on the interest income FDC supposedly realized from the advances it extended in favor of its affiliates, cancelled the rest of deficiency income and documentary stamp taxes assessed against FDC and FAI for the years 1996 and 1997. However [FDC] is ordered to pay the amount of P5,691,972.03 as deficiency income tax for taxable year 1997. In addition, FDC is also ordered to pay 20% delinquency interest computed from February 16, 2000 until full payment thereof pursuant to Section 249 (c) (3) of the Tax Code. Dissatisfied with the foregoing decision, FDC filed petition for review -- Calling attention to the fact that the cash advances it extended to its affiliates were interest-free in the absence of the express stipulation on interest required under Article 1956 of the Civil Code, FDC questioned the imposition of an arm's-length interest rate thereon on the ground, among others, that the CIR's authority under Section 43 of the NIRC: (a) does not include the power to impute imaginary interest on said transactions; (b) is directed only against controlled taxpayers and not against mother or holding corporations; and, (c) can only be invoked in cases of understatement of taxable net income or evident tax evasion. 99 | M s . N o l a i d a A g u i r r e


CA – upheld FDC’s position and reversed and set aside CTA deicision. Issue No. 1: Whether or not the advances extended by FDC to its affiliates are subject to income tax and also subject to interest. Held: Yes. Section 43 [now Section 50] of the 1993 National Internal Revenue Code (NIRC) provides that. “(i)n case of two or more organizations, trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner of Internal Revenue [(CIR)] is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade of business, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business,” Section 179 of Revenue Regulations No. 2 provides in part that “(i)n determining the true net income of a controlled taxpayer, the [CIR] is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce of avoid tax by shifting or distorting income or deductions. The authority to determine true net income extends to any case in which either by inadvertence or design the taxable net income in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.” Despite the broad parameters provided, however, the CIR’s power of distribution, apportionment or allocation of gross income and deductions under the NIRC and Revenue Regulations No. 2 do not include the power to impute “theoretical interests” to the taxpayer’s transactions. Pursuant to Section 28 [now Section 32] of the NIRC, the term “gross income” is understood to mean all income from whatever source derived, including, but not limited to certain items. 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 Philippine 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. In this case, there is no evidence of actual or possible showing that the advances taxpayer extended to its affiliates had resulted to interests subsequently assessed by the CIR. Even if the Court were to accord credulity to the CIR’s assertion that taxpayer 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. Further, pursuant to Article 1959 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly stipulated in writing. Issue No. 2: Whether or not FDC is subject to documentary stamp tax. Held:



Yes. Loan agreements and promissory notes are taxed under Section 180 of the 1993 National Internal Revenue Code (NIRC) [they are now taxed under Section 179 as “evidence of indebtedness]. When read in conjunction with Section 173 of the NIRC, Section 180 concededly applies to “[a]ll loan agreements, whether made or signed in the Philippines, or abroad when the obligation or right arises from Philippine sources or the property or object of the contract is located or used in the Philippines.” Section 3 (b) of Revenue Regulations No. 9-94 provides in part that the term “loan agreement” shall include “credit facilities, which may be evidenced by credit memo, advice or drawings.” Section 6 of the same revenue regulations further provides that “[i]n cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities, which may be evidenced by credit/debit memo, advice or drawings by any form of check or withdrawal slip…” Applying the foregoing to the case, the instructional letters as well as the journal and cash vouchers evidencing the advances taxpayer extended to its affiliates in 1996 and 1997 qualified as loan agreements upon which documentary stamp taxes may be imposed. CASE SYLLABI: Same; Rulings, circulars, rules and regulations promulgated by the Bureau of Internal Revenue (BIR) have no retroactive application if to so apply them would be prejudicial to the taxpayers; Exceptions to the rule.—In its appeal before the CA, the CIR argued that the foregoing ruling was later modified in BIR Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos evidencing lendings or borrowings extended by a corporation to its affiliates are akin to promissory notes, hence, subject to documentary stamp taxes. In brushing aside the foregoing argument, however, the CA applied Section 246 of the 1993 NIRC from which proceeds the settled principle that rulings, circulars, rules and regulations promulgated by the BIR have no retroactive application if to so apply them would be prejudicial to the taxpayers. Admittedly, this rule does not apply: (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. Not being the taxpayer who, in the first instance, sought a ruling from the CIR, however, FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings. Commissioner of Internal Revenue vs. San Roque Power Corporation, 690 SCRA 336, G.R. No. 187485. February 12, 2013 Carpio, J. Consolidated Digest: The primary issue in the three (3) consolidated cases involving San Roque Power, Taganito Mining and Philex Mining decided last February 12, 2013 revolves around the proper period for filing the judicial claim for refund or credit of creditable input tax. Under Section 112(A) and 112(C) of the Tax Code, a taxpayer whose sales are zero-rated or effectively zero-rated can file his administrative claim for refund or credit at anytime within two (2) years after the taxable quarter when the sales were made and, after full or partial denial of the claim or failure of the Commissioner to act on his application within 120 days from 101 | M s . N o l a i d a A g u i r r e


submission of the same, he may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, file his judicial claim with the CTA. These cases all involved the timely filing by the taxpayers of their administrative claims with the Commissioner of Internal Revenue. However, San Roque and Taganito both prematurely filed their judicial claims without waiting for the 120-day period (for the Commissioner to act on their administrative claims) to lapse, whereas Philex was a case of late filing since it did not file its judicial claim until after 426 days beyond the 120 + 30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio, denied tax refund or credit to San Roque and Philex, but granted the same to Taganito. The majority denied refund to San Roque on the basis, among others, that the waiting period for filing a judicial claim is mandatory and jurisdictional and has been in the Tax Code for more than 15 years before San Roque filed its judicial claim in April 10, 2003 (barely 13 days after it filed its administrative claim). The majority, however, granted refund to Taganito who, although like San Roque filed its judicial claim without waiting for the 120-day period to lapse, was deemed to have filed its judicial claim on time since it was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 (which states that the taxpayer need not wait for the 120-day period to lapse before it could seek judicial relief with the CTA) but before the October 6, 2010 Supreme Court (SC) decision in Commissioner of Internal Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day periods as mandatory and jurisdictional). The majority held that since the Commissioner has exclusive and original jurisdiction to interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an erroneous interpretation by the Commissioner and, under Section 246, a reversal of a BIR ruling cannot adversely prejudice a taxpayer like Taganito who in good faith relied on it prior to its reversal. In denying Philex’s judicial claim for refund filed on October 17, 2007, the majority ruled that the inaction of the Commissioner during the 120-day period is a “deemed denial” and Philex’s failure to file an appeal within 30 days from the expiration of the 120-day period rendered the “deemed denial” decision of the Commissioner final and inappealable. In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-Bernabe, suggested that the doctrine applicable to a claim for refund depends on the operative case and the prevailing rulings and practices at the time of filing the claim. In San Roque, since both the administrative and judicial claims were filed during the effectivity of RR 7-95 (which still applied the 2-year prescriptive period to judicial claims), San Roque can claim good faith reliance on RR 7-95 and the then prevailing practices of the BIR and CTA to believe that the 120 + 30-day periods are dispensable so long as both administrative and judicial claims are filed within the 2-year period. In denying refund to Taganito, however, the dissenter pointed out that Taganito cannot claim reliance in good faith on RR 7-95 since it filed its judicial claim after November 1, 2005 when RR 16-2005 took effect and superseded RR 7-95 (including BIR Ruling No. DA-489-03 relied upon by the majority in granting refund to Taganito and which this dissenter believed was a mere application of RR 7-95), deleting the reference therein to the 2-year period for filing judicial claims. Philex, on the other hand, filed its claim belatedly under both the superseded RR 7-95 and the effective RR 16-2005. This dissenter thus voted to grant refund to San Roque, but to deny it to Taganito and Philex.



In his separate dissenting opinion, CJ Sereno, concurred with J. Velasco’s dissent in San Roque and Philex but disagreed with the latter’s stand in Taganito since, at the time Taganito filed its administrative and judicial claims for refund, the 2-year prescriptive period remained the unreversed interpretation of the court. Thus, Taganito cannot be faulted for relying on court interpretations even with the existence of RR 16-2005, and for preferring to abide by court interpretations over mere administrative issuances as the latter’s validity is still subject to judicial determination. This dissenter believed that the mandatory and jurisdictional nature of the 120+30 day periods was only definitely and categorically declared by the SC in Aichi on October 6, 2010 and should only be applied prospectively from that time, and that previous regard to the 120+30-day periods is an exceptional circumstance which warrants procedural liberality to taxpayers who relied on such interpretations. In his separate dissenting opinion, J. Leonen, joined by J. del Castillo, disagreed that SC interpretations of the law take effect only prospectively, since the SC’s duty is to construe and not to make law, and its interpretation became part of the law from the date it was originally passed. This dissenter further reminds us that an “erroneous application of the law by public officers does not preclude a subsequent correct application of the statute, and the Government is never estopped by mistake or error on the part of its agents.” Accordingly, while the Commissioner is given power and authority to interpret tax laws, it cannot legislate guidelines contrary to the law it is tasked to implement. Hence its interpretation is not conclusive and will be ignored if judicially found to be erroneous. And while concededly any reversal of any BIR ruling cannot adversely prejudice a taxpayer who in good faith relied on it prior to its reversal, if it is patently clear that the ruling is contrary to the text itself, there can be no reliance in good faith. Further, that it is the duty of the lawyers of private parties to best discern the acceptable interpretation of legal text and, in doing so, they take the risk that the SC will rule otherwise, especially if the text of the law – as in this case – is very clear. This dissenter thus voted to deny refund to all three taxpayers. (http://lexoterica.wordpress.com/2013/03/06/dissension-in-the-court-february-2013/)

CASE SYLLABI: Civil Law; Human Relations; It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act.―It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, “No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others.” For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper. Same; A reversal of a Bureau of Internal Revenue (BIR) regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal.— Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the 103 | M s . N o l a i d a A g u i r r e


Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Same; Statutory Construction; Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law.—Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. Same; Judgments; Court of Tax Appeals decisions do not constitute precedents, and do not bind the Supreme Court or the public.—There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal system. Sereno, C.J., Separate Dissenting Opinion: Same; View that it is violative of the right to procedural due process of taxpayers when the Court itself allowed the taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential turn, deprived them of the relief provided for and earlier relied on by the taxpayers.—We find it violative of the right to procedural due process of taxpayers when the Court itself allowed the taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential turn, deprived them of the relief provided for and earlier relied on by the taxpayers. It is with this reason and in the interest of substantial justice that the strict application of the 120+<30 day period should be applied prospectively to claims for refund or credit of excess input VAT. To apply these rules retroactively would be tantamount to punishing the public for merely following interpretations of the law that have the imprimatur of this Court. To do so creates a tear in the public order and sow more distrust in public institutions. We would be fostering uncertainty in the minds of the public, especially in the business community, if we cannot guarantee our own obedience to these rules. Velasco, J., Dissenting Opinion: Same; Same; View that the Supreme Court should not turn a blind eye to the subordinate legislations issued by the Secretary of Finance (and RMCs issued by the CIR) and the various decisions of this Court as well as the then prevailing practices of the Bureau of Internal Revenue and the Court of Tax Appeals suggesting that the taxpayers can dispense with the 120 and 30 day-periods in filing their judicial claim for refund/credit of input Value-Added Tax (VAT) so long as both the administrative and judicial claims are filed within two (2) years from the close of the relevant taxable quarter.—The Court 104 | M s . N o l a i d a A g u i r r e


should not turn a blind eye to the subordinate legislations issued by the Secretary of Finance (and RMCs issued by the CIR) and the various decisions of this Court as well as the then prevailing practices of the BIR and the CTA suggesting that the taxpayers can dispense with the 120 and 30 day-periods in filing their judicial claim for refund/credit of input VAT so long as both the administrative and judicial claims are filed within two (2) years from the close of the relevant taxable quarter. I humbly submit that in deciding claims for refund/credit of input VAT, the following guideposts should be observed: (1) For judicial claims for refund/credit of input VAT filed from January 1, 1996 (effectivity of RR 7-95) up to October 31, 2005 (prior to effectivity of RR 16-2005), the Court may treat the filing of the judicial claim within the 120 day (or 60-day, for judicial claims filed before January 1, 1998), or beyond the 120+30 day-period (or 60+30 day-period) as permissible provided that both the administrative and judicial claims are filed within two (2) years from the close of the relevant taxable quarter. Thus, the 120 and 30-day periods under Sec. 112 may be considered merely discretionary and may be dispensed with. (2) For judicial claims filed from November 1, 2005 (date of effectivity of RR 16-2005), the prescriptive period under Sec. 112(C) is mandatory and jurisdictional. Hence, judicial claims for refund/credit of input VAT must be filed within a mandatory and jurisdictional period of thirty (30) days after the taxpayer’s receipt of the CIR’s decision denying the claim, or within thirty (30) days after the CIR’s inaction for a period of 120 days from the submission of the complete documents supporting the claim. The judicial claim may be filed even beyond the 2-year threshold in Sec. 112(A) as long as the administrative claim is filed within said 2-year period. (3) RR 16-2005, as fortified by our ruling in Aichi, must be applied PROSPECTIVELY in the same way that the ruling in Atlas and Mirant must be applied prospectively. Same; Statutory Construction; View that the Supreme Court has previously held that “in declaring a law or executive action null and void, or, by extension, no longer without force and effect, undue harshness and resulting unfairness must be avoided.”—This Court, I maintain, is duty-bound to sustain and give due credit to the taxpayers’ bona fide reliance on RR Nos. 7-95 and 14-2005, RMC Nos. 42-03 and 49-03, along with guidance provided by the then prevailing practices of the BIR and the CTA, prior to their modification by RR 16-2005. Such prospective application of the latter revenue regulation comports with the simplest notions of what is fair and just––the precepts of due process. The Court has previously held that “in declaring a law or executive action null and void, or, by extension, no longer without force and effect, undue harshness and resulting unfairness must be avoided.” Such pronouncement can be applied to a change in the implementing rules of the law. The reliance on the previous rules, in particular RR Nos. 7-95 and 14-2005, along with RMC Nos. 42-03 and 49-03, and the guidance provided by the then prevailing practices of the BIR and the CTA, most certainly have had irreversible consequences that cannot just be ignored; the past cannot always be erased by a new judicial declaration. Leonen, J., Separate Opinion: Courts; Supreme Court; View that the Supreme Court does not make law. Its duty is to construe: i.e., declare authoritatively the meaning of existing text.—I am however unable to agree with the conclusion that the interpretation we have just put on these provisions take effect only when we pronounce them. Thus, in the view of the ponencia, that it is to be applied “prospectively.” My disagreement stems from the idea that we do not make law. Ours is a duty to construe: i.e., declare authoritatively the meaning of existing text. I can grant that words are naturally open textured and do have their own degrees of ambiguity. This can be based on their intrinsic text, language structure, context, and the interpreter’s standpoint. 105 | M s . N o l a i d a A g u i r r e


Statutory Construction; Statutes; View that an “erroneous application and enforcement of the law by public officers do not preclude a subsequent correct application of the statute, and the Government is never estopped by mistake or error on the part of its agents”; Accordingly, while the Bureau of Internal Revenue (BIR) Commissioner is given the power and authority to interpret tax laws pursuant to Section 4 of the National Internal Revenue Code (NIRC), it cannot legislate guidelines contrary to the law it is tasked to implement.—Settled is the principle that an “erroneous application and enforcement of the law by public officers do not preclude a subsequent correct application of the statute, and the Government is never estopped by mistake or error on the part of its agents.” Accordingly, while the BIR Commissioner is given the power and authority to interpret tax laws pursuant to Section 4 of the NIRC, it cannot legislate guidelines contrary to the law it is tasked to implement. Hence, its interpretation is not conclusive and will be ignored if judicially found to be erroneous. Concededly, under Section 246 of the NIRC, “[a]ny revocation, modification or reversal of any BIR ruling or circular shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers.” However, if it is patently clear that the ruling is contrary to the text of the law, there can be no reliance in good faith by the practitioners. Commissioner of Internal Revenue vs. San Roque Power Corporation, 707 SCRA 66, G.R. No. 187485. October 8, 2013 Carpio, J. -----------------------supra----------------------Nature of the Case: This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R. No. 196113, and the Comment to the Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No. 196113. San Roque prays that the rule established in our 12 February 2013 Decision be given only a prospective effect, arguing that “the manner by which the Bureau of Internal Revenue (BIR) and the Court of Tax Appeals (CTA) actually treated the 120 + 30 day periods constitutes an operative fact the effects and consequences of which cannot be erased or undone.” The CIR, on the other hand, asserts that Taganito Mining Corporation’s (Taganito) judicial claim for tax credit or refund was prematurely filed before the CTA and should be disallowed because BIR Ruling No. DA-489-03 was issued by a Deputy Commissioner, not by the Commissioner of Internal Revenue. Final resolution: Motions are Denied CASE SYLLABI: Statutes; The general rule is that a void law or administrative act cannot be the source of legal rights or duties.―The general rule is that a void law or administrative act cannot be the source of legal rights or duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception: “Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse, or custom or practice to the contrary. When the courts declared a law to be inconsistent with the Constitution, the 106 | M s . N o l a i d a A g u i r r e


former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution.” The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of invalidity may not necessarily obliterate all the effects and consequences of a void act prior to such declaration. Same; Operative Fact Doctrine; For the operative fact doctrine to apply, there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court.―Clearly, for the operative fact doctrine to apply, there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03. To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that “the BIR and the CTA in actual practice did not observe and did not require refund seekers to comply with the 120+30 day periods.” This is glaring error because an administrative practice is neither a law nor an executive issuance. Moreover, in the present case, there is even no such administrative practice by the BIR as claimed by San Roque. Taxation; Operative Fact Doctrine; Under Section 246 of the Tax Code, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or the Supreme Court.―Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and consistently applied. An administrative practice, if not formalized as a rule or ruling, will not be known to the general public and can be availed of only by those with informal contacts with the government agency. VELASCO, JR., J., Dissenting Opinion: Same; Statutory Construction; View that the interpretation of the Secretary of Finance, as embodied in revenue regulations, prevails over rulings issued by the Commissioner of Internal Revenue (CIR), who is only empowered, at most, “to recommend the promulgation of rules and regulations by the Secretary of Finance.”―Section 4 of the 1997 NIRC provides that the CIR has the “power to interpret the provisions of the [1997 Tax] Code x x x subject to the review by the Secretary of Finance.” Ergo, the interpretation of the Secretary of Finance, as embodied in revenue regulations, prevails over rulings issued by the CIR, who is only empowered, at most, “to recommend the promulgation of rules and regulations by the Secretary of Finance.” LEONEN, J., Concurring and Dissenting Opinion: Same; Statutory Construction; View that a construction placed upon the law by the Commissioner, even if it has been followed for years, if found to be contrary to law, must be abandoned.―A construction placed upon the law by the Commissioner, even if it has been followed for years, if found to be contrary to 107 | M s . N o l a i d a A g u i r r e


law, must be abandoned. To say that such interpretation established by the administrative agency has effect would be to say that this Court has the power to control or suspend the effectivity of laws. We cannot hold ourselves hostage to an erroneous interpretation. To say that equity should be considered because it has been relied upon by taxpayers would mean to underestimate or, worse, make the ordinary beneficiaries of the use of our taxes invisible. We cannot use equity only to favor large taxpayers. Same; Statutory Construction; View that under Section 4 of the 1997 Tax Code, the power to interpret the provisions of the Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance. Pursuant to Section 7 of the Tax Code, the Commissioner of Internal Revenue may delegate his or her powers to a subordinate official except, among others, the power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue.―Under Section 4 of the 1997 Tax Code, the power to interpret the provisions of the Code and other tax laws is under the exclusive and original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance. Pursuant to Section 7 of the Tax Code, the Commissioner of Internal Revenue may delegate his or her powers to a subordinate official except, among others, the power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau of Internal Revenue. The Bureau of Internal Revenue Ruling No. DA-489-03 is a ruling of first impression, declaring for the first time in written form the permissive nature of the 120-day period stated in Section 112(C).



REMEDIES AVAILABLE TO THE GOVERNMENT A. PRESCRIPTIVE PERIOD TO COLLECT Republic vs. Hizon, 320 SCRA 574, G.R. No. 130430. December 13, 1999 Mendoza, J Facts: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional Director in Pampanga. Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by §221 2 of the National Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection, the trial court, on August 28, 1997, granted the motion and dismissed the complaint. Hence, this petition. Issues: 1. Whether or not the institution of the civil case for collection of taxes was without the approval of the commissioner in violation of section 221 of the National Internal Revenue Code; and 2. Whether or not the action for collection of taxes filed against respondent had already been barred by the statute of limitations. Held: #1 Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law. As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of 109 | M s . N o l a i d a A g u i r r e


the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate under §204 (A) and (B) of this Code, any tax deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases. Held: #2 The contention of the petitioner has no merit. Sec. 229 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner's agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under §223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable. Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of t he 110 | M s . N o l a i d a A g u i r r e


attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrant s of distraint and levy to interrupt the running of the statute of limitations. For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner served on respondent, as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has passed since then, as held in Advertising Associates Inc. v. Court of Appeals and Palanca v. Commissioner of Internal Revenue, the enforcement of tax collection through summary proceedings may be carried out beyond the statutory period considering that such remedy was seasonably availed of. CASE SYLLABI: Same; Same; A request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable; Respondent’s request for reconsideration did not suspend the running of the prescriptive period provided under §223(c).—Sec. 229 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent’s tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner’s agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under §223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable. Same; Same; The timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency.—Petitioner’s reliance on the Court’s ruling in Advertising Associates, Inc. v. Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: “It should be noted that the Commissioner did not 111 | M s . N o l a i d a A g u i r r e


institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the running of the statute of limitations.” Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., 635 SCRA 162, G.R. No. 169225. November 17, 2010 Leonardo- De Castro, J. Facts: In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City. Said letter was duly received by the BIR-West Makati on February 18, 1993. On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR’s National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding for payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989 amounting to P2,936,560.87. On December 3, 1993, respondent, through its external auditors, filed with the same Accounts Receivable/Billing Division of the BIR’s National Office, its protest letter against the alleged deficiency tax assessments for 1989 as indicated in the said tracer letter dated October 11, 1993. On November 7, 2001, nearly eight (8) years later, respondent’s external auditors received a letter from herein petitioner Commissioner of Internal Revenue dated October 27, 2001. The letter advised the respondent that petitioner had rendered a final decision denying its protest on the ground that the protest against the disputed tax assessment was allegedly filed beyond the 30-day reglementary period prescribed in then Section 229 of the National Internal Revenue Code. On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an ‘Act Creating the Court of Tax Appeals’ and Section 228 of the NIRC, to appeal the final decision of the Commissioner of Internal Revenue denying its protest against the deficiency income and withholding tax assessments issued for taxable year 1989. In a Decision dated September 24, 2004, the CTA Original Division held that the subject assessment notice sent by registered mail on January 8, 1993 to respondent’s former place of business was valid and binding since respondent only gave formal notice of its change of address on February 18, 1993. Thus, the assessment had become final and unappealable for failure of respondent to file a protest within the 30-day period provided by law. However, the CTA (a) held that the CIR failed to collect the assessed taxes within the prescriptive period; and (b) directed the cancellation and withdrawal of Assessment Notice No. 00154389-5668. Petitioner’s Motion for Reconsideration and Supplemental Motion for Reconsideration of said Decision filed on October 14, 2004 and November 22, 2004, respectively, were denied for lack of merit. The CIR filed a Petition for Review with the CTA En Banc but this was denied in a Decision dated August 12, 2005 112 | M s . N o l a i d a A g u i r r e


Issue: Whether or not the period to collect the assessment has prescribed Held: Based on the facts of this case, we find that the CIR’s contention is without basis. The pertinent provision of the 1986 NIRC is Section 224, to wit: Section 224. Suspension of running of statute. – The running of the statute of limitations provided in Sections 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the statute will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied.) The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request. The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR.(Emphasis supplied.) Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the running of the period to collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on December 3, 1993, however, there is no indication that petitioner acted upon respondent’s protest. As the CTA Original Division in C.T.A. Case No. 6362 succinctly pointed out in its Decision, to wit: It is evident that the respondent did not conduct a reinvestigation, the protest having been dismissed on the ground that the assessment has become final and executory. There is nothing in the record that would show what action was taken in connection with the protest of the petitioner. In fact, petitioner did not hear anything from the respondent nor received any communication from the respondent relative to its protest, not until eight years later when the final decision of the Commissioner was issued (TSN, March 7, 2002, p. 24). In other words, the request for reinvestigation was not granted. x x x. (Emphasis supplied.)



Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by substantial evidence on record, this Court is constrained to uphold them as binding and true. This is in consonance with our oft-cited ruling that instructs this Court to not lightly set aside the conclusions reached by the CTA, which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abuse or improvident exercise of authority.[11] Indeed, it is contradictory for the CIR to argue that respondent’s December 3, 1993 protest which contained a request for reinvestigation was filed beyond the reglementary period but still claim that the same request for reinvestigation was implicitly granted by virtue of its October 27, 2001 letter. We find no cogent reason to reverse the CTA when it ruled that the prescriptive period for the CIR’s right to collect was not suspended under the circumstances of this case. CASE SYLLABI: Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the Court of Tax Appeals (CTA) is not limited to cases which involve decisions of the Commissioner of Internal Revenue (CIR) on matters relating to assessments or refunds.—The assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision upon which petitioner’s theory with regard to the parameters of the term “other matters” can be supported or even deduced. What is rather clearly apparent, however, is that the term “other matters” is limited only by the qualifying phrase that follows it. Thus, on the strength of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal Revenue (BIR). Same; Same; Under Section 3, 1986 National Internal Revenue Code (NIRC), the issue of prescription of the Bureau of Internal Revenue’s (BIR’s) right to collect taxes may be considered as covered by the term “other matters” over which the Court of Tax Appeals (CTA) has appellate jurisdiction.—The issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters” over which the CTA has appellate jurisdiction. Same; Same; The phraseology of Section 7, number (1), denotes an intent to view the Court of Tax Appeals’ (CTA’s) jurisdiction over disputed assessments and over “other matters” arising under the National Internal Revenue Code (NIRC) or other laws administered by the Bureau of Internal Revenue (BIR) as separate and independent of each other.—The phraseology of Section 7, number (1), denotes an intent to view the CTA’s jurisdiction over disputed assessments and over “other matters” arising under the NIRC or other laws administered by the BIR as separate and independent of each other. This runs counter to petitioner’s theory that the latter is qualified by the status of the former, i.e., an “other matter” must not be a final and unappealable tax assessment or, alternatively, must be a disputed assessment. Same; Same; The mere existence of an adverse decision, ruling or inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the Court of Tax Appeals (CTA).—The first paragraph of Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, belies petitioner’s assertion as the provision is explicit that, for as long as a party is adversely affected by any 114 | M s . N o l a i d a A g u i r r e


decision, ruling or inaction of petitioner, said party may file an appeal with the CTA within 30 days from receipt of such decision or ruling. The wording of the provision does not take into account the CIR’s restrictive interpretation as it clearly provides that the mere existence of an adverse decision, ruling or inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the CTA. Taxation; Assessment; Prescription; The validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the Commissioner of Internal Revenue (CIR) to collect the validly assessed tax has prescribed.—The fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide. Same; Same; Same; Requisites before the Period to Enforce Collection may be Suspended.—The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request. B. ADMINISTRATIVE REMEDIES/ SUMMARY REMEDIES Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174. April 26, 1962 Reyes, J.B.L., J. Facts: On September 23, 1950 the respondent demanded from the petitioner Maria B. Castro the payment of the total amount of P3,593,950.78 as war profits tax. In the course of the summary methods employed by the respondent to enforce the collection of the war profits tax liability of petitioner, the respondent also distrained and advertised for sale the properties of the Marvel Building Corporation in which the petitioner had a substantial interest. To counter-act the move, the said corporation through counsel filed on November 31, 1950, Civil Case No. 12555 in the Court of First Instance of Manila wherein it sought to enjoin the respondent Collector of Internal Revenue from selling at public auction its various properties described in the complaint. While the corporation was able to secure the injunction from the lower court, the same was dissolved by the Supreme Court in its decision in G.R. No. L-5081, Marvel Building Corporation v. Saturnino David, promulgated on February 24, 1954. Petitioner Maria B. Castro was declared therein as the sole and exclusive owner of all shares of stock of the Marvel Building Corporation an d all the other partners are her dummies. In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316 with the Court of First Instance of Manila against the respondent Collector of Internal Revenue for the recovery of the properties advertised for sale on November 22 and 27, 1950 which for lack of bidders were forfeited to the Government. However, before the case could be tried on the merits before said Court, the 115 | M s . N o l a i d a A g u i r r e


Court of Tax Appeals was created by Republic Act No. 1125 and pursuant to Section 22 thereof, the record of the case was remanded for final disposition to this Court. This last mentioned case is now pending hearing before this Court. To satisfy, fully the amount of the war profits tax assessed against petitioner, the respondent on September 29, 1954, caused to be advertised for sale at public auction for November 2, 1954, other real properties of petitioner situated in Manila. The properties were seized, distrained and levied upon from petitioner "in satisfaction of internal revenue taxes and penalties amounting to P4,539,556.26, computed as of April 30, 1954" due from her in favor of the Republic of the Philippines. For lack of bidders at the time of the scheduled sale on November 2, 1954, the properties in question were forfeited to the Government under Section 328 of the National Internal Revenue Code for the total amount of P3,547,892.41 which was allegedly the balance of petitioner's tax liability as of that date. Before the expiration of the one-year period provided for in Section 328 of the National Internal Revenue Code within which petitioner may redeem the real properties forfeited in favor of the Government in the sale at public auction held on November 2, 1954, the petitioner filed with this Court on September 30, 1955, a petition for the annulment of said sale and forfeiture on the ground that her properties were advertised for sale on tax claim of the Government far in excess of the alleged war profits tax, surcharges and penalties fixed by respondent. The Court, in a resolution dated October 31, 1955, declared the auction sale of November 2, 1954 as well as the resulting forfeiture, null and void and of no legal force and effect because of the admitted discrepancy in the amount of tax stated in the notice of sale for which the properties were auctioned and the actual amount of tax assessed and demanded. The said resolution being without prejudice to such action and proceedings a respondent may take in accordance with law. To stop the sale, petitioner filed a petition for injunction with this Court on November 22, 1955 requesting that respondent be enjoined from proceeding with the resale of her properties scheduled on December 12, 1955; that the said properties be released to her; and that she be declared not liable for the war profits tax assessed and demanded of her. After due hearing of this petition and the opposition thereto, this Court, in a resolution dated December 10, 1955, denied the injunction and held in abeyance the determination of other questions until after the case shall have been heard on the merits. The properties were therefore advertised for sale on December 12, 1955 to answer for a war profits tax liability of petitioner to the Republic of the Philippines for the alleged amount of P3,594,307.51 computed as of that date. For lack of bidders, the same were forfeited to the Government. After due hearing and reception of evidence, the Tax Court annulled the last tax sale of December, 1955, covering the found Manila buildings, on account of irregularities in the notices of sale; but for the rest, it found against petitioner and assessed her tax of P 1, 360, 514.66. Issues: (c) That even if appellant were subject to the tax liability declared by the court below, such liability was totally extinguished by the levy and forfeiture of certain properties of hers; and (d) That appellant's acquittal in the criminal case instituted against her for violation of the War Profits Tax Law is a bar to the collection of the taxes assessed, and specially of the 50% surcharge. Held: 116 | M s . N o l a i d a A g u i r r e


(c) 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 acquit tal 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 t he 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). (d) The fourth main ground adduced on behalf of the petitioner (Errors II and XlV) is that the sale and forfeiture to the government (due to lack of bidders) of the properties of petitioner in Manila, Balintawak, Pasay, Makati, Tarlac, Tagaytay and Caloocan which had been levied upon by the respondent Collector of Internal Revenue and advertised for sale in 1950 and 1954, constitutes a full discharge of petitioner's tax liabilities. In so arguing, she relies on the provisions of paragraph 1 of Section 328 of the Internal Revenue Code, reading as follows: . SEC. 328. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties, and costs, the provincial or city treasurer shall declare the property forfeited to the Government in satisfaction of the claim in question and within two days thereafter shall make a return of his proceedings and the forfeiture, which shall be spread upon the records of his office, and appellant contends that in the provision to the effect that in the absence of bidders, the property is to be "forfeited to the Government in satisfaction of the claim in question", the term "satisfaction" signifies nothing but full discharge of the taxes, penalties, and costs claimed by the state. Carried to its logical 117 | M s . N o l a i d a A g u i r r e


conclusion, this theory would permit a clever taxpayer, who is able to conceal most or the more valuable part of his property from the revenue officers, to escape payment of his tax liability by sacrificing an insignificant portion of his holdings; and we can not agree that in providing that the forfeiture of the taxpayer's distrained or levied property, for lack of adequate bids, should operate in satisfaction of the total tax claims even beyond the value of the property forfeited. That the satisfaction prescribed in section 328 of the Revenue Code was intended to mean only a discharge pro tanto is confirmed by the provisions of section 330 of the Revenue Code to the effect that "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". This section makes no distinction between forfeitures to the Government and sales to third persons, and we are satisfied that no distinction was intended and that none is warranted. Nor do we see that the petitioner has any ground for complaining that the properties forfeited were undervalued (Error XV). The relation between assessed value and market price being variable, it is not a matter of notice. However, the Court of Tax Appeals appraised the forfeited properties at double their assessed evaluation, and thereby credited her with a part payment on account of her tax liability in the amount of P1,716,880.00. There is no adequate evidence that they were worth more, petitioner's own estimates of value being obviously unreliable, due to her direct interest in the matter under investigation. Since the burden of proof lay evidently on the taxpayer, she is not in a position to complain in this regard. CASE SYLLABUS: Same; Same; Forfeiture of taxpayer's property under paragraph 1, of Section 328, Tax Code .—The provision in parsgraph 1, of Section 328 of the Tax Code that in the absence of bidders the taxpayer's property is to be "forfeited to the Government in satisfaction of the claim in question", does not operate in satisfaction of the total tax claims even beyond the value of the property forfeited, but was intended to mean only a discharge pro tanto of the tax liabilities. This is confirmed by the provisions of section 330 of the Revenue Code to the effect that "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." This section makes no distinction between forfeitures to the Government and sales to third persons. Republic vs. Enriquez, 166 SCRA 608, No. L-78391. October 21, 1988 Padilla, J. Facts: On 28 January 1985, the petitioner, through the Commissioner of Internal Revenue, served a Warrant of Distraint of Personal Property on the Maritime Company of the. Philippines to satisfy various deficiency taxes of said company in the total amount of P17,284,882.45, pursuant to unappealed and final tax assessments. On 4 October 1985, the corresponding Notice of Seizure of Personal Property, a copy of which was received by a respresentative of the Maritime Company of the Philippines, was issued by the Commissioner of Internal Revenue. 3 Among the properties seized were six (6) barges, Barge MCP-1 to Barge MCP-6. On 11 June 1986, respondent sheriff levied on two (2) barges of the Maritime Company of the Philippines, pursuant to a writ of execution issued on 19 February 1986 by the Regional Trial Court of Manila, Branch 31, in Civil Case No. 85-30134, entitled "Genstar Container Corporation vs. Maritime Company of the 118 | M s . N o l a i d a A g u i r r e


Philippines", in favor of the plaintiff therein. Respondent sheriff scheduled a public auction sale, of the levied barges on 23 June 1986. The barges, particularly Barge MCP-1 and Barge MCP-4, were among the aforementioned properties distrained and seized by petitioner, through the Commissioner of Internal Revenue. On 18 June 1986, the Commissioner of Internal Revenue wrote respondent sheriff informing the latter that Barge MCP-1 and Barge MCP-4 were no longer owned by the Maritime Company of the Philippines as said barges had been distrained and seized by the Bureau of Internal Revenue in satisfaction of various deficiency taxes of Maritime Company of the Philippines, thereby registering its adverse claim over said barges. On 23 June 1986, respondent deputy sheriff sold at public auction the two (2) barges, MCP-1 and MCP-4, and issued the corresponding sheriffs certificate of sale on the same date to the highest bidder which was the levying creditor. On 24 July 1986, petitioner filed before the Court of Appeals the aforementioned petition for prohibition with preliminary injunction, alleging that respondent sheriff, Ramon G. Enriquez, acted in excess of his authority or with grave abuse of discretion when he levied on execution and subsequently auctioned the abovesaid two (2) barges which were the subject of a warrant of distraint and notice of seizure by the Commissioner of Internal Revenue. Petitioner prayed that respondent be ordered to desist and refrain from further proceedings in connection with the execution and that respondent's notice of levy be declared null and void. In its decision, dated 30 April 1987, the Court of Appeals dismissed the petition after finding that "(H)e appears to have acted in accordance with law and in keeping with his duties. There is no perceived abuse of authority or grave abuse of discretion." Hence, this appeal. Issue: Whether or not the writ of execution issued by the RTC is more superior than the BIR’s warrant of distraint and notice of seizure of personal property. Held: It is settled that 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 lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. 5 Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor. CASE SYLLABI: 119 | M s . N o l a i d a A g u i r r e


Taxation; Tax liens; Claim of the government predicated on a tax lien is superior to the claim of a private litigant based on a judgment.—It is settled that 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 lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Same; Same; Execution of judgment; Power of the court in execution of judgments extends only to properties belonging to the judgment debtor; The sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.—Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor. Commissioner of Internal Revenue vs. NLRC, 238 SCRA 42, G.R. No. 74965. November 9, 1994 Mendoza, J. Facts: On January 12, 1984, the CIR demanded payment from private respondent 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 totalling 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 on January 23, 1985. On April 16, 1985, 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 on July 20, 1985 and sold at public auction to satisfy a judgment for unpaid wages and other benefits of employees of private respondent. Issue: Who has the better right- the BIR, or the workers? Held: This case arose out of the same facts involved in Republic v. Enriquez, in which we sustained the validity of the distraint of the six barges, which included the four involved in this case, against the levy on execution made by another deputy sheriff of Manila in another case filed against Maritime Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in the case. There we found that the "Receipt for 120 | M s . N o l a i d a A g u i r r e


Goods, Articles and Things Seized under Authority of the National Internal Revenue Code" covering the six barges had been duly executed, with the Headquarters, First Coast Guard District, Farola Compound Binondo, Manila acknowledging receipt of several barges, vehicles and two (2) bodegas of spare parts belonging to Maritime Company of the Philippines. Accordingly, what we said in the prior case in upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in this case: It is settled that 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 lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of the Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of the Internal Revenue, long before the writ of the execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor. Nor is there any 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 and that since the taxes sought to be collected in this case are not due on the barges in question the government's claim cannot prevail over the claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor Code, "enjoy first preference." In addition, we have held that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of the law. This case does not involve the liquidation of the employer's business. CASE SYLLABI: Taxation; National Internal Revenue Code; Remedies for collection of delinquent taxes.—The National Internal Revenue Code 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 and (b) civil or criminal action. Same; Same; Constructive Distraint.—With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to § 303 (now § 206) of the NIRC. This provision states: Constructive distraint of the property of a taxpayer.—To safeguard the interest of the Government, the Commissioner of Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or intends to leave the Philippines,



or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings, for collecting the tax due or which may be due from him. Same; Same; Same; It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment.—Accordingly, what we said in the prior case in upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in this case: It is settled that 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 lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor. Same; Same; NLRC; 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.—Nor is there any 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 and that since the taxes sought to be collected in this case are not due on the barges in question the government’s claim cannot prevail over the claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor Code, “enjoy first preference.” Labor Law; Money Claims; Worker’s Preference; Civil Law; Preference of Credits; Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer.—Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6; “claims for laborers’ wages, on the goods manufactured or the work done;” or by Article 2242, number 3: “claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works.” To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244. Same; Same; Same; Same; Same; Article 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer.—In addition, we have held that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of the law: ART. 110. Worker preference in case of bankruptcy.—In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards wages due them for services 122 | M s . N o l a i d a A g u i r r e


rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets of the employer. Hongkong & Shanghai Banking Corporation vs. Rafferty., 39 Phil., 145, No. 13188. November 15, 1918 Malcolm, J. Facts: Petitioner HSBC 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 to 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 to thevBIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 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 agains Pujalte. To enforce collection, the CIR went after thee property of Pujalte & Co. including that 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. Issue: Whether or not the CIR can still enforce the lien. Held: No, the lien does not follow the property subject to the tax into the handsof a third party when at the time of transfer, no demand for payment had beenmade and when the purchaser then had no notice of the existence of the lien. Under the general rule of the Civil law, possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a bonafide purchaser without notice. Under the law of taxation however, the tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into operation. Furthermore, in order that the lien may follow the property into the hands of third party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the benevolence of our Constitution which prohibits the taking of property without due process of law. The policy of the law is against upholding secret liens and charges against property of innocent purchasers or encumbrances for value. At the time HSBC acquired the property there was nothing to show that Pujalte & Co. were delinquent taxpayers nor were there any public records that may be consulted to protect it from loss by reason of the existence of a secret lien. 123 | M s . N o l a i d a A g u i r r e


Minor issue on the right of HSBC to recover interest from the undue enforcement of the lien: The reckoning date for the computation of interest should be the date when the taxpayer lost the income from the funds by payment under protest. In this case, it is not from the filing of the complaint for collection but on the date HSBC was deprived of the property. Street, J., dissenting and concurring: The lien created by law for the enforcement of the tax on land is expressly declared to be enforcible against the property in the hands of any person, whether the delinquent or any subsequent owner. (See sec. 364, Administrative Code, 1917; section 2497, id., for city of Manila.) On the other hand, that section of the Internal Revenue Law which declared a lien for internal-revenue taxes merely says that such lien shall be superior to all other charges or liens. (Sec. 1588, Administrative Code, 1917.) From this it can be fairly, though not, I think, conclusively argued that the lien for the enforcement of internal revenue taxes was not intended to be effective against subsequent owners. Acceding to the force of this argument, I should perhaps have yielded my own views and expressed my conformity with the decision upon this as upon other points involved in the case. Nevertheless I cannot refrain from expressing my regret that the court should have reached the conclusion it has announced with respect to the lien declared in section 1588 of the Code, and it is my opinion that the lien created in this section has the same effect and range as the lien which is created in support of the land tax. The obvious effect of the decision on the point in question is to destroy the practical utility of the lien created by section 1588; because so long as the property subject to the tax is in the hands of the person primarily liable for the tax, it can be seized by the Collector of Internal Revenue under process of distraint and thus subjected to the payment of the tax (section 1690, Administrative Code, 1916). No lien is therefore necessary to enable the government to take the property and enforce its rights as against him. It is only when the property passes into the hands of some other person than the one primarily liable that the existence of a lien becomes of any importance. It is inherent in the nature of a lien, as a real obligation fixed on the property, that it should remain as a burden thereon regardless of mutations in the ownership; and a lien, like this, created by express provision of law and made superior to all other charges and liens, necessarily continues to subsist regardless of whether the subsequent owner or purchaser of the property has notice of the lien or not. I am not convinced by the citation of the American authorities, referred to in the opinion of the Court, and I think that the deductions drawn by the Court from those cases is unwarranted. It is well known that mere equitable liens, as recognized in American jurisprudence, are not enforcible against purchasers without notice; but this doctrine I consider to be inapplicable to a statutory lien, such as is involved in this case. The possibility of the existence of some hidden lien like this was recognized by the Hongkong & Shanghai Bank at the time it bought these rails, for the very contract of transfer, or assignment, by which it acquired the property contains a provision whereby Pujalte & Company warranted that, at the date of the transfer, the rails were the absolute property of that company and were "free and clear of any liens, charges, and encumbrances," and warranted the title against all lawful claims of all persons whomsoever. It is obvious that Pujalte & Company would be liable upon this warranty, if the lien should be enforced; and I think this the simplest solution that can be made of the case.



I am, therefore, constrained to express my disagreement with the conclusion of the court with respect to the liability of the rails in question for the tax upon them; and I think that the trial court committed no error in refusing a refund of the amount thereof (P316.43). Upon other points I concur.

CASE SYLLABI: 1.TAXATION; NATURE.—Taxation is an attribute of sovereignty. The power to tax is the strongest of all the powers of government. If approximate equality in taxation is to be attained, all property subject to a tax must respond, or 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. 2.ID. ; TAX LIENS ; LIEN DEFINED.—A lien in its modern acceptation is understood to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation. Its meaning is more extensive than the jus retentionis (derecho de retención) of the civil law. 3.ID.; ID.; INTERNAL REVENUE LAW.—The internal revenue tax constitutes a paramount lien either on the property upon which the tax is imposed or on any other property used in any business or occupation upon which the tax is imposed. 4.ID. ; ID. ; REQUISITES.—The tax lien does not establish itself upon property which has been transferred to innocent purchasers prior to demand. 5.ID.; ID.; ID.—In order that the lien may follow the property into the hands of a third party, it is further essential that the latter should have notice, either actual or constructive. 6.ID.; ID.; ID.; REAL ESTATE OR SPECIAL ASSESSMENT TAXES.—In the case of real estate or special assessment taxation a man cannot get rid of his liability to a tax by buying without notice. (City of Seattle vs. Kelleher [1904], 195 U. S., 351.) 7.ID.; ID.; ID.; PERSONAL PROPERTY TAXES.—In the case of personal property taxes, where the vendee has no knowledge of the taxes on personality existing at the time of purchase, or had no means of knowing from the public records that such taxes had accrued, the lien does not attach. 8.ID.; ID.; FACTS.—Because, on the date the plaintiff purchased the personal property, no demand had been made for the tax, and because the plaintiff had no notice of the tax, there is no valid subsisting lien upon the property—and the plaintiff is not liable to pay the tax. C. JUDICIAL REMEDIES Mambulao Lumber Company vs. Republic, 132 SCRA 1, No. L-37061. September 5, 1984 Cuevas, J. Facts: Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6, Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner 125 | M s . N o l a i d a A g u i r r e


Mambulao Lumber Company for the purpose of determining said taxpayer's forest charges and percentage tax liabilities. After the examination of the booka of accounts of the petitioner, Mambulao Lumber Company and exchanges of correspondence with the Acting Commissioner of Internal Revenue the petitioner was assessed and demanded to pay the amount of P 33,595.26 as deficiency sales tax, forest charges and surcharges. The aforesaid letter was acknowledged to have been received by petitioner on September 19, 1958. On October 18, 1958, petitioner requested for a reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959, respondent Commissioner of Internal Revenue give petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of payments with a warning that failure to comply therewith would be construed as an abandonment of the request for reinvestigation. For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite demands for the payment thereof, respondent Commissioner of Internal Revenue filed a complaint for collection in the Court of First Instance of Manila on August 25, 1961. The Court of First Instance rendered a judgment in favor of the CIR and ordered the petitioner to pay P 15, 739.80 representing its tax liability. From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial court's decision ordering it to pay the amount of P15,443.55 representing forest charges and surcharges due for the year 1949. As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner filed a motion for reconsideration which was denied by the said court in its Resolution dated June 7, 1973. Hence, the instant appeal. Issue: Whether or not the right of plaintiff (respondent herein) to file a judicial action for the collection of the amount of P15, 443.55 as forest charges and surcharges due from the petitioner Mambulao Lumber Company for the year 1949 has already prescribed. Held: It has not prescribed. In the case at bar, the commencement of the five-year period should be counted from August 29, 1958, the date of the letter of demand of the Acting Commissioner of Internal Revenue to petitioner Mambulao Lumber Company. It is this demand or assessment that is appealable to the Court of Tax Appeals. The complaint for collection was filed in the Court of First Instance of Manila on August 25, 1961, very much within the five-year period prescribed by Section 332 € of the Tax Code. Consequently, the right of the Commissioner of Internal Revenue to collect the forest charges and surcharges in the amount of P15,443.55 has not prescribed. Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20) 126 | M s . N o l a i d a A g u i r r e


days from receipt thereof to submit the results of its verification of payments and failure to comply therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of Republic Act No. 1125, thus making the assessment final and 127xecutor. Taxpayer’s failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, 127xecutor and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of its tax liability. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense. In a proceeding like this the taxpayer’s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. As held by this Court in Insular Government vs. Nico the taxpayer may raise only the questions whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of the act. In that case, Doroteo Nico was fined by the Collector of Internal Revenue for violation of sub-paragraphs (d), € and (g) of Section 28 as well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the same Act, the taxpayer was given the right to appeal from the decision of the Collector of Internal Revenue to the Court of First Instance within a period of ten days from notice of imposition of the fine. Nico did not appeal, neither did he pay the fine. Pursuant to Section 33 of the Act, the Collector of Internal Revenue filed an action in the Court of First Instance to enforce his decision and collect the fine. The decision of the Collector of Internal Revenue having become final, this Court, on appeal, allowed no further inquiry into the merits of the same. In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and 127xecutor, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. Petitioner is thus already precluded from raising the defense of prescription. Where the taxpayer did not contest the deficiency income tax assessed against him, the same became final and properly collectible by means of an ordinary court action. The taxpayer cannot dispute an assessment which is being enforced by judicial action, He should have disputed it before it was brought to court. CASE SYLLABI: Same; Failure of taxpayer to appeal to the C.T.A., a B.I.R. assessment makes said assessment final and executory.—Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of payments and 127 | M s . N o l a i d a A g u i r r e


failure to comply therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of Republic Act No. 1125, thus making the assessment final and executory. Same; After B.I.R. assessment becomes final, and collection suit is filed in court, there can no longer be any inquiry on merits of original case. Defenses available only those jurisdictional nature or on fraud.— In a proceeding like this the taxpayer’s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. As held by this Court in Insular Government vs. Nico the taxpayer may raise only the questions whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of the act. AQUINO, J., concurring: Taxation; Jurisdiction; The C.T.A. has jurisdiction over disputed assessments and the ordinary courts over non-disputed ones.—The Tax Court has jurisdiction over disputed assessments (Sec. 7[1], Republic Act No. 1125). If the assessment is not disputed, an ordinary action for the collection of the tax may be filed by the Commissioner (Republic vs. Ledesma, 125 Phil. 856, 862-863; Republic vs. Medrano, 109 Phil. 762; Fernandez Hermanos, Inc. vs. Commissioner of Internal Revenue, L-21551, September 30, 1969, 29 SCRA 552, 567). Same; Appeal; Appeal from a decision of the trial court in a tax case is directly to the Supreme Court.— Any decision of the trial court, sustaining an undisputed assessment, would be appealable to the Supreme Court, in accordance with Rule 42, now Republic Act No. 5440, or as provided in section 25 of the Interim Rules.

Fernandez Hermanos, Inc, vs. Commissioner of Internal Revenue, 29 SCRA 552, No. L -21551, No. L-21557, No. L-24972 No. L-24978, September 30, 1969. Teehankee, J. Nature of the Case: These four appears involve two decisions of the Court of Tax Appeals determining the taxpayer's income tax liability for the years 1950 to 1954 and for the year 1957. Both the taxpayer and the Commissioner of Internal Revenue, as petitioner and respondent in the cases a quo respectively, appealed from the Tax Court's decisions, insofar as their respective contentions on particular tax items were therein resolved against them. Since the issues raised are interrelated, the Court resolves the four appeals in this joint decision. Facts: Cases L-21551 and L-21557 128 | M s . N o l a i d a A g u i r r e


The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of engaging in business as an "investment company" with main office at Manila. Upon verification of the taxpayer's income tax returns for the period in question, the Commissioner of Internal Revenue assessed against the taxpayer the sums of P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as alleged deficiency income taxes for the years 1950, 1951, 1952, 1953 and 1954, respectively. Said assessments were the result of alleged discrepancies found upon the examination and verification of the taxpayer's income tax returns for the said years. The Tax Courtmodified the deficiency assessments accordingly, found the total deficiency income taxes due from the taxpayer for the years under review to amount to P123,436.00 instead of P166,063.00 as originally assessed by the Commissioner, and rendered the following judgment: WHEREFORE, the decision appealed from is hereby modified, and petitioner is ordered to pay the sum of P123,436.00 within 30 days from the date this decision becomes final. If the said amount, or any part thereof, is not paid within said period, there shall be added to the unpaid amount as surcharge of 5%, plus interest as provided in Section 51 of the National Internal Revenue Code, as amended. With costs against petitioner. Both parties have appealed from the respective adverse rulings against them in the Tax Court's decision. One of the main issues that were raise is whether or not the government's right to collect the deficiency income taxes in question has already prescribed. Held: It has not prescribed. On the second issue of prescription, the taxpayer's contention that the Commissioner's action to recover its tax liability should be deemed to have prescribed for failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action, as contradistinguished from the answer filed by the Commissioner to its petition for review of the questioned assessments in the case a quo has long been rejected by this Court. This Court has consistently held that "a judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for." This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In the present case, regardless of whether the assessments were made on February 24 and 27, 1956, as claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was 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 of the five-year period to effect collection by judicial action counted from the date of assessment.; CASE SYLLABUS: Same; Prescription; Five-year 'period to effect collection by judicial action; When period of prescription is counted.—A judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an 129 | M s . N o l a i d a A g u i r r e


answer to the taxpayer's petition for review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the .tax assessment to the Court of Tax Appeals, the said Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court. Philippine National Oil Company vs. Court of Appeals, 457 SCRA 32, G.R. No. 109976. April 26, 2005 Chico-Nazario, J. Facts: Private respondent Savellano 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, which took effect on 11 June 1984, withdrew all tax exemptions of government-owned and controlled corporations. In a letter, dated 08 August 1986, 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 (NAPOCOR), then pending with the BIR, in the amount ofP335,259,450.21. The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR. On 09 June 1987, 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 (E.O.) No. 44. Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the compromise. The BIR received a total tax payment on the interest earnings and/or yields from PNOC's money placements with PNB in the amount of P93,955,479.12. Private respondent Savellano, through four installments, was paid the informer's reward in the total amount ofP14,093,321.89, 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. On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand payment of the balance of his informer's reward. BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano was already fully paid the informer's reward equivalent to 15% of the amount of tax actually collected by the BIR pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that the compromise was in accordance with the provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO No. 4-87. Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan, seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter, private 130 | M s . N o l a i d a A g u i r r e


respondent Savellano 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. On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private respondent Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He claimed therein that BIR Commissioner Tan acted "with grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into a compromise agreement that resulted in "a gross and unconscionable diminution" of his reward. Private respondent Savellano prayed for the enforcement and collection of the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and the payment to him by the BIR Commissioner of the 15% informer's reward on the total tax collected. 18 He would later amend his Petition to implead PNOC and PNB as necessary and indispensable parties since they were parties to the compromise agreement.19 In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action against him, and that private respondent Savellano was already paid the informer's reward due him. PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the case. In its Resolution, dated 28 November 1988, the CTA denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not appear to be indubitable. After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the amended Petition. PNOC averred, among other things, that (1) it had no privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in entering into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it. On the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the BIR Commissioner's decision to accept the compromise was discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts. PNOC and PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA) disallowing the payment by the BIR of informer's reward to private respondent Savellano. The CTA, thereafter, ordered the parties to submit their evidence, to be followed by their respective Memoranda. On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may soon be resolved. Both PNOC and PNB opposed the said Motion. On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16 January 1991, for deficiency withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was sanctioned under P.D. No. 242, which provided for the administrative settlement of disputes between government offices, agencies, and instrumentalities, including government-owned and controlled corporations. Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it had a pending appeal before the DOJ.



On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the attention of the CTA to the fact that the BIR already issued, on 12 August 1991, a warrant of garnishment addressed to the Central Bank Governor and against PNB. In compliance with the said warrant, the Central Bank issued, on 23 August 1991, a debit advice against the demand deposit account of PNB with the Central Bank for the amount ofP294,958,450.73, with a corresponding transfer of the same amount to the demand depositin-trust of BIR with the Central Bank. Since the assessment had already been enforced, PNB's Motion to Suspend Proceedings became moot and academic. Private respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his informer's reward, representing 15% of the deficiency withholding tax collected. The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the case as follows: WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and Philippine National Bank, on the other, as WITHOUT FORCE AND EFFECT; The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against Philippine National Bank which has become final and unappealable by collecting from Philippine National Bank the deficiency withholding tax, plus interest totalling (sic) P294,958,450.73; Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding total tax collected in this case or P44,243.767.00 subject to existing rules and regulations governing payment of reward to informers. PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision, In both cases, the Court of Appeals affirmed the decision of the CTA. Hence, the present petition. Issue: Whether or not the CTA has a jurisdiction over the case considering that the petition for review was filed neither filed by the taxpayer nor the CIR but by an informer seeking the collection of the balance of the informers reward. Held: The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125. Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new assessment, then, there could be no basis for PNB's claim that any dispute arising from the new assessment should only be between BIR and PNB. Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The 132 | M s . N o l a i d a A g u i r r e


CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessment against PNB. The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based on the following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals: SECTION 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; . . . (Underscoring ours.) In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then BIR Commissioner Tan to enter into a compromise agreement with PNOC and to reject his claim for additional informer's reward. He submitted before the CTA questions of law involving the interpretation and application of (1) E.O. No. 44, and its implementing rules and regulations, which authorized the BIR Commissioner to compromise delinquent accounts and disputed assessments pending as of 31 December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward equivalent to 15% of the actual amount recovered or collected by the BIR.54 These should undoubtedly be considered as matters arising from the NIRC and other laws being administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125. Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies. Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law is no longer significant. Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present dispute would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims and controversies solely between or among departments, bureaus, offices, agencies, and instrumentalities of the National Government, including constitutional offices or agencies, as well as government-owned and controlled corporations, shall be administratively settled or adjudicated. While the BIR is obviously a government bureau, and both PNOC and PNB are government-owned and controlled 133 | M s . N o l a i d a A g u i r r e


corporations, respondent Savellano is a private citizen. His standing in the controversy could not be lightly brushed aside. It was private respondent Savellano who gave the BIR the information that resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the compromise agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review. Add Notes: The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered waived. In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. 106 The present case is unique, however, because the Petition for Review was filed by private respondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax – making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed by the informer and not the taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case as a judicial action for collection. In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated and the running of the prescriptive period for collection of the said tax was terminated. Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of Appeals, this Court declares herein that the pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. 134 | M s . N o l a i d a A g u i r r e


Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. CASE SYLLABI: Same; Same; Prescription; A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court, or where the assessment is appealed to the CTA, by filing an answer to the taxpayer’s petition for review wherein payment of the tax is prayed for; The present case is unique because the Petition for Review was filed by a tax informer against the BIR, PNOC, and PNB—the BIR (the collecting government agency), PNOC (the taxpayer), and PNB (the withholding agent) initially found themselves on the same side.—In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed which stops the running of the three-year prescriptive period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayer’s petition for review wherein payment of the tax is prayed for. The present case is unique, however, because the Petition for Review was filed by private respondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.—Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd. and Protector’s Services, Inc. v. Court of Appeals, this Court declares herein that the pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR 135 | M s . N o l a i d a A g u i r r e


Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.—Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd. and Protector’s Services, Inc. v. Court of Appeals, this Court declares herein that the pendency of the present case before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Same; Same; Same; The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of the Supreme Court in which the issues of the present case are resolved with finality.—That CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running of the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any other court for the collection of the tax because such a case would necessarily involve the same parties and involve the same issues already being litigated before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall commence to run only after the promulgation of the decision of this Court in which the issues of the present case are resolved with finality. Same; Same; Same; Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ, because the case was by then, pending review by the Court of Appeals.— Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However, since this Court already finds that the compromise agreement is without force and effect and hereby orders the enforcement of the assessment against PNB, then, any issue or controversy arising from the premature garnishment of PNB’s account and collection of the tax by the BIR has become moot and academic at this point.



SATUTORY OFFENSES AND PENALTIES A. CIVIL PENALTIES/ SURCHARGE/ INTEREST Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 496 SCRA 601, G.R. No. 137002. July 27, 2006 Chico-Nazario, J. Facts: From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the Federal Reserve Bank in New York for credit to the Central Bank's account therein. Thereafter, the Federal Reserve Bank sent to the Central Bank confirmation that such funds had been credited to its account and the Central Bank promptly transferred to the petitioner's account in the Philippines the corresponding amount in Philippine pesos. 3 During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However, in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal Revenue Code was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code (NIRC), by adding the foregoing: [W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182)4 of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty ofP300.00.5 BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment No. FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount of P3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990. Issues: I



WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE II WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT Held: I The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC. To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines. In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of money, which is to be credited to the account of the Central Bank. These are the same acts described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195 (now Section 182) of the NIRC. Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country. A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be credited to the Central Bank's account with them. The transaction was made at the shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or 138 | M s . N o l a i d a A g u i r r e


facility used by the parties in their transactions, transactions which they may effect through our courts, and which are regulated and protected by our government. II The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the NIRC, is applicable in this case. In the case of Philippine Refining Company v. Court of Appeals,19 this Court categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00. This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty. Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC. CASE SYLLABI: Taxation; Interests; Even if an assessment is later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the Commissioner of Internal Revenue; The intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature—they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.—In the case of Philippine Refining Company v. Court of Appeals, 256 SCRA 667 (1996), this Court categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner’s default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00. This doctrine is consistent with the earlier decisions 139 | M s . N o l a i d a A g u i r r e


of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty. The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature—they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. Same; Collecting charges incident to tax delinquency is mandatory.—Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers’ use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC. Republic Cement Corp. vs. Commissioner of Internal Revenue, CTA Case No. 7144, August 2, 2011, Amended Decision Cotangco-Manalastas, J. Facts: Petitioner’s Motion for Partial Reconsideration Petitioner claims that it duly filed proper returns for remittance of withholding VAT on payments for services rendered to non-residents, hence, the three-year prescriptive period applies. Petitioner asserts that respondent has until January 25, 2003 to assess the deficiency withholding VAT for taxable year 1999, which is three years from the date of filing of the VAT return on January 25, 2000; and that respondent's Assessment Notice for the said deficiency tax dated February 18, 2004, which it received on March 3, 2004, is beyond the three-year prescriptive period for the assessment and collection of taxes. Petitioner further avers that the six (6) waivers it had executed were invalid as the same did not comply with Revenue Memorandum Order (RMO) No. 20-90, and Revenue Delegation Authority Order No. (RDAO) 3-2003; hence, the said waivers did not have the effect of extending the three-year prescriptive period and the right of the government to assess the deficiency withholding VAT for taxable year 1999 is already barred by the statute of limitations. Petitioner alleges that: (a) certain payments to non-residents, such as Elex Engineers, BMH Claudius Engineers, Mr. Jadgmann and Krupp Polysius were made prior to 1999, hence, said transactions should not have been included in the subject deficiency withholding VAT assessment for taxable year 1999; (b) certain payments made to non-residents in 1999, such as Krupp Po/ysius, were established to have been 140 | M s . N o l a i d a A g u i r r e


made to domestic corporations and/or resident individuals, and/or payments for purchase of materials and not services, hence, not subject to deficiency withholding VAT for taxable year 1999; (c) the findings of this Court that journal vouchers, which were presented by petitioner, are self-serving is erroneous because, in the first place, it was respondent who assessed petitioner based solely on the same journal vouchers without verifying or examining any other pertinent evidence; and (d) as the assessments were based solely on the journal vouchers, which had no indication that the entries therein were payments made to nonresidents or payments made in 1999, and which were not corroborated by any other evidence, therefore, the assessment is invalid for it has no factual and legal bases.  Finally, petitioner avers that the imposition of 25% surcharge has no legal basis since petitioner is not subject to deficiency withholding VAT; and that the deficiency interest should be computed from the time the tax is required to be paid, which is January 25, 2000, until the time provided for its payment under the Final Demand and Assessment Notice, which is January 31, 2005 (not until full payment), while the delinquency interest should be computed from the day after the due date appearing in the Final Demand and Assessment Notice, which is February 1, 2005 until the amount is fully paid because the imposition of the deficiency interest at the same time that the delinquency interest is imposed amounts to double imposition of interest penalty. Respondent's Motion for Partial Reconsideration On the other hand, in respondent's Motion for Partial Reconsideration, she insisted that petitioner is liable for the amount of P30, 429,409.29 and P6,137.82, respectively, representing deficiency creditable withholding on VAT and withholding tax on compensation. Respondent argues that the investigation conducted by its revenue officers disclosed that certain payments of services to non-resident foreign corporations were not subjected to Creditable Withholding on VAT and that petitioner failed to submit proof, hence, the assessment was sustained pursuant to Section 114(C) of the NIRC of 1997 and Section 4.102 of Revenue Regulations No. 7-95; that a comparison of withholding tax due per Alphalist against the remittance per tax Returns resulted to a discrepancy of P2,564.68, hence, the assessed deficiency withholding tax on compensation of P6,137.82 must be sustained; and that failure of petitioner to file a return for the taxes assessed merits the sanction of a Compromise Penalty in lieu of instituting a criminal action pursuant to Revenue Memorandum Order No. 1- 90 in relation to RMO No. 26-86. COURT’S RULING: Court partially grants petitioner’s partial motion for reconsideration and denies the respondent’s partial motion for reconsideration. 1. AS TO CIVIL LIABILITY As previously stated, petitioner failed to overcome the presumption of the correctness of the assessment; therefore, it is liable to pay the disputed deficiency tax. In view of this, the imposition of 25% surcharge is proper in accordance with Section 248(A) of the NIRC of 1997, which 141 | M s . N o l a i d a A g u i r r e


provides: "SEC. 248. Civil Penalties.- (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: (1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or (2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or (4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment." The law is very clear. The imposition of surcharge is mandatory. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State. The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge, pursuant to Section 248(A)(3) of the Tax Code. 6 Even the alleged good faith of the taxpayer in failing to pay the tax upon advice of counsel is not sufficient justification for seeking exemption from the payment of surcharge. I t is basic principle that "surcharg e" is an overcharge or exaction imposed by law as an addition to the main tax required to be paid. It is not really a penalty as used in criminal law but a civil administrative sanction provided primarily as a safeguard for the protection of the State revenue and to reimburse the government for the expenses in investigating and the loss resulting from the taxpayer's fraud. In other words, the imposition of a surcharge is not penal but compensatory in nature - they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. A comparison of Section 249(6) and 2LJ0(C)(3) of the NIRC reveals that the deficiency interest on any deficiency tax is assessed "from the date prescribed for its payment until the full payment thereof" while the delinquency interest, which is imposed for ruilure to pay a deficiency tax, is assessed starting "on the due date appearing in the notice and demand of the Commissioner until the amount is fully paid': Clearly, the law itself allows the imposition of these two kinds or interests simultaneously, and therefore, there is no double imposition of interest penalty. Hence, petitioner's assertion that the 20% deficiency interest should 142 | M s . N o l a i d a A g u i r r e


be computed from January 25, 2000 until January 31, 2005 and not until full payment is contrary to the very language of the NIRC. ACOSTA, J. Dissenting Opinion It is not the intent of the law to impose such undue interest on any unpaid tax due to the Government. The imposition of at least 40% interest per annum on any unpaid tax is grossly excessive and unjust. The imposition of deficiency interest and delinquency interest simultaneously for a given period of time and which will translate to at least 40% interest per annum on any unpaid tax, being grossly excessive and unconscionable, may partake the nature of an imposition that is penal, rather than compensatory. The 20% deficiency interest runs only from the date prescribed for the payment of the unpaid or deficiency tax until the date of payment prescribed by the FAN issued by CIR. After which, delinquency interest (on the deficiency tax, deficiency interest and surcharge) is imposed on taxpayer in addition to the basic deficiency tax, deficiency interest and surcharge, until final payment of the total amount is made. Philippine Refining Company vs. Court of Appeals, 256 SCRA 667, G.R. No. 118794. May 8, 1996 Regalado, J. Facts: This is an appeal by certiorari from the decision of respondent Court of Appeals 1 affirming the decision of the Court of Tax Appeals which disallowed petitioner's claim for deduction as bad debts of several accounts in the total sum of P395,324.27, and imposing a 25% surcharge and 20% annual delinquency interest on the alleged deficiency income tax liability of petitioner. Petitioner argues that the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax assessed is improper and unwarranted, considering that the assessment of the Commissioner was modified by the CTA and the decision of said court has not yet become final and executory. Issue: Whether or not the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax assessed is improper and unwarranted. Held: The Court vehemently rejects the absurd thesis of petitioner that despite the supervening delay in the tax payment, nothing is lost on the part of the Government because in the event that these debts are collected, the same will be returned as taxes to it in the year of the recovery. This is an irresponsible statement which deliberately ignores the fact that while the Government may eventually recover revenues under that hypothesis, the delay caused by the non-payment of taxes under such a contingency will obviously have a disastrous effect on the revenue collections necessary for governmental operations during the period concerned. 143 | M s . N o l a i d a A g u i r r e


Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides: Sec. 248. Civil Penalties. — (a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases: xxx xxx xxx (3) Failure to pay the tax within the time prescribed for its payment. With respect to the penalty of 20% interest, the relevant provision is found in Section 249 of the same Code, as follows: Sec. 249. Interest. — (a) In general. — There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid. xxx xxx xxx (c) Delinquency interest. — In case of failure pay: (1) The filed, or

amount

of

the

tax

due

on

any

return

required

to

be

(2) The amount of the tax due for which no return is required, or (3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected, on the unpaid amount, interest at the rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the tax. (emphasis supplied) xxx xxx xxx As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11,1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00. Our attention has also been called to two of our previous rulings and these we set out here for the benefit of petitioner and whosoever may be minded to take the same stance it has adopted in this case. Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by 144 | M s . N o l a i d a A g u i r r e


punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. 11 We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government. 12 Unquestionably, petitioner chose to turn a deaf ear to these injunctions. CASE SYLLABI: Same; Same; The fact that a taxpayer appealed the assessment to the CTA and that the same was modified does not relieve it of the penalties incident to delinquency.—As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner’s default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00. Same; Same; Tax laws imposing penalties for delinquencies are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof.—Our attention has also been called to two of our previous rulings and these we set out here for the benefit of petitioner and whosoever may be minded to take the same stance it has adopted in this case. Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. Same; Same; It is mandatory to collect penalty and interest at the stated rate in case of delinquency.— We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government. Unquestionably, petitioner chose to turn a deaf ear to these injunctions. Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue, 501 SCRA 450, G.R. No. 166786. September 11, 2006 Ynares-Santiago, J. Facts: The gist of the motion for reconsideration is that before an exercise of a taxable privilege may be subject to DST, it is indispensable that the transaction must be embodied in and evidenced by a document. Since a pawn ticket as defined in Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act is merely the 145 | M s . N o l a i d a A g u i r r e


pawnbrokers’ receipt for a pawn and not a security nor a printed evidence of indebtedness, it cannot be considered as among the documents subject to DST. In the alternative, petitioner contends that should the Court rule otherwise, it cannot be made to pay surcharges and interest because it acted in good faith and the confusion as to whether it is liable to pay DST is partly attributable to the divergent rulings of the Bureau of Internal Revenue (BIR) on the matter. Issue: Whether or not surcharge and interest penalties shall be impost? Held: The law is clear and needs no further interpretation. No law on legal hermeneutics could change the fact that the entries contained in a pawnshop ticket spell out a contract of pledge and that the exercise of the privilege to conclude such a contract is taxable under Section 195 of the NIRC. The rationale for the issuance of and the spirit that gave rise to the Pawnshop Regulation Act cannot justify an interpretation that obviously supplies an exemption which is simply and clearly not found in the law. Nothing in P.D. No. 114 exempts pawnshops or pawnshop tickets from DST. There is no ambiguity in the provisions thereof; any vagueness arises only from the circuitous construction invoked by petitioner. If then President Ferdinand E. Marcos intended to exempt pawnshops or pawnshop tickets from DST, he would have expressly so provided for said exemption in P.D. No. 114. Since no such exemption appear in the decree, the only logical conclusion is that no such exemption is intended and that pawnshops or pawnshop tickets are subject to DST. Significantly, the Court notes that rural banks and their borrowers and mortgagors are exempt from documentary stamp tax on instruments relating to loans. Under P.D. No. 122, the exemption is up to the amount of P5,000.00 loan and charges are collectible only on the amount in excess of P5,000.00. This provision was adopted by R.A. No. 7353, the Rural Banks Act of 1992 but the threshold amount was increased to P50,000.00, and documentary tax is levied only on any amount in excess of P50,000.00, if there is any. Nevertheless, all is not lost for petitioner. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest. In Connell Bros. Co. (Phil.) v. Collector of Internal Revenue, it was held that: We are convinced that appellant, in preparing its sales invoices as it did, was not guilty of an intentional violation of the law. It did not delay filing the returns for the sales taxes corresponding to the period in question, let alone did so purposely. The delay was in the payment of the deficiency, which arose from a mistaken understanding of the regulations laid down by appellee. The ensuing controversy was, in our opinion, generated in good faith and should furnish no justification for the imposition of a penalty. 146 | M s . N o l a i d a A g u i r r e


CASE SYLLABUS: Taxation; Good Faith; The settled rule is that good faith and honest belief that one is subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest.—The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to delete the imposition of surcharges and interest. In Connell Bros. Co. (Phil.) v. Collector of Internal Revenue, 9 SCRA 735 (1963), it was held that: We are convinced that appellant, in preparing its sales invoices as it did, was not guilty of an intentional violation of the law. It did not delay filing the returns for the sales taxes corresponding to the period in question, let alone did so purposely. The delay was in the payment of the deficiency, which arose from a mistaken understanding of the regulations laid down by appellee. The ensuing controversy was, in our opinion, generated in good faith and should furnish no justification for the imposition of a penalty. WHEREFORE, modified by eliminating the surcharge of 25% imposed upon appellant, the judgment appealed from is affirmed, without costs. Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23, 1974 Esguerra, J. ---------------SUPRA--------------Dispositive portion: As could be readily seen from the above rationalization of the lower court, no distinction has been made between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent intent to evade taxes on the substantial difference between the amounts of net income on the face of the returns as filed by him in the years 1946 to 1951 and the net income as determined by the inventory method utilized by both respondents for the same years. The lower court based its conclusion on a presumption that fraud can be deduced from the very substantial disparity of incomes as reported and determined by the inventory method and on the similarity of consecutive disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax) suffers from an inherent flaw when applied to this case. It is very apparent here that the respondent Commissioner of Internal Revenue, when the inventory method was resorted to in the first assessment, concluded that the correct tax liability of Mr. Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in another assessment dated February 16, 1955, concluded that the tax liability should be reduced to P381,096.07. This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use of the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability. When the respondent Court of Tax Appeals reviewed this case on appeal, it concluded that petitioner's tax liability should be only P227,788.64. The lower court in three instances (elimination of two buildings in the list of petitioner's assets beginning December 31, 1949, because they were destroyed by fire; elimination of expenses for construction in petitioner's assets as duplication of increased value in buildings, and elimination of value of house and lot in petitioner's assets because said property was only given as collateral) supported petitioner's stand on the wrong inclusions in his lists of assets made by the respondent Commissioner of Internal Revenue, resulting in the very substantial reduction of petitioner's tax liability by the lower court. The foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in 147 | M s . N o l a i d a A g u i r r e


his report of his income but also the respondent Commissioner of Internal Revenue who committed mistakes in his use of the inventory method to determine the petitioner's tax liability. The mistakes committed by the Commissioner of Internal Revenue which also involve very substantial amounts were also repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud. From the above exposition of facts, we cannot but emphatically reiterate the well established doctrine that fraud cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent intent could not be deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in accounting methods utilized for determination of tax liabilities The predecessor of the petitioner undoubtedly filed his income tax returns for "the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by him. The Lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code should not be imposed, but eliminated from the income tax deficiency for each year from 1946 to 1951, inclusive. CASE SYLLABUS: Same; Same; Penalties; Actual fraud, not constructive fraud, is subject to 50% surcharge as penalty.— The lower court’s conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. Commission of Internal Revenue vs. Javier, Jr., 199 SCRA 824, G.R. No. 78953. July 31, 1991 Sarmiento, J. Facts: 148 | M s . N o l a i d a A g u i r r e


On or about June 3, 1977, Victoria L. Javier, the wife of the petitioner (private respondent herein), received from the Prudential Bank and Trust Company in Pasay City the amount of US$999,973.70 remitted by her sister, Mrs. Dolores Ventosa, through some banks in the United States, among which is Mellon Bank, N.A. On or about June 29, 1977, Mellon Bank, N.A. filed a complaint with the Court of First Instance of Rizal (now Regional Trial Court), (docketed as Civil Case No. 26899), against the petitioner (private respondent herein), his wife and other defendants, claiming that its remittance of US$1,000,000.00 was a clerical error and should have been US$1,000.00 only, and praying that the excess amount of US$999,000.00 be returned on the ground that the defendants are trustees of an implied trust for the benefit of Mellon Bank with the clear, immediate, and continuing duty to return the said amount from the moment it was received. November 5, 1977, the City Fiscal of Pasay City filed an Information with the then Circuit Criminal Court (docketed as CCC-VII-3369-P.C.) charging the petitioner (private respondent herein) and his wife with the crime of estafa, alleging that they misappropriated, misapplied, and converted to their own personal use and benefit the amount of US$999,000.00 which they received under an implied trust for the benefit of Mellon Bank and as a result of the mistake in the remittance by the latter. On March 15, 1978, the petitioner (private respondent herein) filed his Income Tax Return for the taxable year 1977 showing a gross income of P53,053.38 and a net income of P48,053.88 and stating in the footnote of the return that "Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation." Petitioner (private respondent herein) received a letter from the acting Commissioner of Internal Revenue dated November 14, 1980, together with income assessment notices for the years 1976 and 1977, demanding that petitioner (private respondent herein) pay on or before December 15, 1980 the amount of P1,615.96 and P9,287,297.51 as deficiency assessments for the years 1976 and 1977 respectively. . . . Petitioner (private respondent herein) wrote the Bureau of Internal Revenue that he was paying the deficiency income assessment for the year 1976 but denying that he had any undeclared income for the year 1977 and requested that the assessment for 1977 be made to await final court decision on the case filed against him for filing an allegedly fraudulent return. . . . Petitioner (private respondent herein) received from Acting Commissioner of Internal Revenue Romulo Villa a letter dated October 8, 1981 stating in reply to his December 15, 1980 letter-protest that "the amount of Mellon Bank's erroneous remittance which you were able to dispose, is definitely taxable." . . . 5 The Commissioner also imposed a 50% fraud penalty against Javier. Disagreeing, Javier filed an appeal 6 before the respondent Court of Tax Appeals on December 10, 1981. Issue: Whether or not a taxpayer who merely states as a footnote in his income tax return that a sum of money that he erroneously received and already spent is the subject of a pending litigation and there did not declare it as income is liable to pay the 50% penalty for filing a fraudulent return. Held: 149 | M s . N o l a i d a A g u i r r e


Under the then Section 72 of the Tax Code (now Section 248 of the 1988 National Internal Revenue Code), a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of the deficiency tax in case payment has been made on the basis of the return filed before the discovery of the falsity or fraud. We are persuaded considerably by the private respondent's contention that there is no fraud in the filing of the return and agree fully with the Court of Tax Appeals' interpretation of Javier's notation on his income tax return filed on March 15, 1978 thus: "Taxpayer was the recipient of some money from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation that it was an "error or mistake of fact or law" not constituting fraud, that such notation was practically an invitation for investigation and that Javier had literally "laid his cards on the table." 13 In Aznar v. Court of Tax Appeals, 14 fraud in relation to the filing of income tax return was discussed in this manner: . . . The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. The petitioner's zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts. Javier may be guilty of swindling charges, perhaps even for greed by spending most of the money he received, but the records lack a clear showing of fraud committed because he did not conceal the fact that he had received an amount of money although it was a "subject of litigation." As ruled by respondent Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by the petitioner against the private respondent in the deficiency assessment should be deleted. CASE SYLLABI: Taxation; Court persuaded that there is no fraud in the filing of the return and agrees fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income tax return filed on March 15, 150 | M s . N o l a i d a A g u i r r e


1978.—We are persuaded considerably by the private respondent’s contention that there is no fraud in the filing of the return and agree fully with the Court of Tax Appeals’ interpretation of Javier’s notation on his income tax return filed on March 15, 1978 thus: “Taxpayer was the recipient of some money from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation;” that it was an “error or mistake of fact or law” not constituting fraud, that such notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” Same; Same; Fraud in relation to the filing of income tax return discussed in Aznar vs. Court of Appeals.—In Aznar v. Court of Appeals, fraud in relation to the filing of income tax return, was discussed in this manner: xxx The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. Same; Same; Same; Courts never sustain findings of fraud upon circumstances which create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.—Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. Same; Same; Same; Same; There was no actual and intentional fraud through willful and deliberate misleading of the Bureau of Internal Revenue, case at bar; Error or mistake of law is not fraud.—In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading of the government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. The petitioner’s zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts. B. CRIMES/ OFFENSES/ PENALTIES/ FORFEITURE Ungab vs. Cusi, Jr., 97 SCRA 877, Nos. L-41919-24. May 30, 1980 Concepcion, JR., J. Facts: In July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the cour se of his examination, he discovered that the petitioner failed to report his income derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of 151 | M s . N o l a i d a A g u i r r e


Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the records of the case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution: (1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes due the government under Section 45 in relation to Section 72 of the National Internal Revenue Code; (2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section 183 of the National Internal Revenue Code; (3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of its due revenue in the amount of P15,872.59, inclusive of surcharge. In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of Internal Revenue approved the prosecution of the petitioner. Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the National Internal Revenue Code, as amended, and other related laws, in Administrative Order No. 116 dated December 5, 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed six (6) informations against the petitioner with the Court of First Instance of Davao City. On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR Examiner. 10 However, the trial court denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As prayed for, a temporary restraining order was issued by the Court, ordering the respondent Judge from further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused." 152 | M s . N o l a i d a A g u i r r e


Issue: Whether or not the filing of the criminal complaints against the petitioner were premature since the Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals. Held: The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the 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 contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. 14 An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. 15 Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law.16 Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner. CASE SYLLABI: Criminal Procedure; Taxation; National Internal Revenue Code; Preliminary investigation; Authority of State Prosecutor to investigate and prosecute violations of the National Internal Revenue Code independently of the City Fiscal; Case at bar.—The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all violations of the National Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal.



Same; Same; Same; Jurisdiction of the Court of First Instance over criminal prosecution for violations of the National Internal Revenue Code; Computation and assessment of deficiency taxes is not a prerequisite for criminal prosecution under the Code.—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 recognizance 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. Same; Same; Same; Prescription; Petition for reconsideration of assessment of deficiency taxes suspends the prescriptive period for the collection of taxes, not the prescriptive period of a criminal action for violation of law.—Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner. Commissioner of Internal Revenue vs. Court of Appeals, 257 SCRA 200, G.R. No. 119322. June 4, 1996 Kapunan, J. Facts: On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such investigation, and to file the necessary criminal actions against those who may have violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of the Department of Justice and a representative of the Executive Secretary. On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 3793 reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes of foreign brands subject to a higher rate of tax. On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law. Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement. In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad valorem and value-added tax for the year 1992 with the request that the said amount be paid within thirty (30) days upon receipt thereof. 4 Fortune on September 17, 1993 moved for reconsideration of the assessments. 154 | M s . N o l a i d a A g u i r r e


On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of Justice against respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992. The complaint alleged , among others, that: In the said income tax return, the taxpayer declared a net taxable income of P183,613,408.00 and an income tax due of P64,264,693.00. Based mainly on documentary evidence submitted by the taxpayer itself, these declarations are false and fraudulent because the correct taxable income of the corporation for the said year is P1,282,959,399.25. This underdeclaration which resulted in the evasion of the amount of P723,773,759.79 as deficiency income tax for the year 1992 is a violation of Section 45 of the Tax Code, penalized under Section 253 in relation to Sections 252(b) and (d) and 253 thereof, thus: . .. xxx xxx xxx Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas Chua, likewise filed value-added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with the Rev. District Office of Marikina, Metro Manila, declaring therein gross taxable sales, as follows: 1st Qtr. P 2,924,418,055.00 2nd Qtr. 2,980,335,235.00 3rd Qtr. 2,839,519,325.00 4th Qtr. 2,992,386,005.00 However, contrary to what have been reported in the said value- added tax returns, and based on documentary evidence obtained from the taxpayer, the total actual taxable sales of the corporation for the year 1992 amounted to P16,158,575,035.00 instead of P11,929,322,334.52 as declared by the corporation in the said VAT returns. These fraudulent underdeclarations which resulted in the evasion of value-added taxes in the aggregate amount of P1,169,688,645.63 for the entire year 1992 are violations of Section 110 in relation to Section 100 of the Tax Code, which are likewise penalized under the aforequoted Section 253, in relation to Section 252, thereof. Sections 110 and 100 provide: xxx xxx xxx



Furthermore, based on the corporation's VAT returns, the corporation reported its taxable sales for 1992 in the amount of P11,736,658,580. This declaration is likewise false and fraudulent because, based on the daily manufacturer's sworn statements submitted to the BIR by the taxpayer, its total taxable sales during the year 1992 is P16,686,372,295.00. As a result thereof, the corporation was able to evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 in violation of Section 127 in relation to Section 142, as amended by R.A. 6956, penalized under the aforequoted Section 253, in relation to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A. 6956, are quoted as follows: . . . The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on revenue cases which found sufficient basis to further investigate the allegations that Fortune, through fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year 1992 thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion Pesos. On December 20, 1993, the panel of prosecutors issued an Omnibus Order 11 denying private respondents' motion for reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors, and motion to require submission by the BIR of certain documents to further support private respondents' motion to dismiss. On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790, praying that the complaint of the Commissioner of Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on the preliminary investigation be suspended pending final determination by the Commissioner of Fortune's motion for reconsideration/ reinvestigation of the August 13, 1993 assessment of the taxes due. 12 On January 17, 1994, petitioners filed a motion to dismiss the petition 13 on the grounds that (a) the trial court is bereft of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a criminal prosecution for tax fraud can proceed independently of criminal or administrative action; (c) there is no prejudicial question to justify suspension of the preliminary investigation; (d) private respondents' rights to due process was not violated; and (e) selective prosecution is not a valid defense in this jurisdiction. On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in the petition, private respondents offered in evidence their verified petition for certiorari and prohibition and its annexes. Petitioners responded by praying that their motion to dismiss the petition for certiorari and prohibition be considered as their opposition to private respondents' application for the issuance of a writ of preliminary injunction. On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary injunction. 14 The trial court rationalized its order in this wise: a) It is private respondents' claim that the ad valorem tax for the year 1992 was levied, assessed and collected by the BIR under Section 142(c) of the Tax Code on the basis of the "manufacturer's registered wholesale price" duly approved by the BIR. Fortune's taxable sales for 1992 was in the amount of P11,736,658,580.00. 156 | M s . N o l a i d a A g u i r r e


b) On the other hand, it is petitioners' contention that Fortune's declaration was false and fraudulent because, based on its daily manufacturer's sworn statements submitted to the BIR, its taxable sales in 1992 were P16,686,372,295.00, as a result of which, Fortune was able to evade the payment of ad valorem tax in the aggregate amount of P5,792,479,816.24. c) At the hearing for preliminary investigation, the "Daily Manufacturer's Sworn Statements" which, according to petitioners, were submitted to the BIR by private respondents and made the basis of petitioner Commissioner's complaint that the total taxable sales of Fortune in 1992 amounted to P16,686,372, 295.00 were not produced as part of the evidence for petitioners. In fact, private respondents had filed a motion to require petitioner Commissioner to submit the aforesaid daily manufacturer's sworn statements before the DOJ panel of prosecutors to show that Fortune's actual taxable sales totaled P16,686,373,295.00, but the motion was denied. d) There is nothing on record in the preliminary investigation before the panel of investigators which supports the allegation that Fortune made a fraudulent declaration of its 1992 taxable sales. e) Since, as alleged by private respondents, the ad valorem tax for the year 1992 should be based on the "manufacturer's registered wholesale price" while, as claimed by petitioners, the ad valorem taxes should be based on the wholesale price at which the manufacturer sold the cigarettes, which is a legal issue as admitted by a BIR lawyer during the hearing for preliminary injunction, the correct interpretation of the law involved, which is Section 142(c) of the Tax Code, constitutes a prejudicial question which must first be resolved before criminal proceedings for tax evasion may be pursued. In other words, the BIR must first make a final determination, which it has not, of Fortune's tax liability relative to its 1992 ad valorem, value-added and income taxes before the taxpayer can be made liable for tax evasion. f) There was a precipitate issuance by the panel of prosecutors of subpoenas to private respondents, on the very day following the filing of the complaint with the DOJ consisting of about 600 pages, and the precipitate denial by the panel of prosecutors, after a recess of about twenty (20) minutes, of private respondents' motion to dismiss, consisting of one hundred and thirty five (135) pages. g) Private respondents had been especially targeted by the government for prosecution. Prior to the filing of the complaint in I.S. No. 93-508, petitioner Commissioner issued Revenue Memorandum Circular No. 37-93 reclassifying Fortune's best selling cigarettes, namely "Hope," "More," and "Champion" as cigarettes bearing a foreign brand, thereby imposing upon them a higher rate of tax that would price them out of the market. h) While in petitioner Commissioner's letter of August 13, 1993, she gave Fortune a period of thirty (30) days from receipt thereof within which to pay the alleged tax deficiency assessments, she filed the criminal complaint for tax evasion before the period lapsed. 157 | M s . N o l a i d a A g u i r r e


i) Based on the foregoing, the criminal complaint against private respondents was filed prematurely and in violation of their constitutional right to equal protection of the laws. On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private respondents' petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of the National Tax Revenue Code should be the basis of private respondents' tax liability as contended by the Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code that applies, as argued by herein private respondents, should first be settled before any complaint for fraudulent tax evasion can be initiated. On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for preliminary injunction before this Court. However, the petition was referred to the Court of Appeals for disposition by virtue of its original concurrent jurisdiction over the petition. On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a decision denying the petition. The Court of Appeals ruled that the trial court committed no grave abuse of discretion in ordering the issuance of writs of preliminary injunction and in denying petitioners' motion to dismiss. Their motion for reconsideration having been denied by respondent appellate court on February 23, 1995. Issue: Whether or not the prosecution of private respondent be enjoined pending the determination of the latter’s tax liability. Held: The Court ruled in the affirmative. It is the opinion of both the trial court and respondent Court of Appeals, that before Fortune and the other private respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be established. Fortune received form the Commissioner of Internal Revenue the deficiency assessment notices in the total amount of P7,685,942,221.06 on August 24, 1993. However, under Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the assessment issued by the Commissioner of Internal Revenue within thirty (30) days from receipt of the assessment; and if the motion for reconsideration is denied, it may appeal to the Court of Appeals within thirty (30) days from receipt of the Commissioner's decision. Here, Fortune received the Commissioner's assessment notice dated August 13, 1993 on August 24, 1993 asking for the payment of the deficiency taxes. Within thirty (30) days from receipt thereof, Fortune moved for reconsideration. The Commissioner has not resolved the request for reconsideration up to the present. We share with the view of both the trial court and court of Appeals that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax code, the fact that a tax is due must first be proved. 158 | M s . N o l a i d a A g u i r r e


Suppose the Commissioner eventually resolves Fortune's motion for reconsideration of the assessments by pronouncing that the taxpayer is not liable for any deficiency assessment, then, the criminal complaints filed against private respondents will have no leg to stand on. In view of the foregoing reasons, we cannot subscribe to the petitioners' thesis citing Ungad v. Cusi, 27 that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution. Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.:28 "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat apart or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facies howing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungad and the case at bar. This brings us to the erroneous disquisition that private respondents' recourse to the trial court by way of special civil action of certiorari and prohibition was improper because: a) the proceedings before the state prosecutors (preliminary injunction) were far from terminated -- private respondents were merely subpoenaed and asked to submit counter affidavits, matters that they should have appealed to the Secretary of Justice; b) it is only after the submission of private respondents' counter affidavits that the prosecutors will determine whether or not there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents; and c) the proper procedure is to allow the prosecutors to conduct and finish the preliminary investigation and to render a resolution, after which the aggrieved party can appeal the resolution to the Secretary of Justice. As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions which, as summarized in Brocka v. Enrile 29 are: a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95); b. When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607); c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil 202);



d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67 Phil 62); e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389); f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140); g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966, 18 SCRA 616); h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March 25, 1960); i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and j. When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied (Salonga vs. Pane, et al., L-59524, February 18, 1985, 134 SCRA 438). Contrary to petitioners' submission, preliminary investigation may be enjoined where exceptional circumstances so warrant. In Hernandez v. Albano 30 and Fortun v. Labang, 31 injunction was issued to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the complaint against them before the prosecution and alternatively, to suspend the preliminary investigation on the grounds cited hereinbefore, one of which is that the complaint of the Commissioner is not supported by any evidence to serve as adequate basis for the issuance of the subpoena to them and put them to their defense. Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and oppressive prosecution and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials. BELLOSILLO, J., concurring and dissenting: I am in full accord with the conclusion of the majority that the trial court committed no grave abuse of discretion in issuing the assailed injunctive writs. But I am constrained to dissent insofar as it finds that there was "selective prosecution" in charging private respondents. Let me first touch on "selective prosecution." There is no showing that petitioner Commissioner of Internal Revenue is not going after others who may be suspected of being big tax evaders and that only private respondents are being prosecuted, or even merely investigated, for tax evasion. As pointed out by the Solicitor General, assuming ex hypothesi that other corporate manufacturers are guilty of using similar schemes for tax evasion, the proper remedy is not the dismissal of the complaints against private 160 | M s . N o l a i d a A g u i r r e


respondents, but the prosecution of other similar evaders. In this regard, in the absence of willful or malicious prosecution, or so-called "selective prosecution," the choice on whom to prosecute ahead of the others belongs legitimately, and rightly so, to the public prosecutors. But, I share the view of the majority that the trial court did not commit grave abuse of discretion amounting to lack of jurisdiction. At once it must be pointed out that the trial court merely issued writs of preliminary injunction. However to grant the prayer of herein petitioners would effectively dismiss the petition for certiorari and prohibition filed by private respondents with the trial court even before the issues in the main case could be joined, which seems to me to be a procedural lapse since the main case is already being resolved when the only issue before the Court is the propriety of the ancillary or provisional remedy. The trial court granted the writs of preliminary injunction upon finding, after hearing for the purpose, that private respondents sufficiently established that "they are entitled to certain constitutional rights and that these rights have been violated," 1 and that they have complied with the requirements of Sec. 3, Rule 58, Rules of Court. 2 In support of its conclusion, the trial court enumerated its reasons: first, inspite of the motion of respondent Fortune Tobacco Corporation, petitioner Commissioner of Internal Revenue failed to present the "daily manufacturer's sworn statements submitted to the BIR by the taxpayer," supposedly stating that the total taxable sales of respondent Corporation for the year 1992 is P16,686,372,295.00, which is the basis of petitioner Commissioner's allegation that private respondents failed to pay the correct taxes since it declared in its VAT returns that its total taxable sales in 1992 was only P11,736,658.580.00; second, the proper application of Sec. 142, par. (c), of the National Internal Revenue Code is a prejudicial question which must first be resolved by the Court of Tax Appeals to determine whether a tax liability which is an essential element of tax evasion exists before criminal proceedings may be pursued; third, from the evidence submitted, it appears that the Bureau of Internal Revenue has not yet made a final determination of the tax liability of private respondents with respect to its ad valorem, value added and income taxes for 1992; and, fourth, the precipitate issuance by the prosecutors of subpoenas to private respondents one (1) day after the filing of the complaint, consisting of about 600 pages, inclusive of the 14-page complaint, 17-page joint affidavit of eight (8) revenue officers and the annexes attached thereto, and their hasty denial of private respondents' 135-page motion to dismiss, after a recess of only about 20 minutes, show that private respondents' constitutional rights may have been violated. These circumstances as well as the other traces of discrimination mentioned by the trial court, i.e., the announcement by the PCGG that it would take over the various corporations associated with respondent Lucio C. Tan; the creation of the Task Force on Revenue Cases among the functions of which is to "[i]nvestigate the tax liabilities of manufacturers that engage in well-known tax evasion schemes, such as selling products through dummy marketing companies to evade the payment of the correct internal revenue taxes," the very charge against respondent Tan; the reclassification of respondent corporation's best selling cigarettes as foreign brands thereby imposing upon them a higher tax rate that would price them out of the market without notice and hearing; the singling out of private respondents as subjects of a complaint for tax evasion when other cigarette manufacturers have been using the same basis private respondents are using in paying ad valorem, value added and income taxes; and, the failure of petitioner Commissioner to wait for the expiration of the 30-day period she herself gave to private respondents to pay the supposed tax deficiencies before the filing of the complaint, obviously impelled the trial court to issue the writ of preliminary injunction. Practically the same grounds were found by the trial court when it provisionally restrained the investigation of the two (2) other complaints, i.e., tax evasion complaints for FYs 1990 and 1991. 161 | M s . N o l a i d a A g u i r r e


On the basis of the findings of the trial court, it indeed appears that private respondents' constitutional rights to due process of law and equal protection of the laws may have been for the moment set aside, if not outright violated. The trial court was convinced that the tell-tale signs of malice and partiality were indications that the constitutional rights of private respondents may not have been afforded adequate protection. Accordingly I see no manifest abuse, much less grave, on the part of the trial court in issuing the injunctive writs. Thus it is my opinion that the trial court did not commit grave abuse of discretion in granting the assailed writs. Well entrenched is the rule that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case rests upon the sound discretion of the court hearing it. The exercise of sound judicial discretion by the trial court in injunctive matters should not be interfered with except in case of manifest abuse, 3 which is not true in the case before us. Equally well settled is that under Sec. 7, Rule 58, Rules of Court, 4 a wide latitude is given to the trial court. 5 This is because the conflicting claims in an application for a provisional writ more often than not involves a factual determination which is not the function of this Court, or even respondent appellate court. Thus in the case at bar the ascertainment of the actual tax liability, if any, based on the evidence already presented and still to be presented, is more within the competence of the trial court before which the parties have raised the very same issue in the main case. The truth or falsity of the divergent statements that there was deliberate haste in issuing the subpoenas and in denying private respondents' motion to dismiss may be confirmed not by this Court but by the trial court during that hearing on the merits. In fine, no grave abuse of discretion can be attributed to a judge or body in the issuance of a writ of preliminary injunction where a party was not deprived of its day in court as it was heard and had exhaustively presented all its arguments and defenses. 6 It is undisputed that in the case before us petitioners and private respondents were given sufficient time and opportunity to present their respective pieces of evidence as well as arguments in support of their positions. Consequently, I concur with the finding of the majority that the trial court committed no grave abuse of discretion. As respondent appellate court said, "[g]rave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice or personal hostility amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law. 7 For such writs to lie there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil and common law traditions." 8 The trial court, to my mind, is not guilty of any of these. Thus I accord respect to the exercise of the trial court's sound judicial discretion and hold that the same should not be interfered with. To permanently enjoin the trial court from proceeding in any manner in Civil Case No. Q-94-19790 and allow the preliminary investigation of the complaints docketed as I.S. Nos. 93-508, 93-17942 and 93-584 with the Department of Justice to resume until their final conclusion and completion would go against the prevailing rule that courts should avoid issuing a writ or preliminary injunction which would in effect dispose of the main case without trial. 9 Due process considerations dictate that the assailed injunctive writs are not judgments on the merits but merely orders for the grant of a provisional and ancillary remedy to preserve the status quo until the merits of the case can be heard. The hearing on the application for issuance of a writ of preliminary injunction is separate and distinct from the trial on the merits of the main case. The 162 | M s . N o l a i d a A g u i r r e


quantum of evidence required for one is different from that for the other, so that it does not necessarily follow that if the court grants and issues the temporary writ applied for the same court will now have to rule in favor of the petition for prohibition and ipso facto make the provisional injunction permanent. If grave abuse of discretion attended the issuance of the writ of preliminary injunction, then by all means nullify the abusive act -- but only that. The main case should be allowed to proceed according to due process. The trial court should receive the evidence from the contending parties, weigh and evaluate the same and then make its findings. Clearly, the dismissal of the main case as a result of a mere incident relative to the issuance of an ancillary writ is procedurally awkward and violates due process, as it deprives private respondents of their right to present their case in court and support it with its evidence. In resolving the fundamental issue at hand, i.e., whether the trial court committed grave abuse of discretion in issuing the subject writs of preliminary injunction, we cannot avoid balancing on the scales the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other. Obviously the scales must tilt in favor of the individual, for a citizen's right is amply protected by the Bill of Rights of the Constitution. Thus while "taxes are the lifeblood of the government," the power to tax has its limits, inspite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc., 10 we said Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. xxx xxx xxx It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then came to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate . . . that the law has not been observed.



In the instant case, it seems that due to the overzealousness in collecting taxes from private respondents and to some accident of immediate overwhelming interest which distressingly impassions and distorts judgment, the State has unwittingly ignored the citizens' constitutional rights. Thus even the rule that injunction will not lie to prevent a criminal prosecution has admitted exceptions, which we enumerated in Brocka v. Enrile 11 and in Ocampo IV v.Ombudsman 12 -- (a) to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions; (c) when there is a prejudicial question which is sub-judice; (d) when the acts of the officer are without or in excess of authority; (e) where the prosecution is under an invalid law, ordinance or regulation; (f) when double jeopardy is clearly apparent; (g) when the court has no jurisdiction over the offense; (h) where it is a case of persecution rather than prosecution; (i) where the charges are manifestly false and motivated by lust for vengeance; (j) when there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied; and, (k) to prevent a threatened unlawful arrest. Finally, courts indeed should not hesitate to invoke the constitutional guarantees to give adequate protection to the citizens when faced with the enormous powers of the State, even when what is in issue are only provisional remedies, as in the case at hand. In days of great pressure, it is alluring to take short cuts by borrowing dictatorial techniques. But when we do, we set in motion an arbitrary or subversive influence by our own design which destroys us from within. Let not the present case dangerously sway towards that trend. For all the foregoing, I vote to dismiss the instant petition for lack of merit, and to order the trial court to proceed with Civil Case No. Q-94-19790 with reasonable dispatch. PADILLA, J., dissenting: Because of what I humbly perceive to be the crippling, chilling and fatal effects of the majority opinion on the power of the state to investigate fraudulent tax evasion in the country, I am constrained to dissent, as vigorously as I can, from the majority opinion. THE ISSUE The main issue in this petition for review on certiorari is whether or not there are valid grounds to stop or stay the preliminary investigation of complaints filed by the Bureau of Internal Revenue (BIR) with the Department of Justice (DOJ) Revenue Cases Task Force against private respondents for alleged fraudulent tax evasion for the years 1990, 1991 and 1992. Stated differently, the issue is: did respondent trial court commit grave abuse of discretion amounting to lack or excess of jurisdiction in stopping the subject preliminary investigation? THE CASE AND THE FACTS On 7 September 1993, petitioner Commissioner of Internal Revenue filed a complaint with the DOJ against private respondents Fortune Tobacco Corporation (hereinafter referred to simply as "Fortune"), its corporate officers, nine (9) other corporations, and their respective corporate officers, for alleged fraudulent tax evasion for the year 1992.



The complaint, docketed as I.S. No. 93-508, was referred to the DOJ Task Force on Revenue Cases which found sufficient grounds to further investigate the allegation that Fortune fraudulently evaded payment of income, value-added and ad valorem taxes for the year 1992 thus depriving the Government of revenue allegedly in excess of seven and one-half (7 1/2) billion pesos. The fraudulent scheme allegedly adopted and employed by private respondents, is described by the BIR as follows: In order to evade payment of said taxes, [Fortune] made fictitious and simulated sales of its cigarette products to non-existent individuals and to entities incorporated and existing only for the purpose of such fictitious sales by declaring registered wholesale prices with the BIR lower than [Fortune's] actual wholesale prices which are required for determination of [Fortune's] correct ad valorem, income and value-added tax liabilities. These "ghost wholesale buyers" then ostensibly sold the product to consumers and other wholesalers/retailers at higher wholesale prices determined by [Fortune]. The tax returns and manufacturer's sworn statements filed by [Fortune] as aforesaid declare the fictitious sales it made to the conduit corporations and non-existent individual buyers as its gross sales. 1 Based on the initial evaluation of the DOJ Task Force, private respondents were subpoenaed and required to submit their counter-affidavits not later than 20 September 1993. 2 Instead of filing counter-affidavits, private respondents filed a "Verified Motion to Dismiss; Alternatively, Motion to Suspend." 3 Said motion was denied by the DOJ Task Force and treated as private respondents' counter-affidavit, in an order dated 15 October 1993. 4 Private respondents sought reconsideration of the aforementioned order of denial and likewise filed motions to require submission by the Bureau of Internal Revenue (BIR) of certain documents to support the verified motion to dismiss or suspend the investigation, and for the inhibition of the state prosecutors assigned to the case for alleged lack of impartiality. 5 On 20 December 1993, an omnibus order was issued by the investigating Task Force: 6 a. denying reconsideration; b. denying suspension of investigation; and c. denying the motion to inhibit the investigating state prosecutors. Thereupon, or on 4 January 1994, private respondents went to court. They filed a petition for certiorari and prohibition with prayer for preliminary injunction in the Regional Trial Court, Branch 88, Quezon City, praying that the proceedings (investigation) before the DOJ Task Force be stopped. The petition was docketed as Civil Case No. Q-94-19790. 7 On 17 January 1994, petitioners filed with the trial court a motion to dismiss the aforesaid petition. 8 On 25 January 1994, the trial court issued instead an order granting the herein private respondents' prayer for a writ of preliminary injunction,9 to stop the preliminary investigation in the DOJ Revenue Cases Task Force. 165 | M s . N o l a i d a A g u i r r e


On 26 January 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition seeking this time the issuance of another writ of preliminary injunction against a second complaint of the BIR with the DOJ docketed as I.S. No. 93-17942 likewise against herein private respondents for fraudulent tax evasion for the year 1990. Private respondents averred in their aforesaid motion with the trail court that -a. no supporting documents nor copies of the complaint were attached to the subpoena in I.S. No. 9317942; b. the abovementioned subpoena violates private respondents' constitutional rights to due process, equal protection and presumption of innocence; c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-508 except that it concerns the year 1990; d. no tax assessment has been issued by the Commissioner of Internal Revenue and since taxes already paid have not been challenged by the BIR, no tax liability exists; e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia was a former classmate of then Presidential Legal Counsel Antonio T. Carpio, thus, he cannot conduct the preliminary investigation in an impartial manner. On 28 January 1994, private respondents filed with the trial court a second supplemental petition 10 this time seeking to stay the preliminary investigation in I.S. No. 93-548, a third BIR complaint with the DOJ against private respondents for fraudulent tax evasion for the year 1991. On 31 January 1994, the trial court admitted the two (2) supplemental petitions and issued a temporary restraining order stopping the preliminary investigation of the two (2) later complaints with the DOJ against private respondents for alleged fraudulent tax evasion for the years 1990 and 1991. On 7 February 1994, the trial court also issued an order denying herein petitioners' motion to dismiss private respondents' petition seeking to stay the preliminary investigation in I.S. No. 93-508. The trial court ruled that the issue of whether Sec. 127(b) of the National Internal Revenue (Tax) Code should be the basis of herein private respondents' tax liability, as contended by the Bureau of Internal Revenue, or whether it is Sec. 142(c) of the same code that applies, as argued by herein private respondents, should first be settled before any criminal complaint for fraudulent tax evasion can be initiated or maintained. On 14 February 1994, the trial court issued a supplemental writ of preliminary injunction this time enjoining the preliminary investigations of the two (2) other BIR complaints with the DOJ for fraudulent tax evasion. The trial court then denied motions to dismiss the two (2) supplemental petitions, filed by therein respondents Commissioner of Internal Revenue and the DOJ Revenue Cases Task Force investigators. On 7 March 1994, herein petitioners filed with this Court a petition for certiorari and prohibition with prayer for preliminary injunction which questioned the orders issued by the trial court granting the private respondents' prayer for preliminary injunction to stop the preliminary investigation in the DOJ of the BIR's complaints for fraudulent tax evasions against private respondents and denying petitioners' motions to 166 | M s . N o l a i d a A g u i r r e


dismiss private respondents' various petitions with the trial court. The petition was referred by this Court to the Court of Appeals which has original concurrent jurisdiction over the petition. On 19 December 1994, the Court of Appeals rendered a decision which, in part, reads: In making such conclusion the respondent Court (the Regional Trial Court of Quezon City, Branch 88) must have understood from herein petitioner Commissioner's lettercomplaint of 14 pages and the joint affidavit of eight revenue officers of 17 pages attached thereto and its annexes, that the charge against herein respondents is for tax evasion for non-payment by herein respondent Fortune of the correct amounts of income tax, ad valorem tax and value added tax, not necessarily "fraudulent tax evasion". Hence, the need for previous assessment of the correct amount by herein petitioner Commissioner before herein respondents may be charged criminally. Certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a Court acts within its jurisdiction, any alleged error committed in the exercise of its jurisdiction, will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. The questioned orders issued after hearing being but interlocutory, review thereof by this court is inappropriate until final judgment is rendered, absent a showing of grave abuse of discretion on the part of the issuing court. The factual and legal issues involved in the main case still before the respondent Court are best resolved after trial. Petitioners, therefore, instead of resorting to this petition for certiorari and prohibition should have filed an answer to the petition as ordained in Section 4, Rule 16, in connection with Rule 11 of the Revised Rules of Court, interposing as defense or defenses the objection or objections raised in their motion to dismiss, then proceed to trial in order that thereafter the case may be decided on the merits by the respondent Court. In case of an adverse decision, they may appeal therefrom by which the entire record of the case would be elevated for review. Therefore, certiorari and prohibition resorted to by herein petitioners will not lie in view of the remedy open to them. Thus, the resulting delay in the final disposition of the case before the respondent Court would not have been incurred. Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law. For such writs to lie, there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions. Certiorari and prohibition are remedies narrow in scope and inflexible in character. They are not general utility tools in the legal workshop. Their function is but limited to correction of defects of jurisdiction solely, not to be used for any other purpose, such as to cure errors in proceedings or to correct erroneous conclusions of law or fact. Due regard for the foregoing teachings enunciated in the decision cited can not bring about a decision other than what has been reached herein. 167 | M s . N o l a i d a A g u i r r e


Needless to say, the case before the respondent Court involving those against herein respondents for alleged non-payment of the correct amount due as income tax, ad valorem tax and value-added tax for the years 1990, 1991, and 1992 is not ended by this decision. The respondent Court is still to try the case and decide it on the merits. All that is decided here is but the validity of the orders of the respondent Court granting herein respondents' application for preliminary injunction and denying herein, petitioners' motion to dismiss. If upon the facts established after trial and the applicable law, dissolution of the writ of preliminary injunction allowed to be issued by the respondent Court is called for and a judgment favorable to herein petitioners is demanded, the respondent Court is duty bound to render judgment accordingly. WHEREFORE, the instant petition for certiorari and prohibition with application for issuance of restraining order and writ of preliminary injunction is DISMISSED. Costs de officio. (references to annexes and citations omitted) 11 Petitioners' motion for reconsideration of the aforequoted judgment was denied by respondent appellate court on 23 February 1995, hence, the present petition for review on certiorari based on the following grounds: GROUNDS FOR THE PETITION THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT: I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY INVESTIGATION II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE PROCESS III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL PETITIONS WERE PROPER IV. THERE WAS SELECTIVE PROSECUTION V THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON JURISDICTIONAL GROUNDS VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER COURT 12 DISCUSSION At the outset, it should be pointed out that respondent appellate court's observations to the effect that herein petitioners' recourse to said court through a special civil action of certiorari and prohibition was improper (as discussed in the aforequoted portion of the CA decision) actually and appropriately apply to private 168 | M s . N o l a i d a A g u i r r e


respondents when they resorted to the remedy of certiorari and prohibition with application for preliminary injunction with the respondent Regional Trial Court to stop the preliminary investigation being conducted by the DOJ Revenue Cases Task Force of the BIR complaints for fraudulent tax evasion against private respondents. It is to be noted that the proceedings before the investigators (preliminary investigation before the DOJ Revenue Cases Task Force) are far from terminated. In fact, private respondents were merely subpoenaed and asked to submit counter-affidavits. They instead resorted to the courts for redress after denial of their motion to dismiss. The proper procedure on the part of private respondents after their motion to dismiss was denied by the investigating panel, should have been an appeal from such an adverse resolution to the Secretary of Justice, not a special civil action for certiorariand prohibition with application for preliminary injunction before the respondent trial court. As a corollary, the respondent trial court should have desisted from entertaining private respondents' original petition for certiorari and prohibition with prayer for preliminary injunction because a court order to stop a preliminary investigation is an act of interference with the investigating officers' discretion, absent any showing of grave abuse of discretion on the part of the latter in conducting such preliminary investigation. The rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting and finishing his preliminary investigation. 13 The private respondents' petition before the trial court in this case was clearly premature since the case did not fall within any of the exceptions when prohibition lies to stop a preliminary investigation. 14 The decision of the majority in this case clearly constitutes an untenable usurpation of the primary duty and function of the prosecutors to conduct the preliminary investigation of a criminal offense and the power of the Secretary of Justice to review the resolution of said prosecutors. In Guingona, supra, the Court en banc ruled thus: "As a general rule, an injunction will not be granted to restrain a criminal prosecution". With more reason will injunction not lie when the case is still at the preliminary investigation stage. This Court should not usurp the primary function of the City Fiscal to conduct the preliminary investigation of the estafa charge and of the petitioners' countercharge for perjury, which was consolidated with the estafa charge. The City Fiscal's office should be allowed to finish its investigation and make its factual findings. This Court should not conduct the preliminary investigation. It is not a trier of facts. (Reference to footnotes omitted). Before resolving the main issue in this petition, as earlier stated in this opinion, several preliminary issues raised by private respondents in their "Verified Motion To Dismiss; Alternatively, Motion To Suspend" need to be addressed, namely: A.) Private respondent Fortune's right to due process and equal protection of the laws have been violated because of the subject preliminary investigation before the DOJ Revenue Cases Task Force.



B.) Jurisdiction over Fortune's tax liability pertains to the Court of Tax Appeals and not the Regional Trial Courts, thus, the Department of Justice, through its state prosecutors, is without jurisdiction to conduct the subject preliminary investigation. C.) The complaints for fraudulent tax evasion are unsupported by any evidence to serve as basis for the issuance of a subpoena. D.) The lack of final determination of Fortune's tax liability precludes criminal prosecution. 1. On the alleged violation of Fortune's rights to due process and equal protection of the laws, I fail to see any violation of said rights. Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers alleged by the BIR to be mere "dummies" or conduits of Fortune in the fraudulent tax evasion on the Government, were given the opportunity to file their counter-affidavits to refute the allegations in the BIR complaints, together with their supporting documents. It is only after submission of counter-affidavits that the investigators will determine whether or not there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents or to dismiss the BIR complaints. At this stage of the preliminary investigation, the constitutional right of private respondents to due process is adequately protected because they have been given the opportunity to be heard, i.e., to file counter-affidavits. Nor can it be said, as respondents falsely argue, that there was no ground or basis for requiring the private respondents to file such counter-affidavits. As respondent Court of Appeals admitted in its here assailed decision, the BIR complaint (1st complaint) signed by the Commissioner of Internal Revenue consisted of fourteen (14) pages supported by an annex consisting of seventeen (17) pages in the form of a joint affidavit of eight (8) revenue officers, to which were attached voluminous documents as annexes which, when put together, constituted a formidable network of evidence tending to show fraudulent tax evasion on the part of private respondents. When, on the basis of such BIR complaint and its supporting documents, the investigating Task Force saw a need to proceed with the inquiry and, consequently, required private respondents to file their counter-affidavits, grave abuse of discretion could hardly be imputed to said investigators. 2. On respondents' assertions that there is selective prosecution (no equal protection of the laws) since other corporations similarly situated as they are, are not being prosecuted and/or investigated, the argument is quite ludicrous, to say the least. As pointed out by the Solicitor General, more than one thousand (1,000) criminal cases for tax evasion have been filed in Metro Manila alone. This number, even if it seems to represent but a small fraction of "cases of actual tax evasion, undoubtedly show that respondents are not being singled out. It is of note that the memorandum issued by the President of the Philippines creating a task force to investigate tax evasion schemes of manufacturers was issued three (3) months before the complaints against private respondents were filed. This makes any charge of selective prosecution baseless since it could not then be shown, nor has it been shown by private respondents that only they (respondents) were being investigated/prosecuted. In fact, up to this time, respondents have failed to substantiate this allegation of selective prosecution against them. Moreover, assuming arguendo that other corporate manufacturers are guilty of using similar schemes for tax evasion, allegedly used by respondents, the Solicitor General correctly points out that the remedy is not 170 | M s . N o l a i d a A g u i r r e


dismissal of the complaints against private respondents or stoppage of the investigations of said complaints, but investigation and prosecution of other similar violators (fraudulent tax evaders). 3. Private respondents' allegations that the Assistant Quezon City Prosecutor (among those investigating the complaints against them) lacks impartiality, are so unsubstantiated, imaginary, speculative and indeed puerile. They need not be elaborately refuted as a mere denial would suffice under the circumstances. 4. On the issue of jurisdiction, the rule is settled that city and state prosecutors are authorized to conduct preliminary investigations of criminal offenses under the National Internal Revenue Code. Said criminal offenses are within the jurisdiction of the Regional Trial Court. 15 5. The issue of whether or not the evidence submitted by petitioners is sufficient to warrant the filing of criminal informations for fraudulent tax evasion is prematurely raised. 16 To argue, as private respondents do, that one piece of evidence, i.e. the Daily Manufacturer's Sworn Statements, should be produced at a particular stage of the investigation, in order to determine the probable guilt of the accused, is to dictate to the investigating officers the procedure by which evidence should be presented and examined. Further, "a preliminary investigation is not the occasion for the full and exhaustive display of the parties' evidence; it is for the presentation of such evidence only as may engender a well grounded belief that an offense has been committed and that the accused is probably guilty thereof . . ." 17 Besides, the preliminary investigation has not yet been terminated. The proper procedure then should be to allow the investigators, who undeniably have jurisdiction, to conduct and finish the preliminary investigation and to render a resolution. The party aggrieved by said resolution can then appeal it to the Secretary of Justice, 18 as required by the settled doctrine of exhaustion of administrative remedies. What special qualification or privilege, I may ask, do private respondents have, particularly Fortune and Lucio Tan, as to exempt them from the operation of this rooted principle and entitle them to immediate judicial relief from the respondent trial court in this case? 6. The respondents Court of Appeals and the trial court maintain, as private respondents do, that a previous assessment of the correct amount of taxes due is necessary before private respondents may be charged criminally for fraudulent tax evasion. This view is decidedly not supported by law and jurisprudence. The lack of a final determination of respondent Fortune's exact or correct tax liability is not a bar to criminal prosecution for fraudulent tax evasion. While a precise computation and assessment is required for a civil action to collect a tax deficiency, the National Internal Revenue Code does not require such computation and assessment prior to criminal prosecution for fraudulent tax evasion. Thus, as this Court had earlier ruled -An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. 19 It follows that, under the Ungab doctrine, the filing of a criminal complaint for fraudulent tax evasion would be proper even without a previous assessment of the correct tax. 171 | M s . N o l a i d a A g u i r r e


The argument that the Ungab doctrine will not apply to the case at bar because it involves a factual setting different from that of the case at bar, is erroneous. The Ungab case involved the filing of a fraudulent income tax return because the defendant failed to report his income derived from sale of banana saplings. In the case at bar, the complaints filed before the DOJ for investigation charge private wholesale respondents with fraudulent concealment of the actual price of products sold through declaration of registered wholesale prices lower than the actual wholesale prices, resulting in underpayment of income, ad valorem, and value-added taxes. Both cases involve, therefore, fraudulent schemes to evade payment to the Government of correct taxes. The Court in Ungab stated further as follows: The petitioner also claims that the filing of the informations was precipitate and premature since the Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals. The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal 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 contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and wilfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. [Guzik vs. U.S., 54 F2d 618] (emphasis supplied) The ruling in the Ungab case is undisputably on all fours with, and conclusive to the case at bar. It should be stressed and pointed out that in Ungab the Court denied the prayer of therein petitioner to quash informations for tax evasion that had already been filed in court. In other words, the prosecutors in Ungab had already found probable cause to try therein petitioner for tax evasion. Despite this fact there was no finding by the Court of violation of any of petitioner's constitutional rights. In the present case, private respondents were merely being required to submit counter-affidavits to the complaints filed. If no violation of constitutional rights was committed in Ungab, upon the filing of the criminal informations in Court, how can there now be a violation of private respondents' constitutional rights upon a requirement by the investigators that private respondents submit their counter-affidavits. The Court has not been presented any compelling or persuasive argument why the Ungab doctrine has to be abandoned. It is good law and should be the nemesis of fraudulent tax evaders. It gives teeth to the proper enforcement of our tax laws. 7. Private respondents argue that a case earlier file before the Court of Tax Appeals (CTA) and now before this Court 20 involves a prejudicial question justifying or requiring suspension of the preliminary 172 | M s . N o l a i d a A g u i r r e


investigation of the complaints for fraudulent tax evasion against private respondents. Said case involves the validity of BIR Revenue Memorandum Circular No. 37-93 dated 1 July 1993 which reclassified cigarettes manufactured by respondent Fortune. The circular subjects cigarettes with brand names "Hope", "More" and "Champion" to a 10% increase in ad valorem taxes starting 2 July 1993. Respondent Fortune has assailed the validity of said revenue circular and the case has yet to be decided with finality. But the foregoing issue is irrelevant to the issue of fraudulent tax evasion involved in this case. A final decision either upholding or nullifying the aforementioned revenue circular will not affect private respondents' criminal liability for fraudulent tax evasion, for the following reasons: a) The revenue circular involved in the other case pertains to ad valorem taxes on sales of Fortune's named cigarette brands after 1 July 1993 while the fraudulent tax evasion involved in the present case pertains to years 1990, 1991 and 1992. b) The fraudulent scheme allegedly utilized by Fortune and its dummies, as described in the BIR complaints pending with the DOJ Revenue Cases Task Force, which resulted in the misdeclaration/underdeclaration of Fortune's gross sales receipts resulting in turn in underpayment of ad valorem, value-added and income taxes was actually a "built-in" tax evasion device already in place even before the assailed revenue circular was issued. The scheme is particularly designed to result in the underpayment of ad valorem, value-added and income taxesregardless of the tax rate fixed by the government on cigarette products. 8. Respondents also argue that the issue of whether Section 127(b) or Section 142(c) of the National Internal Revenue Code is applicable to private respondents should first be settled before any criminal cases can be filed against them. This argument is both misleading and erroneous. The aforementioned provisions read: Sec. 127. . . . (b) Determination of gross selling price of goods subject to ad valorem tax. -- Unless otherwise provided, the price, excluding the value-added tax, at which the goods are sold at wholesale in the place of production or through their sales agents to the public shall constitute the gross selling price. If the manufacturer also sells or allows such goods to be sold at wholesale price in another establishment of which he is the owner or in the profits at which he has an interest, the wholesale price in such establishment shall constitute the gross selling price. Should such price be less than the cost of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than 10% of such manufacturing cost and expenses, shall be added to constitute the gross selling price. Sec. 142 . . . (c) Cigarettes packed in twenties. -- There shall be levied, assessed and collected on cigarettes packed in twenties an ad valorem tax at the rates prescribed below based on the manufacturer's registered wholesale price: 173 | M s . N o l a i d a A g u i r r e


(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%): Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. (2) On other locally manufactured cigarettes, forty-five percent (45%). Duly registered or existing brands of cigarettes packed in twenties shall not be allowed to be packed in thirties. When the existing registered wholesale price, including tax, of cigarettes packed in twenties does not exceed P4.00 per pack, the rate shall be twenty percent (20%). As the Solicitor General correctly points out, the two (2) aforequoted provisions of the Tax Code are both applicable in determining the amount of tax due. Section 127(b) provides for the method of determining the gross wholesale price to be registered with the BIR while Section 142(c) provides for the rate of ad valorem tax to be paid. Said rate is expressed as a percentage of the registered gross selling price which is determined, in turn, based on Section 127(b). The aforementioned two (2) provisions of the Tax Code are certainly not determinative of private respondents' criminal liability, if any. A reading of the BIR complaints pending with the DOJ Revenue Cases Task Force shows that private respondent Fortune is being accused of using "dummy" corporations and business conduits as well as non-existent individuals and entities to enable the company (Fortune) to report gross receipts from sales of its cigarette brands lower than gross receipts which are actually derived from such sales. Such lower gross receipts of the company, as reported by respondent Fortune thus result in lower ad valorem, value-added and income taxes paid to the government. Stated a little differently, respondent Fortune is accused of selling at wholesale prices its cigarette brands through dummy entities in the profits of which it has a controlling interest. Under Section 127(b), the gross selling price of the goods should be the wholesale price of such dummy -- entities to its buyers but it is alleged by the government that respondent Fortune has purposely made use of such entities to evade payment of higher but legally correct taxes. 9. As to respondents' additional claim that with regard to ad valorem tax, they merely based their liability on the wholesale price registered with the Bureau of Internal Revenue (BIR) following the method used by all cigarette manufacturers, said claim cannot absolve Fortune and its officers from criminal liability. 21 Payment of ad valoremand other taxes based on the wholesale price registered with the BIR presupposes and naturally assumes that the registered wholesale price correspond to the actual wholesale prices at which the manufacturer sells the product. If a manufacturer makes use of a method or device to make it appear that products are sold at a wholesale price lower than the amounts that the manufacturer actually realizes from such wholesale of its products, as what respondent Fortune is accused of doing, through the use of dummy entities, then there arises criminal liability under the penal provisions of the Tax Code. This is clear from Section 127(b) aforequoted in relation to the penal provisions of the Tax Code.



10. Private respondents contend that the registration with the BIR of manufacturer's wholesale price and the corresponding close supervision and monitoring by BIR officials of the business operations of cigarette companies, ensure payment of correct taxes. The argument is baseless. It does not follow that the cited procedure is a guarantee against fraudulent schemes resorted to by tax-evading individuals or entities. It only indicates that taxpayers bent on evading payment of taxes would explore more creative devices or mechanisms in order to defraud the government of its sources of income even under its very nose. It is precisely to avoid and detect cases like this that the President issued a Memorandum on 1 June 1993 creating a task force to investigate tax liabilities of manufacturers engaged in tax evasion schemes, such as selling products through dummy marketing companies at underdeclared wholesale prices registered with the BIR. Moreover, the Manufacturer's Declaration which is the basis for determining the "Manufacturer's Registered Wholesale Price" (which in turn becomes the basis for the imposition of ad valorem tax), even if verified by revenue officers and approved by the Commissioner of Internal Revenue, does not necessarily reflect the actual wholesale price at which the cigarettes are sold. This is why manufacturers are still required to file other documents, like the "daily manufacturer's sworn statements" in order to assist in determining whether or not correct taxes have been paid. In fine, even if BIR officials may have verified Fortunes' BIR registered wholesale price for its products, the same does not estop or preclude the Government from filing criminal complaints for fraudulent tax evasion based on evidence subsequently gathered to the effect that such BIR registered wholesale prices were a misdeclaration or underdeclaration of the actual wholesale price. It is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent schemes to defraud the Government. 22 Even on the assumption that official duty of BIR officials and employees has been regularly performed, the allegations in the complaints are clear enough in that private respondents allegedly made use of schemes to make it appear that respondent Fortune's tax liabilities are far less than what it (Fortune) should be actually liable for under the law. The very nature of the offense for which respondents are being investigated, certainly makes regularity/irregularity in the performance of official duties irrelevant. It should also be pointed out that the offense allegedly committed by private respondents' consists in' the intentional use of "dummy" entities to make it appear that respondent Fortune sells its products at lower wholesale prices, which prices would correspond to the wholesale prices registered by Fortune with the BIR, but not to the prices at which its products are sold by Fortune's dummies. The difference between Fortune's BIR-reported wholesale prices and the prices at which its dummies sell Fortune's products thus constitutes amounts for which Fortune should actually incur tax liabilities but for which it allegedly never paid taxes because of the operation of the tax evasion scheme founded on a combined underdeclaration with the BIR of Fortune's wholesale price of its products and the sale of such products to is "dummy" corporations or to non- existing individuals or entities. This is the obvious reason why the government has sought to investigate the alleged tax evasion scheme purportedly utilized by respondent Fortune and its dummy corporations. Based on the foregoing discussions, it follows that the answer to the main issue formulated earlier in this opinion is in the negative since the private respondents have not shown that there exist, in this case, exceptional grounds removing it from the general rule that preliminary investigations of criminal offenses and criminal prosecutions cannot be stayed or enjoined by the courts. 23 175 | M s . N o l a i d a A g u i r r e


11. The trial court's ruling that private respondents' constitutional rights have been violated, rests on untenable grounds. It must be remembered, in this connection, that exceptions to a settled rule, by their nature, must be strictly applied. And any claim to an exception must be fully substantiated. In other words, it must have real basis for existing. The exceptions to the general rule against restraining orders or injunctions to stop preliminary investigations or criminal prosecutions are enumerated in Brocka vs. Enrile. 24 One specific exception is when an injunction is needed for the adequate protection of the accused's constitutional rights. The exception definitely does not apply in the case at bar. Before proceeding to illustrate this point, it is important to stress that in a preliminary investigation, the investigating officers' sole duty is to determine, before the presentation of evidence by the prosecution and by the defense, if the latter should wish to present any, whether or not there are reasonable grounds for proceeding formally against the accused. 25 This is in conformity with the purpose of a preliminary investigation which is to secure the innocent against hasty, malicious, and oppressive prosecutions, and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of public trial, and also to protect the state from useless and expensive trials. 26 As restated by the illustrious late Chief Justice Manuel V. Moran -. . . the purpose of a preliminary investigation is to afford the accused an opportunity to show by his own evidence that there is no reasonable ground to believe that he is guilty of the offense charged and that, therefore, there is no good reason for further holding him to await trial in the Court of First Instance. 27 Prescinding from the tenets above-discussed, it is clear from the inception that there had been no violation of private respondents' constitutional rights to presumption of innocence, due process and equal protection of the laws. The preliminary investigation, I repeat, has not yet been terminated. At this stage, only the complainant has finished presenting its affidavits and supporting documents. Obviously then, the investigating panel found that there were grounds to continue with the inquiry, hence, the issuance of subpoena and an order for the submission of counter-affidavits by private respondents. Instead of filing counter-affidavits, private respondents filed a Verified Motion to Dismiss; Alternatively, Motion to Suspend. At this point, it may be asked, how could private respondents' constitutional right to presumption of innocence be violated when, in all stages of the preliminary investigation, they were presumed innocent? Declaring that there are reasonable grounds to continue with the inquiry is not the same as pronouncing that a respondent is guilty or probably guilty of the offense charged. 12. Private respondents cannot also claim that they were not afforded due process and equal protection of the laws. In fact, the investigating panel was concerned with just that when it ordered the submission of private respondents' counter-affidavits. This procedure afforded private respondents the opportunity to show by their own evidence that no reasonable grounds exist for the filing of informations against them. Furthermore, contrary to the findings of the trial court and the Court of Appeals, the alleged haste by which the subpoena was issued to private respondents (the day after the filing of the 600-page annexed complaint) does not lessen the investigating panel's ability to study and examine the complainant's evidence. Neither does such act merit the conclusion that the investigating panel was less than objective in conducting the preliminary investigation. Consequently, the general and settled rule must apply that the courts cannot



interfere with the discretion of the investigating officer to determine the specificity and adequacy of the averments in the complaint filed, except in very exceptional circumstances, 28 which do not obtain here. Therefore, private respondents' act of filing a petition for certiorari and prohibition before the Regional Trial Court was rather untimely and uncalled for, not only because private respondents failed to exhaust their administrative remedies but also because the grounds cited in their petition before the trial court were highly speculative -- more fancied than real. Finally, Hernandez v. Albano (19 SCRA 95), cited by the majority to support the conclusion that preliminary investigation can be stayed by the courts, clearly states that preliminary investigation can be stayed by court order only in extreme cases. Hernandez also states that: By statute, the prosecuting officer of the City of Manila and his assistants are empowered to investigate crimes committed within the city's territorial jurisdiction. Not a mere privilege, it is the sworn duty of a Fiscal to conduct an investigation of a criminal charge filed with his office. The power to investigate postulates the other obligation on the part of the Fiscal to investigate promptly and file the case of as speedily. Public interest -- the protection of society -- so demands. Agreeably to the foregoing, a rule -- now of long standing and frequent application -- was formulated that ordinarily criminal prosecution may not be blocked by court prohibition or injunction. Really, if at every turn investigation of a crime will be halted by a court order, the administration of criminal justice will meet with an undue setback. Indeed, the investigative power of the Fiscal may suffer such a tremendous shrinkage that it may end up in hollow sound rather than as a part and parcel of the machinery of criminal justice. It should be noted that while Hernandez lays down the extreme grounds when preliminary investigation of criminal offenses may be restrained by the courts, the dispositive portion of the decision affirmed the decision of the trial court dismissing a petition for certiorari and prohibition with prayer for preliminary injunction filed to stay the preliminary investigation of criminal complaints against petitioner Hernandez. The other case cited by the majority to support its decision in this case, Fortun v. Labang 29 involves criminal complaints filed against a judge of the Court of First Instance by disgruntled lawyers who had lost their cases in the judge's sala. Clearly, the basis for the Court to stay preliminary investigation in Fortun was a finding that said complaints were filed merely as a form of harassment against the judge and which "could have no other purpose than to place petitioner-judge in contempt and disrepute". The factual situation in the case at bar is poles apart from the factual situation in Fortun. Further, in Fortun there was an express finding by the Court that complaints against judges of the Courts of First Instance are properly filed with the Supreme Court under Executive Order No. 264 (1970) since the Court is considered as the department head of the judiciary. In the present case it cannot be disputed that jurisdiction to conduct preliminary investigation over fraudulent tax evasion cases lies with the state prosecutors (fiscals). It cannot therefore be denied that neither Hernandez nor Fortun supports with any plausibility the majority's disposition of the issues in the present case. On the other hand, it appears to me all too clearly that the majority opinion, in this case, has altered the entire rationale and concept of preliminary investigation of alleged criminal offenses. That alteration has, of course, served the purposes of 177 | M s . N o l a i d a A g u i r r e


distinguished private respondents. But I will have no part in the shocking process especially in light of the fact that Government cries out that the people have beencheated and defrauded of their taxes to the tune allegedly of P25.6 billion pesos, and yet, it is not given by this Court even a beggar's chance to prove it! 13. There is great and vital public interest in the successful investigation and prosecution of criminal offenses involving fraudulent tax evasion. Said public interest is much more compelling in the present case since private respondents are not only accused of violating tax and penal laws but are also, as a consequence of such violations, possibly depriving the government of a primary source of revenue so essential to the life, growth and development of the nation and for the prestation of essential services to the people. 14. It should be made clear, at this point, however, that this opinion is not a pre-judgment or predetermination of private respondents' guilt of the offense charged. No one, not even the prosecutors investigating the cases for fraudulent tax evasion, is, at this stage of the proceedings, when private respondents have yet to file their counter-affidavits, in a position to determine and state with finality or conclusiveness whether or not private respondents are guilty of the offense charged in the BIR complaints, now with the DOJ Revenue Cases Task Force. It is precisely through the preliminary investigation that the DOJ Task Force on Revenue Cases can determine whether or not there are grounds to file informations in court or to dismiss the BIR complaints. 15. I see no grave abuse of discretion committed by the state prosecutors in requiring private respondents to submit counter-affidavits to the complaints for fraudulent tax evasion and to determine the existence or absence of probable criminal liability. The Rules on Criminal Procedure do not even require, as a condition sine qua non to the validity of a preliminary investigation, the presence of the respondent as long as efforts to reach him are made and an opportunity to controvert the complainant's evidence is accorded him. The purpose of the rule is to check attempts of unscrupulous respondents to thwart criminal investigations by not appearing or employing dilatory tactics. 30 16. Since the preliminary investigation in the DOJ Revenue Cases Task Force against private respondents for alleged fraudulent tax evasion is well within its jurisdiction and constitutes no grave abuse of discretion, it was in fact the respondent trial court that committed grave abuse of discretion, amounting to lack or excess of jurisdiction, when it stayed such preliminary investigation. 17. The successful prosecution of criminal offenders is not only a right but the duty of the state. Only when the state's acts clearly violate constitutional rights can the courts step in to interfere with the state's exercise of such right and performance of such duty. I am indubitably impressed that there is no violation of private respondents' constitutional rights in this case. 18. Lastly, the consolidation of the three (3) complaints in the DOJ against private respondents should be allowed since they all involve the same scheme allegedly used by private respondents to fraudulently evade payment of taxes. Consolidation will not only avoid multiplicity of suits but will also enable private respondents to more conveniently prepare whatever responsive pleadings are required or expected of them.



It is, therefore, my considered view that the decision of the Court of Appeals of 19 December 1994 in CA G.R. SP No. 33599 should be SET ASIDE. The respondent trial court should be ENJOINED from proceeding in any manner in Civil Case No. Q-94-19790, or at least until further orders from this Court. The preliminary investigation of the BIR complaints docketed as I.S. Nos. 93-508, 93-17942 and 93-584 with the Department of Justice Revenue Cases Task Force, being constitutionally and legally in order, should be allowed to resume until their final conclusion or completion, with private respondents given a non-extendible period of ten (10) days from notice to submit to the investigating panel their respective counter-affidavits and supporting documents, if any. VITUG, J., dissenting: I see in the petition the overriding issue of whether or not judicial relief could be resorted to in order to stop state prosecutors from going through with their investigation of complaints lodged against private respondents. Almost invariably, this Court has resolved not to unduly interfere, let alone to peremptorily prevent, the prosecuting agencies or offices of the government in their investigatorial work or in their own evaluation of the results of investigation. It would indeed be, in my view, an act precipitate for the courts to take on a case even before the complaint or information is filed by the prosecution. Of course, one cannot preclude the possibility that at times compelling reasons may dictate otherwise; I do not think, however, that the instant case could be the right occasion for it. While I do understand the concern expressed by some of my colleagues, i.e., that stopping the trial court from now proceeding with Civil Case No. Q-94-9170 would, effectively, mean a disposition of the main case without its merits having first been fully heard in the court below, in this particular situation before the Court, however, the parties have since exhaustively and adequately presented their respective cases. In the interest of good order, the practical measure of enjoining the trial court from taking further cognizance of the case would not thus appear to be really all that unwarranted. A final word: The matter affecting the civil liability for the due payment of internal revenue taxes, including the applicable remedies and proceedings in the determination thereof, must be considered apart from and technically independent of the criminal aspect that may be brought to bear in appropriate cases. A recourse in one is not necessarily preclusive of, nor would the results thereof be conclusive on, the other. Accordingly, I vote to grant the petition. CASE SYLLABI: Actions; Certiorari; Words and Phrases; “Grave Abuse of Discretion,” Defined.—In resolving the issue raised in the petition, the Court may be guided by its definition of what constitutes grave abuse of discretion. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility. Same; Same; Same; Tax Evasion; If every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to the manufacturer’s premises, and considering 179 | M s . N o l a i d a A g u i r r e


that the Manufacturer’s Sworn Declarations on the data required to be submitted were scrutinized and verified by the BIR and, further, since the manufacturer’s wholesale price was duly approved by the BIR, in such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that the manufacturer made fraudulent returns or wilfully attempted to evade payment of taxes due.—Now, if every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortune’s premises, and considering that the Manufacturer’s Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and, further, since the manufacturer’s wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates “the price, excluding the value-added tax, at which the goods are sold at wholesale in the place of production,” otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that private respondents made fraudulent returns or wilfully attempted to evade payment of taxes due. Same; Same; Same; Same; Words and Phrases; “Willful” and “Fraud,” Defined.—“Wilful” means “premeditated; malicious; done with intent, or with bad motive or purpose, or with indifference to the natural consequence x x x.” “Fraud” in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage taken of another.” Same; Same; Same; Same; Fraud cannot be presumed.—Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad valorem taxes by private respondents through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel’s malfeasance. In the very least, there is the presumption that the BIR personnel performed their duties in the regular course in ensuing that the correct taxes were paid by Fortune. Same; Same; Same; Same; Before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved.—We share with the view of both the trial court and Court of Appeals that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved. Same; Same; Same; Same; Instant case distinguished from Ungab v. Cusi, 97 SCRA 877 (1980).— Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: “The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax.” In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer’s failure to declare in his income tax return “his income derived from banana sapplings.” In the mind of the trial court and the Court of Appeals, 180 | M s . N o l a i d a A g u i r r e


Fortune’s situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar. Criminal Procedure; Preliminary Investigation; Exceptions to the general rule that criminal prosecutions cannot be enjoined.—As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions which, as summarized in Brocka v. Enrile are: a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95); b. When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607); c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil. 202); d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67 Phil. 62); e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389); f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140); g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966, 18 SCRA 616); h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March 25, 1960); i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in Rañoa vs. Alvendia, CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and j. When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied (Salonga vs. Paño, et al., L-59524, February 18, 1985, 134 SCRA 438). Same; Same; Same; Preliminary investigation may be enjoined where exceptional circumstances warrant.—Contrary to petitioners’ submission, preliminary investigation may be enjoined where exceptional circumstances so warrant. In Hernandez v. Albano and Fortun v. Labang, injunction was issued to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the complaint against them before the prosecution andalternatively, to suspend the preliminary investigation on the grounds cited hereinbefore, one of which is that the complaint of the Commissioner is not supported by any evidence to serve as adequate basis for the issuance of the subpoena to them and put them to their defense. Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and oppressive prosecution and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials. Actions; Certiorari; Pleadings and Practice; Certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact—as long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari.—We believe that the trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave abuse of discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to 181 | M s . N o l a i d a A g u i r r e


cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. Consequently, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction, in denying petitioners’ motion to dismiss and in admitting the supplemental petitions. What petitioners should have done was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the court if adverse to them. BELLOSILLO, J., Concurring and Dissenting: Due Process; Preliminary Injunction; Pleadings and Practice; The dismissal of the main case as a result of a mere incident relative to the issuance of an ancillary writ is procedurally awkward and violates due process.—If grave abuse of discretion attended the issuance of the writ of preliminary injunction, then by all means nullify the abusive act—but only that. The main case should be allowed to proceed according to due process. The trial court should receive the evidence from the contending parties, weigh and evaluate the same and then make its findings. Clearly, the dismissal of the main case as a result of a mere incident relative to the issuance of an ancillary writ is procedurally awkward and violates due process, as it deprives private respondents of their right to present their case in court and support it with its evidence. Taxation; While “taxes are the lifeblood of the government,” the power to tax has its limits, inspite of all its plenitude.—In resolving the fundamental issue at hand, i.e., whether the trial court committed grave abuse of discretion in issuing the subject writs of preliminary injunction, we cannot avoid balancing on the scales the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other. Obviously the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights of the Constitution. Thus while “taxes are the lifeblood of the government,” the power to tax has its limits, inspite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc., we said—Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Courts; Judicial Statesmanship; In days of great pressure, it is alluring to take short cuts by borrowing dictatorial techniques, but when courts do, they set in motion an arbitrary or subversive influence by their own design which destroys them from within.—Finally, courts indeed should not hesitate to invoke the constitutional guarantees to give adequate protection to the citizens when faced with the enormous powers of the State, even when what is in issue are only provisional remedies, as in the case at hand. In days of great pressure, it is alluring to take short cuts by borrowing dictatorial techniques. But when we do, we set in motion an arbitrary or subversive influence by our own design which destroys us from within. Let not the present case dangerously sway towards that trend. PADILLA, J., Dissenting:



Criminal Procedure; Preliminary Investigation; Prosecutors; The decision of the majority clearly constitutes an untenable usurpation of the primary duty and function of the prosecutors to conduct the preliminary investigation of a criminal offense and the power of the Secretary of Justice to review the resolution of said prosecutors.—The rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting and finishing his preliminary investigation. The private respondents’ petition before the trial court in this case was clearly premature since the case did not fall within any of the exceptions when prohibition lies to stop a preliminary investigation. The decision of the majority in this case clearly constitutes an untenable usurpation of the primary duty and function of the prosecutors to conduct the preliminary investigation of a criminal offense and the power of the Secretary of Justice to review the resolution of said prosecutors. Same; Taxation; Tax Evasion; The lack of a final determination of a manufacturer’s exact or correct tax liability is not a bar to criminal prosecution for fraudulent tax evasion.—The lack of a final determination of respondent Fortune’s exact or correct tax liability is not a bar to criminal prosecution for fraudulent tax evasion. While a precise computation and assessment is required for a civil action to collect a tax deficiency, the National Internal Revenue Code does not require such computation and assessment prior to criminal prosecution for fraudulent tax evasion. Thus, as this Court had earlier ruled—“An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.” It follows that, under the Ungab doctrine, the filing of a criminal complaint for fraudulent tax evasion would be proper even without a previous assessment of the correct tax. Same; Same; Same; Estoppel; It is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent schemes to defraud the Government.—In fine, even if BIR officials may have verified Fortunes’ BIR registered wholesale price for its products, the same does not estop or preclude the Government from filing criminal complaints for fraudulent tax evasion based on evidence subsequently gathered to the effect that such BIR registered wholesale prices were a misdeclaration or underdeclaration of the actual wholesale price. It is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent schemes to defraud the Government. Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 309 SCRA 402, G.R. No. 128315. June 29, 1999 Panganiban, J. Facts: In this case, then BIR Commissioner Jose U. Ong authorized revenue officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. 183 | M s . N o l a i d a A g u i r r e


On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet issued a formal assessment. Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for review. The Commissioner filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was yet no formal assessment issued against the petitioners. The CTA denied the said motion to dismiss and ordered the Commissioner to file an answer within thirty (30) days. The Commissioner did not file an answer nor did she move to reconsider the resolution. Instead, the Commissioner filed a petition for review of the CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the Court of Appeals decision and the CTA order, and ordered the dismissal of the petition. Issue: Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. Held: The Court ruled in the negative. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. Neither the NIRC nor the revenue regulations governing the protest of assessments[12] provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment.[13] The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203[14] of the NIRC provides that internal revenue taxes 184 | M s . N o l a i d a A g u i r r e


must be assessed within three years from the last day within which to file the return. Section 222,[15] on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228[16] of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.[17] In the present case, the revenue officers’ Affidavit merely contained a computation of respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Respondents maintain that an assessment, in relation to taxation, is simply understood to mean: “A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.” [18] “Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.”[19] Even these definitions fail to advance private respondents’ case. That the BIR examiners’ Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.



Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, [21] which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. 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. CASE SYLLABI: Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return, proceedings in court may be commenced without an assessment.—Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge can be filed.—Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.—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 186 | M s . N o l a i d a A g u i r r e


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. Adamson vs. Court of Apepals, 588 SCRA 27, G.R. No. 120935 & G.R. No. 124557. May 21, 2009 Puno, CJ. Facts: The events preceding G.R. No. 120935 are the following: On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section 255,[6] and for violation of Section 253[7], in relation to Section 252 (b) and (d) of the National Internal Revenue Code (NIRC).[8] AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a motion to suspend proceedings on the ground of prejudicial question, pendency of a civil case with the Supreme Court, and pendency of their letter-request for re-investigation with the Commissioner. After the preliminary investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion for Reconsideration against the findings of probable cause was denied by the prosecutor. On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842 to 941846. They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that there was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. Initially, the trial court denied the motion. A Motion for Reconsideration was however filed, this time assailing the trial court’s lack of jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court granted the Motion. It ruled that the complaints for tax evasion filed by the Commissioner should be regarded as a decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It further held that the said cases cannot proceed independently of the assessment case pending before the CTA, which has jurisdiction to determine the civil and criminal tax liability of the respondents therein. On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals assailing the trial court’s dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should first be given to the private respondents before she may file the aforesaid criminal complaints against them. She argued that the criminal complaints for tax evasion may proceed independently from the assessment cases pending before the CTA. On March 21, 1995, the Court of Appeals reversed the trial court’s decision and reinstated the criminal complaints. The appellate court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the 187 | M s . N o l a i d a A g u i r r e


offender has knowingly and willfully filed a fraudulent return with intent to evade the tax. [9] It ruled that private respondents filed false and fraudulent returns with intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the Department of Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence criminal action against the latter for tax evasion.[10] In parallel circumstances, the following events preceded G.R. No. 124557: On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a letter request for re-investigation with the Commissioner of the “Examiner’s Findings” earlier issued by the Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies. On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition for Review with the CTA. They assailed the Commissioner’s finding of tax evasion against them. The Commissioner moved to dismiss the petition, on the ground that it was premature, as she had not yet issued a formal assessment of the tax liability of therein petitioners. On September 19, 1994, the CTA denied the Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of petitioners’ protest regarding the tax deficiency. The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of discretion. She contended that, with regard to the protest provided under Section 229 of the NIRC, there must first be a formal assessment issued by the Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-85. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency amounts mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax returns filed and the audit findings of the revenue examiner. The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to Dismiss. Issues: 1. Whether the Commissioner’s recommendation letter can be considered as a formal assessment of private respondents’ tax liability. 2. Whether the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment. Held #1: We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1.

It was not addressed to the taxpayers.



2.

There was no demand made on the taxpayers to pay the tax liability, nor a period for

payment set therein. 3. The letter was never mailed or sent to the taxpayers by the Commissioner. In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code. Held #2: Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides: Sec. 269. 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 after 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: 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 collection thereof…

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Here, the private respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud. Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this seminal case, this Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him. It quoted Merten’s Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus: An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime. This hoary principle still underlies Section 269 and related provisions of the present Tax Code. 189 | M s . N o l a i d a A g u i r r e


CASE SYLLABI:

Taxation; Assessments; Words and Phrases; In the context in which it is used in the National Internal Revenue Code (NIRC), an assessment is a written notice and demand made by the Bureau of Internal Revenue (BIR) on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed—a written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiner’s findings is not an assessment since it is yet indefinite; A recommendation letter of the Commissioner to the Department of Justice (DOJ) Secretary recommending the filing of a criminal complaint against a taxpayer for fraudulent returns and tax evasion cannot be considered a formal assessment.—The first issue is whether the Commissioner’s recommendation letter can be considered as a formal assessment of private respondents’ tax liability. In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiner’s findings is not an assessment since it is yet indefinite. We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not addressed to the taxpayers. 2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein. 3. The letter was never mailed or sent to the taxpayers by the Commissioner. In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code. Same; Same; When fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment; There is no need for precise computation and formal assessment in order for criminal complaints to be filed against a tax evader.—The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Here, the private respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud. Thus, the applicability of Ungab v. Cusi (97 SCRA 877 [1980]) is evident to the cases at bar. In this seminal case, this Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him. It quoted Merten’s Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus: An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge 190 | M s . N o l a i d a A g u i r r e


on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime. Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., 193 SCRA 86, G.R. No . 35266. January 21, 1991 Narvasa, J. Facts: Lianga Bay Logging Co., Inc. (hereafter, simply Lianga), a domestic corporation, has been a forest concessionaire since 1956, holding an ordinary timber license issued by the Bureau of Forestry up to March 12, 1958 when its license was converted into a Timber License Agreement (No. 49). 3 Within its forest concession, Lianga has also been operating a sawmill, and in connection therewith posted a bond in the amount of P25,000.00 with the Collector of Internal Revenue to guarantee payment of such forest charges as may be due from it. 4 Forest officers have been assigned to Lianga's concession. They prepared monthly reports setting forth inter alia the quantity of logs cut and removed within a certain period and the computation of the forest charges due thereon. It was on the basis of these reports that forest charges were paid by Lianga to the Bureau of Internal Revenue thru the deputy provincial treasurer. 5 For the period from April, 1956 to December, 1961, inclusive, it paid a total of P336,462.40 in regular forest charges. 6 Some two years later, the Commissioner of Internal Revenue wrote to Lianga, demanding payment of P84,115.60, representing a 25% surcharge on said sum of P336,462.40, on the theory that it had removed forest products from its cutting area without the auxiliary invoices required by Section 267 of the National Internal Revenue Code, being covered only by "commercial tables" (prepared by the forest officers assigned to Lianga, supra). 7 The Commissioner also required payment of P300.00 as compromise if Lianga wished "to settle extrajudicially the violation" in question. Lianga asked the Commissioner to reconsider his assessment and demand. It claimed that as operator of a Class C sawmill, it was not required to prepare and submit auxiliary invoices pursuant to Section 23 of Regulations No. 85 of the Department of Finance. When the Commissioner refused to change his stand, Lianga appealed to the Court of Tax Appeals. The Court of Tax Appeals reversed the decision of the Commissioner of Internal Revenue, absolved respondent Lianga Bay Logging Co., Inc. from liability for a 25% surcharge for alleged failure to provide auxiliary invoices covering forest products cut and removed from its forest concession during the period from April, 1956 to December, 1961, plus the sum of P300 as "compromise penalty" for using commercial scale table in violation of Section 4(j) of Regulations No. 85 of the Department of Finance (Revised Internal Revenue Forest Products Regulations ). Issue: Whether or not the imposition of compromise penalty is proper. Held: The Court affirmed the Decision of the CTA. The Tax Court's finding, on the basis of the evidence, is that Lianga is a Class C sawmill. 13 The record does indeed establish its character as such: in accordance with said Regulations No. 85, forest officers have been permanently assigned to its concession for the purpose of scaling all logs felled, and it has posted a bond to guarantee the payment of the forest charges that may 191 | M s . N o l a i d a A g u i r r e


be due from it. It is not, therefore required by Regulation No. 85 to accomplish and submit auxiliary invoicesùrequired only of Class A sawmills, i.e., holders of ordinary timber licenses, supra. What is required in lieu thereof, pursuant to said Regulations No. 85, are the monthly scale reports (B.I.R. Form 14.15, drawn up by the forest officers assigned to the concessions, and subsequently presented to the deputy provincial treasurer for the purpose of paying the corresponding forest charges) as well as the Daily Trimmer Tally (B.I.R. Form No. 14.11); sawmill or commercial invoice (B.I.R. Form No. 14.13); and monthly Abstract of Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga "has complied with the requirements regarding the keeping and use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and Commercial invoice." 14 In fact, it appears that the forest officers' reports and computations were the basis for the payment of forest charges by Lianga, and the basis, as well, of the Commissioner's computation of the alleged 25% surcharge. Furthermore, Section 267 of the Tax Code, imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concession "without invoice," does not specify the nature of the invoice contemplated. Obviously, as the Tax Court says, the term is not limited to auxiliary invoices. It may refer as well to "official" or "commercial" invoices such as those prepared by Class C sawmills, supra. This is the interpretation placed on the term by said Regulations No. 85 themselves, which declare that the 25% surcharge is imposable on "Forest products transported without official invoice, or commercial invoice, as the case requires." And since, as far as the record goes, sawmill or commercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all. As to the "compromise penalty" of P300.00 also sought to be imposed, there is no basis therefor, and, as the Court of Tax Appeals finally declares, "the imposition of the same without the conformity of the taxpayer is illegal and unauthorized (Coll. v. U.S.T., 104 Phil. 1062; Phil. Int. Fair v. Coll., G.R. Nos. L12928 & L-12932, March 31, 1962)." CASE SYLLABUS: Taxation; Forest Charges; Sec. 11 of the Revised Internal Revenue Forest Products Regulations No. 85, requiring auxiliary invoices, applies only to forest concessionaires who are holders of ordinary licenses.—Section 11 of Regulations No. 85 applies, as the Court of Tax Appeals points out, to a “forest concessionaire who is the holder of an ordinary license;” but there are separate provisions “on invoicing and payment of forest charges x x in the case of owners or operators of sawmills who are forest concessionaires,” like Lianga. For purposes of said Regulations, “sawmills are classified into Class A, B, C, and D.” x x x Now, the Tax Court’s finding, on the basis of the evidence, is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in accordance with said Regulations No. 85, forest officers have been permanently assigned to its concession for the purpose of scaling all logs felled, and it has posted a bond to guarantee the payment of the forest charges that may be due from it. It is not, therefore required by Regulations No. 85 to accomplish and submit auxiliary invoices—required only of Class A sawmills, i.e., holders of ordinary timber licenses, supra. What is required in lieu thereof, pursuant to said Regulations No. 85, are the monthly scale reports (B.I.R. Form 14.15, drawn up by the forest officers assigned to the concessions, and subsequently presented to the deputy provincial treasurer for the purpose of paying the corresponding forest charges) as well as the Daily 192 | M s . N o l a i d a A g u i r r e


Trimmer Tally (B.I.R. Form No. 14.11); sawmill or commercial invoice (B.I.R. Form No. 14.13); and monthly Abstract of Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga “has complied with the requirements regarding the keeping and use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and commercial invoice.” In fact, it appears that the forest officers’ reports and computations were the basis for the payment of forest charges by Lianga, and the basis, as well, of the Commissioner’s computation of the alleged 25% surcharge. Furthermore, Section 267 of the Tax Code, imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concession “without invoice,” does not specify the nature of the invoice contemplated. Obviously, as the Tax Court says, the term is not limited to auxiliary invoices. It may refer as well to “official” or “commercial” invoices such as those prepared by Class C sawmills, supra. This is the interpretation placed on the term by said Regulations No. 85 themselves, which declare that the 25% surcharge is imposable on “Forest products transported without official invoice, or commercial invoice, as the case requires.” And since, as far as the record goes, sawmill or commercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all. Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr., 438 SCRA 290, G.R. No. 147188. September 14, 2004 Davide, Jr, J. Facts: Cibales Insurance Company (CIC) authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public.For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million. CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes ofP254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks. Three and a half years later, Toda died. Subsequently, Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989. The estate of Toda then received a Notice of Assessment for the deficiency of income tax in the amount of P79,099,999.22. The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest. The Estate filed a petition for review with the CTA. CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due 193 | M s . N o l a i d a A g u i r r e


it. The CTA also denied the motion for reconsideration. The Court of Appeals affirmed the decision of the CTA Issue: 1. Is this a case of tax evasion or tax avoidance? 2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and 3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any? Held: 1.Tax evasion Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI, and not from Altonaga. That P40million was debited by RMI and reflected in its trial balance as "other inv.– Cibeles Bldg." Also, as of 31 July 1989, another P40 million was debited and reflected in RMI’s trial balance as "other inv.– Cibeles Bldg." This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga. Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner cannot be faulted for wanting to reduce the tax from 35% to 5%. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another." Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI. Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997). CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC of 1986 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld. 2. No. (Legal basis: Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997).



Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be. The prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only on 8 March 1991.The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. 3. Yes. A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There are, however, certain instances in which personal liability may arise. It has been held in a number of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when: 1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; 2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by specific provision of law, to personally answer for his corporate action. When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby voluntarily held himself personally liable therefor. Respondent estate cannot, therefore, deny liability for CIC’s deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC, since its obligation arose from Toda’s contractual undertaking, as contained in the Deed of Sale of Shares of Stock. CASE SYLLABI: Taxation; Tax Avoidance Distinguished from Tax evasion.-- Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Same; same; factor to determine TAX Evasion. -- Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willfull,”or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful. Same; Same; Fraud; Meaning of.- Fraud in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another.” 195 | M s . N o l a i d a A g u i r r e


Same; Same; Same; The intermediary transaction in this case constitutes one of tax evasion.-- In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. Same; Prescriptions; The period within which to assess tax in cases of fraudulent returns, false returns and failure to file a return is ten (10) years from discovery of the fraud, falsification or omission.-- Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be. Same; Same; The issuance of the correct assessment for deficiency income tax as well within the prescriptive period.-- As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only on 8 March 1991.The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. People of the Philippines vs. Judy Anne Santos, CTA CRIM. CASE NO. O-012, January 16, 2013 Bautista, J. Facts: The accused, Judy Anne Santos is charged for filing a false and fraudulent Income Tax Return (“ITR”) for the taxable year 2002 by indicating therein a gross income of P 8, 003,33 2.70, when in truth and in fact her correct income for taxable year 2002 is P 16, 396, 234.70. She is prosecuted for violation Section 255 of the 1997 NIRC as amended for her failure to supply correct and accurate information, which resulted to an income tax deficiency in the amount of P 1, 395,116.24, excluded interest and penalties thereon in the amount of P 1, 319, 500. 94, or in the aggregate income tax deficiency of P 2, 714,617.18. Issue: Whether or not the accused may be held liable for violation of Section 255 of the National Internal Revenue Code, as amended. Held: Section 255 enumerates the following offenses: a. b. c. d. e. f.

Willful failure to pay tax; Willful failure to make a return; Willful failure to keep any record; Willful failure to supply correct and accurate information; Willful failure to withhold or remit taxes withheld; or Willful failure to refund excess taxes withheld on compensation.

One of the offenses above-enumerated is willful failure to supply correct and accurate information, which is being attributed to the accused. The elements of the said offense are as follows: 196 | M s . N o l a i d a A g u i r r e


1. That a person is required to supply correct and accurate information; 2. That there is failure to supply correct and accurate information at the time or times required by law or rules and regulations; and 3. That such failure to supply correct and accurate information is done wilfully. Require to supply Correct and Accurate Information Based on the records of the case, the accused unequivocally admitted that as early as eight (8) years old, she entered the entertainment industry, and that at present is an established movie actress, celebrity endorser and showbiz personality. Further, for the subject taxable year 2002, she admitted that she entered into contracts for her engagement as a professional entertainer, movie actress, and product endorser. With this, accused is required to file an income tax return for all her income from all sources. The prosecution was able to prove that the accused, earning her professional income as an enterta iner is required to file an income tax return, as she did, and that accused apparently supplied correct and accurate information thereof. Failure to Supply Correct and Accurate Information at the Time Required by Law The prosecution was able to prove the element of failure to supply correct and accurate information at the time required by law. The prosecution presented that there were: a. b. c. d. e.

Undeclared income form ABS-CBN Broadcasting Corporation Undeclared income from Viva Productions, Inc. Undeclared income from Star Cinema Productions, Inc. Undeclared income from Regal Entertainment, Inc. Undeclared income from Century Canning Corporation

From the foregoing, the prosecution was able to show that from the declared Gross Taxable Professional Income of the accused in the amount of P 8, 003, 332.70, in her ITR for the taxable year 2002, accused has an aggregate amount of P16, 396, 234.70, or a gross underdeclaration of P 8, 362, 902.00. Willful Failure to Supply Correct and Accurate Information As early discussed, the prosecution was able to prove that the accused failed to supply correct and accurate information in her ITR for the year2002 for her failure declare her other income payments received from other sources. However, it is well settled that mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. Based on the records of the case, the accused denied the signature appearing on top of the name “Judy Anne Santos” in the ITR for taxable year 2002, presented by the prosecution, and that the Certified Public Accountant, who’s participation is limited to the preparation of the Financial 197 | M s . N o l a i d a A g u i r r e


Statements attached to the return, likewise, denied signing the return on behalf of the accused. Further, the working papers were all provided by the manager of the accused. The Court, therefore, finds the records bereft of any evidence to establish the element of willfulness on the part of the accused to supply the correct and accurate information on her subject return. The Court, however, only finds the accused negligent; and such is not enough to convict her in the case at bench. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. Fraud must amount to intentional wrong-doing with the sole object of avoiding the tax. The Court also notes the intention of the accused to settle the case were it not for the opposition of her Manager and then counsel, which negated any motive of the accused to commit fraud. In sum, the Court finds the failure of the prosecution to establish the guilt of the accused beyond the required reasonable doubt. Notes: In relation to Aznar vs CTA as emphasized by Atty. Lock As could be readily seen from the above rationalization of the lower court, no distinction has been made between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent intent to evade taxes on the substantial difference between the amounts of net income on the face of the returns as filed by him in the years 1946 to 1951 and the net income as determined by the inventory method utilized by both respondents for the same years. The lower court based its conclusion on a presumption that fraud can be deduced from the very substantial disparity of incomes as reported and determined by the inventory method and on the similarity of consecutive disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax) suffers from an inherent flaw when applied to this case. It is very apparent here that the respondent Commissioner of Internal Revenue, when the inventory method was resorted to in the first assessment, concluded that the correct tax liability of Mr. Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in another assessment dated February 16, 1955, concluded that the tax liability should be reduced to P381,096.07. This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use of the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability. When the respondent Court of Tax Appeals reviewed this case on appeal, it concluded that petitioner's tax liability should be only P227,788.64. The lower court in three instances (elimination of two buildings in the list of petitioner's assets beginning December 31, 1949, because they were destroyed by fire; elimination of expenses for construction in petitioner's assets as duplication of increased value in buildings, and elimination of value of house and lot in petitioner's assets because said property was only given as collateral) supported petitioner's stand on the wrong inclusions in his lists of assets made by the respondent Commissioner of Internal Revenue, resulting in the very substantial reduction of petitioner's tax liability by the lower court. The foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in his report of his income but also the respondent Commissioner of Internal Revenue who committed mistakes in his use of the inventory method to determine the petitioner's tax liability. The mistakes committed by the Commissioner of Internal Revenue which also involve very substantial amounts were also repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud. 198 | M s . N o l a i d a A g u i r r e


From the above exposition of facts, we cannot but emphatically reiterate the well-established doctrine that fraud cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent intent could not be deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in accounting methods utilized for determination of tax liabilities The predecessor of the petitioner undoubtedly filed his income tax returns for "the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by him. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith. Republic vs. Patanao, 20 SCRA 712, No. L-22356. July 21, 1967 Angeles, J. Facts: 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. 199 | M s . N o l a i d a A g u i r r e


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: Whether or not respondent’s acquittal in a criminal case bars the collection of tax penalties. Held: In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the collection of taxes, the court a quo fell into error. The two cases are circumscribed by factual premises which are diametrically opposed to each either, and are founded on entirely different philosophies. Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal proceedings. 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 200 | M s . N o l a i d a A g u i r r e


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. CASE SYLLABI: Taxation; Income tax; Civil liability under Penal Code and Income Tax Law distinguished.—Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder, The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from 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 for 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 does not provide the collection of said tax in criminal proceedings. Same; Civil remedies for collection of income tax.—The only civil remedies provided for the collection of income tax are distraint and levy and judicial action, which remedies are generally exclusive in the absence of a contrary legislative intent. Same; Acquittal of taxpayer in criminal case does not exonerate him from tax liability.—Since the taxpayer's civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by his attempt to evade payment, Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged. Same; Prescription of action for collection of income tax.—Where the fraud in the taxpayer's 1951 income tax return was allegedly discovered in 1958, the prescriptive period for collecting the 1951 deficiency tax is ten years from the discovery of the fraud and not five years. The action instituted in 1962 to collect said deficiency has not prescribed. Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174. April 26, 1962 Reyes, J.B.L., J. -----------------------------supra----------------------------Facts: 201 | M s . N o l a i d a A g u i r r e


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. Assignment of error and the decision of the Court: (c) 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 202 | M s . N o l a i d a A g u i r r e


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). CASE SYLLABI: Same; Same; Taxpayer not discharged from duty to pay tax by his acquittal from criminal action.—The acquittal of a taxpayer in a criminal case cannot operate to discharge him from the duty to pay tax, because that duty is imposed by statute prior to and independently of any attempt on the part of the taxpayer to evade payment. Same; Same; 50% surcharge not a penalty.—Addition ike the 50% surcharge 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 section 4, of Repub lic Act No that is separate and distinct from that providing for criminal prosecution (Section 7). People of the Philippines vs. Galero, CTA Criminal Case No. 0-55, September 30, 2009 Uy, J. Facts: Galero is charged with the crime in violation of Sec. 255 in relation to Section 253 (d) and 256 of the NIRC. Accused allegedly refused to pay the deficiency taxes despite due assessment, notice and demand to do so. The accused voluntarily surrender and posted a bail. He entered a plea of “Not Guilty”. Defendant claimed that his failure to pay tax is not willful, but rather due to financial incapacity to pay the full amount, and to show good faith, he presented a letter where he made an offer of compromise for payment of deficiency tax assessments and subsequently paid portions of the said offer despite the fact that it is still pending evaluation by the Technical Working Group, national evaluation board. He also availed of the tax amnesty program and paid total amount of P25, 000.00 as amnesty payment. Issue: 203 | M s . N o l a i d a A g u i r r e


Whether or not Galero is liable for violation of Sec. 255 in relation to Sec. 253 (d) and 256 of the NIRC Held: No. Accused attempted to settle said deficiencies by making an offer of compromise, availment of tax amnesty and paying the amount stated in his offer instead of protesting the said assessment, both administratively and judicially. The third essential element of the crime charged in this case requires that the failure to pay the required tax must be willful. A careful examination of the amended information shows a crucial omission in its averments of “willfulness” in the failure to pay the required taxes. It is fundamental that every element constituting an offense charged must be alleged in the complaint or information. And a complaint is deemed sufficient if it describes the offense in the language of the statute whenever the statute contains all of the essential elements constituting the particular offense. The amended information does not allege “willful failure to pay taxes.” Absent the allegation of this essential element, the accused cannot be convicted for the violation raised.

People of the Philippine vs. Mendez, CTA Criminal Case No. 0-013 & 0-015, January 11, 2011 Castañeda, J. Willfull blindness as defined by the Black’s Law Dictionary as- deliberate avoidance of knowledge of a crime especially by failing to make reasonable inquiry about suspected wrongdoing despite being aware that it is highly probable. Facts: Mendez was charged with a crime for violation of Sec. 255 of the NIRC. Two information were subsequently filed; a. For failure to file his ITR amounting to P 1,522,152.14 for the year 2002 b. For failure to supply the correct information in his ITR for the year 2003 Accused voluntary surrendered and posted bail, after pleading “Not Guilty. The prosecution contends that accused has willfully and feloniously failed to pay his AITR from 1995-2000. The Prosecution contends, on the basis of the initial investigation and recommendation, a Letter of Authority (LOA) No. 2001-00002438 dated November 8, 2004 was issued for the examination of books of accounts and other accounting records for the period covering taxable years 2001, 2002 and 2003 of accused Dr. Joel Cortez Mendez. According to Atty. Cruz, the said LOA was served on November 10, 2004 together with the First Letter-Notice for the production of books of accounts and accounting records. Cherry Perez, who allegedly represented herself as the authorized representative of accused Dr. Mendez, duly received the said LOA. Despite receipt of the First Letter-Notice, accused Dr. Mendez did not submit the required documents, as specified in the said notice. As a consequence, a Second Letter-Notice and a Final Request for presentation and/or production of the required records/documents were served upon -the accused Dr. Mendez, and duly received on November 24, 2004 and January 11, 2005, respectively, thru his accountant and employee named Richard Bianan and Carla Yadao. 204 | M s . N o l a i d a A g u i r r e


Due to the failure of the accused to present or produce the needed records and documents for examination despite several notices, the investigation proceeded through "Third Party Information" and the "Best Evidence Obtainable Rule" allowed under Section 5(B), in relation to Section 6(A) and (B) of the Tax Code of 1997. In the course of gathering information and best obtainable evidence pertaining to the accused, the team verified certain data and information from the BIR Integrated Tax System (BIR-ITS) and different government agencies, including private offices and entities. During the investigation, it was further gathered that the accused filed his income tax return for taxable year 2003 with Revenue District Office (ROO) No. 4-Calasiao, Pangasinan, for his Mendez Weigh Less Center located at CSI City Mall, Lucao District, Oagupan City despite the existence of his principal place of business at 31 Races Avenue, Quezon City, as evidenced by the Certification dated February 23, 2005 and the letter dated August 15, 2006 issued by Mr. Joseph M. Catapia, Revenue District Officer of ROO No. 4, and income tax return of the accused. Said certification was also identified during trial by Mr. Joseph M. Catapia himself. Defendant however refuted the claims. By presenting Cherry Perez, who was then a medical staff on the issuance of the assessment notice, representatives looked for the accused. Since the latter was not present, the BIR examiners gave the letter to Perez instead. Perez then gave the letter to their accountant, Richard Bianan, who deliberately concealed the documents from Mendez. Accused further testified that Mr. Richard Bianan has been charged with multiple counts of Estafa. He also stated that he issued checks and vouchers in Mr. Richard Bianan's name for the payment of taxes and other obligations. In addition, he also testified that he leased the property located in A. Roces Avenue, Quezon City on July 12, 2001 , but Weigh Less Center-Roces Avenue Branch only started its operation on or about March 4, 2003. The delay in operation was supposedly due to the fact that the property is a two- floor residential unit that is not designed at all as office space and that he had to cause its renovation as his personal funds would allow. Due to limited funds, the construction took a while before the same was completed. The delay was also caused by the problem with building authorities inasmuch as the renovation was done without a permit. Accused also made a statement that the idea of putting up clinics came up in 1996, but due to financial problems and because his focus then was art, the clinics materialized only after several years. As regards the vehicles he allegedly purchased from the years 2001 to 2003, he said that the said vehicles were obtained through bank loans. He explained that the newspaper advertisements were intended to generate public awareness in the business. While he did attend to some celebrities, he did not charge them any fee. They had a simple understanding that he would do certain medical services for his celebrity clients and in return, they would endorse his future business. The idea is that his future business is advertised through the publicity generated by the treatments of celebrities. Issue: 205 | M s . N o l a i d a A g u i r r e


WHETHER OR NOT ACCUSED DR. JOEL C. MENDEZ IS LIABLE FOR VIOLATION OF SECTION 255 OF THE 1997 NATIONAL INTERNAL REVENUE CODE, AS AMENDED, FOR FAILURE TO FILE INCOME TAX RETURN AND FOR FAILURE TO SUPPLY CORRECT AND ACCURATE INFORMATION. Held: The accused is found guilty of the alleged violation. In his defense, accused avers that he was not able to personally receive the notices issued by the BIR. The accused alleges that it was his former accountant, Mr. Richard Bianan, who received the notices and that Mr. Bianan concealed said notices from the accused. It must be pointed out that, as narrated by the accused in his Affidavit and as confirmed by him during the cross-examination, Mr. Richard Bianan was authorized by him to receive documents and notices on his behalf, including the notices issued by the BIR. Hence, the notification requirement was deemed substantially complied with by the BIR, considering that the subject notices were admittedly received by Mr. Bianan. Before going one by one with the foregoing elements, it may be relevant to emphasize that direct evidence is not the sole means of establishing guilt beyond reasonable doubt. Established facts that form a chain of circumstances can lead the mind intuitively or impel a conscious process of reasoning towards a conviction. Indeed, rules on evidence and principles in jurisprudence have long recognized that the accused may be convicted through circumstantial evidence. ON CRIMINAL CASE NO. 0-015 First Element: He is a person required under this code or by rules and regulations to pay any tax, make a return, keep any record, or supply correct and accurate information Second Element: He fails to supply correct and accurate information at the time or times required by law or rules and regulation. Anent the second element, the prosecution has the burden to prove that the accused, as a duly registered taxpayer and as a sole proprietor of various branches of Weigh Less Center, failed to supply the correct and accurate information in his income tax return for taxable year 2003 due to his failure to declare and indicate in his return all his income from all sources for taxable year 2003. During the investigation, it was found that accused filed his income tax return for taxable year 2003 with Revenue District Office No. 4-Calasiao, Pangasinan, for his Mendez Weigh Less Center located at CSI City Mall, Lucao District, Dagupan City, as evidenced by the Certification dated February 23, 2005 issued by Mr. Joseph M. Catapia, Revenue District Officer of ROO No. 4. In the said Annual Income Tax Return 206 | M s . N o l a i d a A g u i r r e


submitted for taxable year 2003, the accused declared a net loss of P38,893.91. However, based on the documents gathered by the BIR Revenue District Officers during the investigation, it was discovered that there are several other branches registered with the BIR having the trade/business names "Weigh Less Center", "Mendez Body and Face Salon and Spa" and "Mendez Body and Face Skin Clinic" under the name of the accused Dr. Mendez as the sole proprietor/owner. This fact was evidenced by the Certifications issued by the duly authorized Revenue District Officers who certified the registration of said branches with the BIR. There were also several leasing receipts/documents that is circumstantial evidence that may adduce that the accused has financial capacity. Moreover, if the accused claims that he suffered a net loss from the operation of his Mendez Weigh Less Center Dagupan branch during taxable year 2003, then the substantial income found to have been earned by the accused during the same year can be attributed to the operation of his other branches for taxable year 2003; which were not reflected in the Annual Income Tax Return submitted by the accused for the same year. Furthermore, verification of the tax records from the SIR Integrated Tax System revealed that accused Dr. Mendez did not file his income tax returns for taxable year 2003 on its income earned from these other branches. Third Element: Such failure is willful. As regards the third element, this Court finds the failure of the accused to supply the correct information in his return to be willful. In case of People of the Philippines vs. Estelita Delos Angeles, this Court defined the term "willful" in this wise: "Willful in the tax crimes statutes means a voluntary, intentional violation of a known legal duty and bad faith or bad purpose need not be shown [Mertens (Law of Federal Income Taxation) Chapter 47.05, page 28, Volume 13, see U.S. v. Green, 757 F2d 116, 85-1 USTC 9178 (CA 1985), in which the Court, citing U.S. v. Moore, 627 F2d 830 (CA 1980) and U.S. v. Verkuilen, 690 F2d 648, 82-2 USTC 9618 (CA7 1982), upheld the conviction of a tax protester for willful failure to file returns]. " In this case, the accused is considered to have knowledge that he has the obligation to declare and file income tax return for taxes from all sources. This may be confirmed by his act of filing his income tax return declaring his income from the operation of his Dagupan branch. Notwithstanding said knowledge of the operation of his other branches as well as his obligation to file income tax return or at least consolidate and reflect his income from his other branches in his income tax return filed in taxable year 2003, the accused still failed to file his income tax return on his income from these other Weigh Less Center branches for taxable year 2003; making it appear that his only source of income was from the operation of his Weigh Less Center in Dagupan City. 207 | M s . N o l a i d a A g u i r r e


"Willful Blindness" is defined in Black's Law Dictionary as "deliberate avoidance of knowledge of a crime, esp. 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 case, even if the allegations of the accused were true, his failure to examine his income tax return for 2003 and verify whether the same contains correct and accurate information would still render the commission of the offense charged willful. It must be emphasized that denials by the accused of the crimes herein charged, while failing to provide clear and convincing evidence to support the same, clearly deserve no weight and should not be given any probative value. Notes as emphasized by Atty. Lock: Plainly, an assessment of the tax before there can be a criminal prosecution is not necessary. Whereas, in case of a civil action for collection of the tax, the assessment procedures provided by the NIRC of 1997, as amended, should be complied with. Accordingly, considering that there was no assessment issued by the BIR against the accused, the foregoing computations presented by the prosecution to prove the civil liabilities of the accused for the taxable years 2002 and 2003 may not be used by this Court as its basis to impose the civil liabilities prayed for by the prosecution. Therefore, a proper determination of the civil liabilities for the non-payment of tax based on the computations submitted by the prosecution may not be achieved. (Section 205, NIRC) People of the Philippines vs. Benjamin Kintanar, CTA CRIM. CASE NO. O-031& O-032, September 27, 2010 Cotangco-Manalastas, J. Case Summary: Accused, Benjamin Kintanar, is charged in the CTA of two (2) consolidated cases for failure to file his Income Tax Returns (ITRs) for the taxable years 2000 and 2001 on his taxable income in the estimated amounts of P 3, 475, 090.64 and P 5, 175,242.12, respectively, exclusive of penalties, ssurcharges and interest, in violation of the first paragraph of Section 255 of the National Internal Revenue Code as amended, which reads as follows: SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax make a return, keep any record, or supply correct the accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished 208 | M s . N o l a i d a A g u i r r e


by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years. (emphasis supplied) Section 255 enumerates the following offenses: g. h. i. j. k. l.

Willful failure to pay tax; Willful failure to make a return; Willful failure to keep any record; Willful failure to supply correct and accurate information; Willful failure to withhold or remit taxes withheld; or Willful failure to refund excess taxes withheld on compensation.

To establish the offense of failure to file a return, the prosecution must prove three (3) esssetial elements beyond reasonable that to wit: 1. That the accused was a person required to make of file a return; 2. That the accused failed to make or file a return at the time required by law; and 3. That the failure to make or file a return was willfull. The Court ruled that Benjamin Kintanar is found liable for violation of Section 255 of the 1997 National Internal Revenue Code as amended. That all the elements above stated are present. The prosecution was able to prove that he is guilty beyond reasonable doubt of the crime charge. Likewise, the record also show that the accused is informed of the deficiency tax assessment against him through a formal letter of demand and due to the accused’s failure to submit the supporting documents after his request for reinvestigation within the reglementary period after the same was granted, the assessments against the accused became final. Wherefore, in CTA Criminal Case No. 0-031 and 0-032 Benjamin kintanar is GUILTY BEYOND REASONABLE DOUBT of violation of Section 255 of the NIRC and sentenced to suffer an indeterminate penalty of imprisonment of one (1) year as minimum, to two (2) years as maximum and, is ordered to pay pay a fine in the amount P 10,000.00 with subsidiary imprisonment in case accused has no property with which to meet the said fine, pursuant to Section 280 of the NIRC AS AMENDED. Aa regards civil liability, accused is hereby Ordered to pay deficiency income tax for the taxable years 2000 and 2001 in the amount of P 8, 251, 605.72 and P10, 730,391.18 respectively, inclusive of the surcharge and interest, plus 20% delinquency interest per annum from the total amount of P 8, 251, 605,72 and P10, 730,391.18, counted from April 12, 2005, until fully paid, pursuant to Section 249(c)(3) of the NIRC. NOTA BENE: As to the Civil aspect of the instant cases, the same were deemed instituted herewith pursuant Section 7 (1) of Republic Act No. 9282 which provides that :criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal



action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the Criminal action will be recognized.

Lim, Sr. vs. Court of Appeals, 190 SCRA 616, G.R. Nos. 48134-37. October 18, 1990 Fernan, J. Facts: On October 5, 1959, a raid was conducted at their business address by the National Bureau of Investigation by virtue of a search warrant issued by Judge Wenceslao L. Cornejo of the City Court of Manila. A similar raid was made on petitioners' premises at 111 12th Street, Quezon City. Seized from the Lim couple were business and accounting records which served as bases for an investigation undertaken by the Bureau of Internal Revenue (BIR). On September 30, 1964 Senior Revenue Examiner Raphael S. Daet submitted a memorandum with the findings that the income tax returns filed by petitioners for the years 1958 and 1959 were false or fraudulent. Daet recommended that an assessment of P835,127.00 be made against the petitioners. Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin M. Tabios informed petitioners that there was due from them the amount of P922,913.04 as deficiency income taxes for 1958 and 1959, giving them until May 7, 1965 to pay the amount. On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation. The BIR expressed willingness to grant such request but on condition that within ten days from notice, Lim would accomplish a waiver of defense of prescription under the Statute of Limitations and that one half of the deficiency income tax would be deposited with the BIR and the other half secured by a surety bond. If within the tenday period the BIR did not hear from petitioners, then it would be presumed that the request for reinvestigation had been abandoned. Petitioner Emilio E. Lim, Sr. refused to comply with the above conditions and reiterated his request for another investigation. On October 10, 1967, the BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. Petitioners were required to pay deficiency income taxes for 1958 and 1959 amounting to P1,237,190.55 inclusive of interest, surcharges and compromise penalty for late payment. The final notice and demand for payment was served on petitioners through their daughter-in-law on July 3, 1968. Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on September 1, 1969, the matter was referred by the BIR to the Manila Fiscal's Office for investigation and prosecution. On June 23, 1970, four (4) separate criminal informations were filed against petitioners in the then Court of First Instance of Manila, Branch VI for violation of Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code. 2 Trial ensued. On August 19, 1975, the trial court rendered two (2) joint decisions finding petitioners guilty as charged. Hence the present petition for review by certiorari. In their Brief, petitioners contend that the Appellate Court erred in holding that the offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in ten (10) years, instead of five (5) years; that the 210 | M s . N o l a i d a A g u i r r e


prescriptive period in Criminal Cases Nos. 1788 and 1789 commenced to run only from July 3, 1968, the date of the final assessment; that Section 316 of the Tax Code as amended by Presidential Decree No. 69 was applicable to the case at bar; and that the civil obligation of petitioner Emilio E. Lim, Sr. arising from the crimes charged was not extinguished by his death. Issue: When is the reckoning date of the five year period for filing a criminal charges against the petitioner? Held: We hold for the Government. Section 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax. — After the return is filed, the Commissioner of internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal Revenue. (Emphasis supplied) Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are not time-barred. With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing of fraudulent consolidated income tax returns with intent to evade the assessment decreed by law, petitioners contend that the said crimes have likewise prescribed. They advance the view that the five-year period should be counted from the date of discovery of the alleged fraud which, at the latest, should have been October 15, 1964, the date stated by the Appellate Court in its resolution of April 4, 1978 as the date the fraudulent nature of the returns was unearthed. 9 On behalf of the Government, the Solicitor General counters that the crime of filing false returns can be considered "discovered" only after the manner of commission, and the nature and extent of the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final decision holding that there was no ground for the reversal of the assessment and therefore required the petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered. Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but also institution of judicial proceedings. Note the conjunctive word "and" between the phrases "the discovery thereof" and "the institution of judicial proceedings for its investigation and proceedings." In other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1, 1969 that the offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of a crime, it was only on September 1, 1969 that the prescriptive period commenced. 211 | M s . N o l a i d a A g u i r r e


The Court is inclined to adopt the view of the Solicitor General. For while that particular point might have been raised in the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have settled the question once and for all. As Section 354 stands in the statute book (and to this day it has remained unchanged) it would indeed seem that tax cases, such as the present ones, are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years. GUTTIERREZ, JR., J., concurring I concur in the results. I feel that certain issues need further clarification. I, therefore, reserve my definitive vote on these issues. For instance, to say that no violation of the Income Tax Law has been committed until after receipt of the letter assessment overlooks the fact that the assessment is only evidence of a prior violation. It is not the refusal to comply with the latter that creates the violation. It is the failure to pay taxes in the years that they were due. Again, to make discovery of the fraud and institution of judicial proceedings conjunctive seems to me illogical because the judicial proceedings always come after discovery. The date of discovery becomes meaningless under our decision. Perhaps, the law needs amendment to make it clearer. Add notes: The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789. The trial court had absolutely no jurisdiction in sentencing the Lim couple to indemnify the Government for the taxes unpaid. The lower court erred in applying Presidential Decree No. 69, particularly Section 316 thereof, which provides that "judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case", because that decree took effect only on January 1, 1973 whereas the criminal cases subject of this appeal were instituted on June 23, 1970. Save in the two specific instances, Presidential Decree No. 69 has no retroactive application. CASE SYLLABI: Taxation; Income Tax; Prescription; The 5-year prescriptive period provided for under Sec. 354 of the Tax Code should be reckoned from the date the final notice and demand was served on the taxpayer.— Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners' refusal to pay the deficiency income taxes due, again both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Petitioners maintain that the five-year period of limitation under Section 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insists that it should be counted from July 3, 1968 when the final notice and demand was served on petitioners' daughter-in-law. We hold for the Government. Section 51 (b) of the Tax Code provides: "(b) Assessment and payment of deficiency tax.—After the return is filed, the Commissioner of Internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of lnternal Revenue." (Italics supplied) Inasmuch as the final notice and demand for payment of the deficiency taxes was served on petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter212 | M s . N o l a i d a A g u i r r e


assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the alloted period. The two criminal informations, having been filed on June 23, 1970, are well-within the five-year prescriptive period and are not time-barred. Same; Same; Same; Fraudulent Returns; In addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run.—On behalf of the Government, the Solicitor General counters that the crime of filing false returns can be considered "discovered" only after the manner of commission, and the nature and extent of the fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its final decision holding that there was no ground for the reversal of the assessment and therefore required the petitioners to pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered. Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the fraud but also institution of judicial proceedings. Note the conjunctive word "and" between the phrases "the discovery thereof' and "the institution of judicial proceedings for its investigation and proceedings." In other words, in addition to the fact of discovery, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It was on September 1,1969 that the offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and punishment of a crime, it was only on September 1,1969 that the prescriptive period commenced. x x x The Court is inclined to adopt the view of the Solicitor General. For while that particular point might have been raised in the Ching Lak case, the Court, at that time, did not give a definitive ruling which would have settled the question once and for all. As Section 354 stands in the statute book (and to this day it has remained unchanged) it would indeed seem that the tax cases, such as the present ones, are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years.



CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENY A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel Corporation, 516 SCRA 93, G.R. No. 147295. February 16, 2007 Velasco, JR., J. Facts: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to PAGCOR’s casino patrons through the hotel’s restaurant outlets. For the period January (sic) 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status. Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of nonpayment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in this wise: As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its sales of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the petitioner for having been inadvertently remitted to the respondent. Thus, taking into consideration the prescribed portion of Petitioner’s claim for refund of P98,743.40, and considering further the principle of ‘solutio indebiti’ which requires the return of what has been delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64. Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTA’s 214 | M s . N o l a i d a A g u i r r e


determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from petitioner. Issue: Whether PAGCOR’s tax exempton privilege includes indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate and thus, entitled the latter a claim for refund? Held: It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869. The VAT exemption extend to Acesite. Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides: Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by VAT-registered persons shall be subject to 0%. xxxx (b) Transactions subject to zero percent (0%) rated.— xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied). The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case ofCommissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor’s tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. Acesite paid VAT by mistake. Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. 215 | M s . N o l a i d a A g u i r r e


In UST Cooperative Store v. City of Manila,6 we explained that "there is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made." 7 Such payment is held to be not voluntary and, therefore, can be recovered or refunded.8 Solutio indebiti applies to the Government. Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus: Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it.9 The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of Internal Revenue v. Fireman’s Fund Insurance Company, where we held that: "Enshrined in the 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."10 Action for refund strictly construed; Acesite discharged the burden of proof. Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden convincingly.11 In the instant case, respondent Acesite had discharged this burden as found by the CTA and the CA. Indeed, the records show that Acesite proved its actual VAT payments subject to refund, as attested to by an independent Certified Public Accountant who was duly commissioned by the CTA. On the other hand, petitioner never disputed nor contested respondent’s testimonial and documentary evidence. In fact, petitioner never presented any evidence on its behalf. One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed, fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund without any unreasonable delay what it has erroneously collected.12 CASE SYLLABI: Taxation; Tax Exemptions; Philippine Amusement and Gaming Corporation (PAGCOR) is also exempt from indirect taxes.—A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT. 216 | M s . N o l a i d a A g u i r r e


Same; Same; Acesite is not liable for the payment of the 10% Value Added Tax (VAT) as it is exempt in this particular transaction by operation of law to pay the indirect tax.—While it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424). Same; Same; The proviso in P.D. No. 1869 extending the exemption to entities or individuals dealing with Philippine Amusement and Gaming Corporation [PAGCOR] in casino operations is clearly to proscribe any indirect tax, like Value Added Tax (VAT), that may be shifted to PAGCOR.—The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., 148 SCRA 36 (1987), where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor’s tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR. Tax Refunds; There is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made.—Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. In UST Cooperative Store v. City of Manila, 15 SCRA 656 (1965), we explained that “there is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time the payment was made.” Such payment is held to be not voluntary and, therefore, can be recovered or refunded. Same; Same; The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it.—Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil Code, x x x When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it. Same; Same; The Government is not exempted from the application of the solutio indebiti principle.— The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of Internal Revenue v. Fireman’s Fund Insurance Company, 148 SCRA 315 (1987), where we held that: “Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich 217 | M s . N o l a i d a A g u i r r e


himself at the expense of another. It goes without saying that the Government is not exempted from the application of this doctrine.” CIR vs. Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377, G.R. No. 66838. December 2, 1991 Feliciano, J. Facts: Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only 15%. Issue: Whether or not P&G Philippines is entitled to the refund or tax credit. Held: YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. However, such tax credit for “taxes deemed paid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the Philippines” applicable against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were met. CASE SYLLABI: Taxation; Claim for Refund; “taxpayer,”-defined.- Since the claim for refund was filed by P&G-Phil., the question which arises is: is P&G-Phil. a "taxpayer" under Section 309 (3) of the NIRC? The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." 2 It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made " personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable 3 for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and 218 | M s . N o l a i d a A g u i r r e


liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him. Same; tax on non-resident foreign corporations; Tax credit- The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation, goes down to fifteen percent (15%) if the country of domicile of the foreign stockholder corporation "shall allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. In other words, in the instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed paid in the Philippines" applicable against the US taxes of P&GUSA. The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines" must, as a minimum, reach an amount equivalent to twenty (20) percentage points which represents the difference between the regular thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax rate. It is important to note that Section 24 (b) (1), NIRC, does not require that the US must give a "deemed paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred divided tax rate of fifteen percent (15%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty (20) percentage points of dividend tax waived by the Philippines. The NIRC only requires that the US "shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines. Same; Same; Same; question of when “deemed paid” tax credit should have been actually granted.—The basic legal issue is this: which is the applicable dividend tax rate in the instance case: the reular 35% rate or the reduced (15%)? he question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid" tax credit in the required amount, relates to the administrative implementation of the applicable reduced tax rate.xxx Section 24 (b) (1), NIRC, does not in fact require that the "deemed paid" tax credit shall have actually been granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). As noted several times earlier, Section 24 (b) (1), NIRC, merely requires, in the case at bar, that the USA "shall allow a credit against the tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . . ." There is neither statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the US Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable. Section 24 (b) (1), NIRC, does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies when a particular (reduced) tax rate is legally applicable. Same; Same; Same; Philippines-United States Convention “With Respect to Taxes on Income “-t remains only to note that under the Philippines-United States Convention "With Respect to Taxes on 219 | M s . N o l a i d a A g u i r r e


Income," 15 the Philippines, by a treaty commitment, reduced the regular rate of dividend tax to a maximum of twenty percent (20%) of the gross amount of dividends paid to US parent corporations.xxx The Tax Convention, at the same time, established a treaty obligation on the part of the United States that it "shall allow" to a US parent corporation receiving dividends from its Philippine subsidiary "a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary] —.16 This is, of course, precisely the "deemed paid" tax credit provided for in Section 902, US Tax Code, discussed above. Clearly, there is here on the part of the Philippines a deliberate undertaking to reduce the regular dividend tax rate of twenty percent (20%) is a maximum rate, there is still a differential or additional reduction of five (5) percentage points which compliance of US law (Section 902) with the requirements of Section 24 (b) (1), NIRC, makes available in respect of dividends from a Philippine subsidiary. Paras. J. Dissenting Civil procedure; parties; withholding agent not real party in interest to claim reimbursement of alleged tax overpayment.-- It is true that private respondent, as withholding agent, is obliged by law to withhold and to pay over to the Philippine government the tax on the income of the taxpayer, PMC-U.S.A. (parent company). However, such fact does not necessarily connote that private respondent is the real party in interest to claim reimbursement of the tax alleged to have been overpaid. Payment of tax is an obligation physically passed off by law on the withholding agent, if any, but the act of claiming tax refund is a right that, in a strict sense, belongs to the taxpayer which is private respondent's parent company. The role or function of PMC-Phils., as the remitter or payor of the dividend income, is merely to insure the collection of the dividend income taxes due to the Philippine government from the taxpayer, "PMC-U.S.A.," the nonresident foreign corporation not engaged in trade or business in the Philippines, as "PMC-U.S.A." is subject to tax equivalent to thirty five percent (35%) of the gross income received from "PMC-Phils." in the Philippines "as . . . dividends . . ." (Sec. 24 [b], Phil. Tax Code). Being a mere withholding agent of the government and the real party in interest being the parent company in the United States, private respondent cannot claim refund of the alleged overpaid taxes. Same; Appeals; Issues raised for the first time on appeal; Government can never be in estoppels- In like manner, petitioner Commissioner of Internal Revenue's failure to raise before the Court of Tax Appeals the issue relating to the real party in interest to claim the refund cannot, and should not, prejudice the government. Such is merely a procedural defect. It is axiomatic that the government can never be in estoppel, particularly in matters involving taxes. Taxation; tax refunds are in the nature of tax exemptions.-- Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law . . . and cannot be permitted to exist upon vague implications.xxx Thus, when tax exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well founded doubt is fatal to the claim. Commissioner of Internal Revenue vs. Smart Communication, Inc., 629 SCRA 342, G.R. Nos. 179045-46. August 25, 2010 220 | M s . N o l a i d a A g u i r r e


Del Castillo, J. Facts: ( Smart entered into an agreement with Prism, a non-resident foreign corporation domiciled in Malaysia, whereby prism will provide programming and consultancy services to smart. Thinking that the payments to Prism were royalties, Smart withheld 25% under the RP-Malaysia tax Treaty. Smart then filed a refund with the BIR alleging that the payments were not subject to Philippine withholding taxes given that they constituted business profits paid to an entity without a permanent establishment in the Philippines. Smart Communications, Inc. (Smart) entered into 3 agreements with Prism Transactive (M) Sdn.Bhd. (Prism), a non-resident Malaysian corporation, under which Prism would provide programming and consultancy services for the installation of the Service Download Manager (SDM Agreement) and the Channel Manager (CM Agreement), and for the installation and implementation of Smart Money and Mobile Banking Service SIM Applications and Private Text Platform (SIM Application Agreement). Prism billed SmartUS$547,822.45. Thinking that the amount constituted royalties, Smart withheld from its payments to Prism the amount ofUS$136,955.61 or P7,008,840.43, representing the 25% royalty tax under the RP-Malaysia Tax Treaty. Within the 2-year period to claim a refund, Smart filed an administrative claim with the Bureau of Internal Revenue(BIR) for the refund of the withheld amount (P7,008,840.43). When the Commissioner of Internal Revenue (CIR) failed to act on its claim, Smart filed a Petition for Review with the Court of Tax Appeals (CTA). Smart averred that its payments to Prism were not royalties but “business profits,” as defined in the RP-Malaysian Tax Treaty, which were not taxable because Prism did not have a permanent establishment in the Philippines. The CIR countered that Smart, as a withholding agent was not a party-in-interest to file the claim for refund, and even if it were the proper party, there was no showing that the payments to Prism constituted “business profits.”

The CTA’s Second Division sustained Smart’s right to file the claim for refund, citing the cases of Commissioner of Internal Revenue vs. Wander Philippines, Inc. [243 Phil. 717 (1988)], Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corporation (G.R. No. 66838, 2 December 1991, 204 SCRA 377) and Commissioner of Internal Revenue vs. The Court of Tax Appeals [G.R. No. 93901, 11 February 1992 (Minute Resolution)]. However, it granted only the refund of the withholding tax on Smart’s payment for the SDM Agreement (P3,989,456.43) because only the payment for the SDM Agreement constituted “royalty” which was subject to withholding tax. The court considered the payments for the CM and SIM Application agreements as “business profits” which were not subject to tax under the RP-Malaysia Tax Treaty. On appeal, the CTA En Banc affirmed its Second Division’s ruling. The CIR, thus, brought the case to the Supreme Court for review, arguing that the cases cited by the CTA in upholding Smart’s right to claim the refund, were inapplicable because the withholding agents therein were wholly owned subsidiaries of the taxpayers, unlike in this case where the withholding agent was unrelated to the taxpayer. The CIR maintained that the proper party to file the refund was the taxpayer, Prism, citing the case of Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal Revenue (G.R. No. 173594, 6 February 2008, 544 SCRA 100). The CIR further argued that assuming Smart was the proper party to file the claim, it was still not entitled to any refund because its payments to Prism were taxable as royalties, having been made in consideration for the use of the programs owned by Prism Issue: 221 | M s . N o l a i d a A g u i r r e


Whether or not Smart have the right to file the claim for refund?

Held: YES. Smart as withholding agent may file a claim for refund. The Court reiterated the ruling in Procter & Gamble stating that a person “liable for tax” has sufficient legal interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the withholding agent is an agent of the beneficial owner of the payments (i.e.., non-resident), the authority as agent is held to include the filing of a claim for refund. The Silkair case held inapplicable as it involved excise taxes and not withholding taxes.

Smart was granted a refund given that only a portion of its payments represented royalties since it is only that portion over which Prism maintained intellectual property rights and the rest involved full transfer of proprietary rights to Smart and were thus treated as business profits of Prism. CASE SYLLABI: Taxation; Tax Refunds; Withholding Tax; Parties; The person entitled to claim a tax refund is the taxpayer, but in case the taxpayer does not file a claim for refund, the withholding agent may file the claim.—The person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not file a claim for refund, the withholding agent may file the claim. In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377 (1991), a withholding agent was considered a proper party to file a claim for refund of the withheld taxes of its foreign parent company. Same; Same; Same; Same; Although the fact that the taxpayer and the withholding agent are related parties is a factor that increases the latter’s legal interest to file a claim for refund, there is nothing in Commissioner of Internal Revenue v. Procter & Gamble Philippines Manufacturing Corporation, 204 SCRA 377 (1991), to suggest that such relationship is required or that the lack of such relation deprives the withholding agent of the right to file a claim for refund—what is clear in the decision is that a withholding agent has a legal right to file a claim for refund.—Petitioner, however, submits that this ruling applies only when the withholding agent and the taxpayer are related parties, i.e., where the withholding agent is a wholly owned subsidiary of the taxpayer. We do not agree. Although such relation between the taxpayer and the withholding agent is a factor that increases the latter’s legal interest to file a claim for refund, there is nothing in the decision to suggest that such relationship is required or that the lack of such relation deprives the withholding agent of the right to file a claim for refund. Rather, what is clear in the decision is that a withholding agent has a legal right to file a claim for refund for two reasons. First, he is considered a “taxpayer” under the NIRC as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. Second, as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring an action for recovery of such claim. Same; Same; Same; Same; Unjust Enrichment; While the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the 222 | M s . N o l a i d a A g u i r r e


principal taxpayer.—In this connection, it is however significant to add that while the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund. Same; Same; RP-Malaysia Tax Treaty; Words and Phrases; “Royalties,” and “Permanent Establishment,” Defined.—Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of any kind received as consideration for: “(i) the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience; (ii) the use of, or the right to use, cinematograph films, or tapes for radio or television broadcasting.” These are taxed at the rate of 25% of the gross amount. Under the same Treaty, the “business profits” of an enterprise of a Contracting State is taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment. The term “permanent establishment” is defined as a fixed place of business where the enterprise is wholly or partly carried on. However, even if there is no fixed place of business, an enterprise of a Contracting State is deemed to have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other State. In the instant case, it was established during the trial that Prism does not have a permanent establishment in the Philippines. Hence, “business profits” derived from Prism’s dealings with respondent are not taxable. The question is whether the payments made to Prism under the SDM, CM, and SIM Application agreements are “business profits” and not royalties. Same; Same; The government has no right to retain what does not belong to it.—The government has no right to retain what does not belong to it. “No one, not even the State, should enrich oneself at the expense of another.” Koppel (Phil.), Inc. vs. Collector of Internal Revenue, 3 SCRA 17, NO. L-10550. September 19, 1961 Paredes, J. Facts: The petitioner, it appears, is a domestic corporation of American capital duly organized and existing by virtue the Philippine laws. During the year 1942 to the early part of 1945, the petitioner sustained losses arising from the occupation of the Philippines by the Japanese Military forces from 1941 to the battle of liberation in 1945. On March 27, 1942, the U.S. Congress passed Public Law 506, (War Damage Insurance Act), to cover insurance of all properties in the Philippines which might be damaged, destroyed or lost due to the operations of war. The petitioner, relying on the provisions of this legislation, entered in its books as "accounts receivable" from the U.S. Government the entire value of its properties damaged, destroyed and lost during World War II. On April 30, 1946, the U.S. Congress enacted Public Law 370 (Philippine Rehabilitation Act of 1946), which provided that the Philippine War Damage Commission supersedes the War Damage Commission. Section 102 of the Public Law 370 states: 223 | M s . N o l a i d a A g u i r r e


. . . . Provided further, that in case the aggregate amount of the claims which would be payable to anyone claimant under the foregoing provisions exceeds $500, the aggregate amount the claims approved in favor of such claimant shall be reduced by 25 per centum of the excess over $500. On January 15, 1947, the U.S.-Philippine War Damage Commission, the agency entrusted with the enforcement of said Public Law 370, issued a notice to the effect that February 25, 1947, was the date agreed upon as the initial date for the issuance of forms for the claimants of war damages and the claims could not be filed until after March 1, 1947. In 1947, the petitioner came to know that its losses equivalent to 25% or P256,054.88 could not be recovered, for which reason petitioner could not claim deduction for said losses in its 1945 and 1946 income tax returns. Petitioner, therefore, in its book of accounts for the year 1947, wrote off as "bad debts" the said amount of P256,054.88. On June 6, 1949, the respondent Collector of Internal Revenue, assessed against the petitioner's income tax for 1947, the sum of P34,636.21, corresponding to the amount of P256,054.88 as war losses sustained and ascertained to be recoverable in 1946. On June 29, 1949, the petitioner paid under protest with the Bureau of Internal Revenue the amount of P34,636.21 (O.R. No. 58094) as alleged deficiency income tax due, based on the disallowed deduction of P256,054.88. Petitioner repeatedly sought from respondent a reconsideration of the assessment and the refund of the amount of P34,636.21 later reduced to P30,726.21, on the ground that said assessment was illegal. The then Secretary of Finance, Pio Pedrosa, on September 11, 1951, sustained petitioner's stand and that of other taxpayers similarly situated, setting rules to be followed. The respondent issued general Circular No. V-123 addressed to all Internal Revenue officers and income tax examiners to apply the rules in the investigation of income tax returns involving war damage losses. On September 21, 1951, petitioner reiterated its demand for the refund of the amount of P30,726.53. Petitioner, on July 28, 1953, received a communication denying the refund of the amount, on the ground that the ruling of Finance Secretary Pedrosa had already been revoked by his successor, Secretary of Finance Aurelio Montinola. On August 27, 1953, petitioner filed a petition for review with the then Board of Tax Appeals (B.T.A. Case No. 157), praying that the respondent be ordered to refund to the petitioner the sum of P30,726.53, to which on September 5, 1953 respondent answered, praying for the dismissal of the case. The case was submitted for decision after the parties had filed their respective memoranda. Notwithstanding the lapse of 60 days from the filing of the petition for review, the Board of Tax Appeals, had not rendered any decision. On November 4, 1953, petitioner gave notice of intention to file an appeal, pursuant to section 21 of Executive Order No. 401-A. On November 13, 1953, petitioner received a copy of the decision of the Board of Tax Appeals dated October 26, 1953, confirming the order of the respondent Collector of Internal Revenue, in denying the refund requested by the petitioner. A petition for review was presented before this Court, being case No. L-5701. In this Court, respondent did not file his brief, instead on April 21, 1954, he presented a motion to dismiss the appeal. On April 29, 1954, this Court dismissed the petitioner's appeal in said case "without prejudice, following the decision in University of Sto. Tomas vs. Board of Tax Appeals, G.R. No. L-6701". On May 18, 1954, petitioner filed a complaint with the Manila Court of First Instance, Civil Case No. 22893, entitled "Koppel (Philippines), Inc. plaintiff v. Collector of Internal Revenue, defendant," praying that the latter be ordered to refund to the former the sum of P30,726.53. Upon motion of the Solicitor General, the Manila Court of First Instance remanded the case to the Court of Tax Appeals, pursuant to section 22 of Rep. Act No. 1125, in which Court, on December 14, 1955, the parties submitted a stipulation of facts. On March 5, 1956, the Court of Tax Appeals rendered a decision, that the petitioner’s cause of action has already prescribed. 224 | M s . N o l a i d a A g u i r r e


Issue: Whether or not a claim of petitioner’s refund has already prescribed. Held: The petitioner is estopped by laches. The record reveals that on June 29, 1949, the petitioner paid to the respondent the deficiency tax in question. From the said date, the two years within which to file an action in court for the recovery of the tax expired on June 29, 1951. Within the said period, the petitioner failed to file an action for refund either in the Court of First Instance or the Board of Tax Appeals, immediately after the creation of the Board under Executive Order No. 401-A promulgated on Jan. 5, 1951. Petitioner just waited for the decision of the respondent Collector of Internal Revenue in its claim for refund, which was handed down on July 28, 1953, after more than four (4) years from payment. It is clearly ruled in the Kiener case that the petitioner should not have folded his arms and wait for the decision, knowing, that the "time for bringing an action for a refund of income tax, fixed by statute, is not extended by the delay of the Collector of Internal Revenue in giving notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656, 51 S. Ct. 284)" (II Arañas, N.I.R. Code p. 719). There was an assessment; the petitioner paid; the petitioner asked for refund; it was denied; a motion for reconsideration was presented and no resolution was forthcoming from the respondent Collector. Aware of the provisions of the law, it was the duty of the petitioner to have urged the respondent for his decision and wake him up from his lethargy or file his action within the time prescribed by law. While it is true that there was a ruling couched in general terms, by the Secretary of Finance on the matter, which was really controversial, because the same was later revoked by another Secretary of Finance, said pronouncement, however, was not a decision by the respondent Collector on the specific controversy relative to the refund of the deficiency tax in question. The court should not give a premium to a litigant who sleeps on his rights. The lawyers of the petitioner may not come now and invoke estoppel when they have been in laches themselves. The government is never estopped by error or mistake on the part of its agents (Pineda, et al. v. CFI and Coll. of Int. Rev., 52 Phil. 803). The reservation made by the Supreme Court in the case No. L-5701 should not be interpreted as permitting the petitioner to file another case under all circumstances, but as the facts and circumstances might warrant under the law. The ruling in the Kiener case is still a sound one, and should be, as it is applied, as a matter of public policy, in the enforcement of tax laws. CASE SYLLABI: Taxation; Income tax; Action for refund; Taxpayer need not wait for collector’s decision; Time for bringing action not extended by delay in giving notice of the rejection of claim.—Knowing that the time for bringing an action for a refund of income tax is not extended by the delay of the Collector of Internal Revenue in giving notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656, 51 S. Ct. 284; II Arañas, N.I.R. Code, p. 719), a taxpayer should not fold his arms and wait for the decision of the Collector before bringing the action for refund (Kiener Co., Ltd. vs. S. David, L-5157, April 22, 1953, 49 O.G. No. 5, 1852). Same; Same; Taxpayer duty bound to file action within the time prescribed by law; Prescription.— Aware of the provisions of the law, it is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or file his action within the time prescribed by law. The petitioner not 225 | M s . N o l a i d a A g u i r r e


having filed his claim within the time fixed by law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps on his rights. Same; Same; Government not estopped by errors of its agents.—Having failed to file his action for refund on time petitioner may not now invoke estoppel when he himself is guilty of laches. The government is never estopped by error or mistake on the part of its agents (Pineda, et al. vs. CFI and Collector of Internal Revenue, 52 Phil. 803). Commissioner of Internal revenue vs . Far East Bank & Trust Company (now Bank of the Philippine Island), 615 SCRA 417, G.R. No. 173854. March 15, 2010 Del Castillo, J. “Entitlement to a tax refund is for the taxpayer to prove and not for the government to disprove. “ Facts: On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two Corporate Annual Income Tax Returns, one for its Corporate Banking Unit (CBU)[4] and another for its Foreign Currency Deposit Unit (FCDU),[5] for the taxable year ending December 31, 1994. The return for the CBU consolidated the respondent’s overall income tax liability for 1994, which reflected a refundable income tax of P12,682,864.00. Pursuant to Section 69[7] of the old National Internal Revenue Code (NIRC), the amount of P12,682,864.00 was carried over and applied against respondent’s income tax liability for the taxable year ending December 31, 1995. On April 15, 1996, respondent filed its 1995 Annual Income Tax Return, which showed a total overpaid income tax in the amount of P17,443,133.00. Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by respondent. As to the remaining P3,798,024.00, respondent opted to carry it over to the next taxable year. On May 17, 1996, respondent filed a claim for refund of the amount of P13,645,109.00 with the BIR. Due to the failure of petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent was compelled to bring the matter to the CTA on April 8, 1997 via a Petition for Review docketed as CTA Case No. 5487. On October 4, 1999, the CTA rendered a Decision denying respondent’s claim for refund on the ground that respondent failed to show that the income derived from rentals and sale of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return. On October 20, 1999, respondent filed a Motion for New Trial based on excusable negligence. It prayed that it be allowed to present additional evidence to support its claim for refund. However, the motion was denied on December 16, 1999 by the CTA. On appeal, the CA reversed the Decision of the CTA. The CA found that respondent has duly proven that the income derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part of the gross income. Hence, this present recourse.



Issue: Whether respondent has proven its entitlement to the refund. Held: We find that the respondent miserably failed to prove its entitlement to the refund. Therefore, we grant the petition filed by the petitioner CIR for being meritorious. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: 1)

The claim must be filed with the CIR within the two-year period from the date of payment of the tax;

2) 3)

It must be shown on the return that the income received was declared as part of the gross income; and The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.[12]

The two-year period requirement is based on Section 229 of the NIRC of 1997 which provides that: SECTION 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Formerly Section 230 of the old NIRC) While the second and third requirements are found under Section 10 of Revenue Regulation No. 6-85, as amended, which reads: Section 10. Claims for tax credit or refund. — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payer to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom. Respondent timely filed its claim for refund. There is no dispute that respondent complied with the first requirement. The filing of respondent’s administrative claim for refund on May 17, 1996 and judicial claim for refund onApril 8, 1997 were well within the two-year period from the date of the filing of the return on April 10, 1995. 227 | M s . N o l a i d a A g u i r r e


Respondent failed to prove that the income derived from rentals and sale of real property were included in the gross income as reflected in its return. To establish the fact of withholding, respondent submitted Certificates of Creditable Tax Withheld at Source and Monthly Remittance Returns of Income Taxes Withheld, which pertain to rentals and sales of real property, respectively. However, a perusal of respondent’s 1994 Annual Income Tax Return shows that the gross income was derived solely from sales of services. In fact, the phrase “NOT APPLICABLE” was printed on the schedules pertaining to rent, sale of real property, and trust income.[16] Thus, based on the entries in the return, the income derived from rentals and sales of real property upon which the creditable taxes were withheld were not included in respondent’s gross income as reflected in its return. Since no income was reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be withheld at the source.[17] Respondent’s explanation that its income derived from rentals and sales of real properties were included in the gross income but were classified as “Other Earnings” in its Schedule of Income[18] attached to the return is not supported by the evidence. There is nothing in the Schedule of Income to show that the income under the heading “Other Earnings” includes income from rentals and sales of real property. No documentary or testimonial evidence was presented by respondent to prove this. In fact, respondent, upon realizing its omission, filed a motion for new trial on the ground of excusable negligence with the CTA. Respondent knew that it had to present additional evidence showing the breakdown of the “Other Earnings” reported in its Schedule of Income attached to the return to prove that the income from rentals and sales of real property were actually included under the heading “Other Earnings.” Respondent failed to present all the Certificates of Creditable Tax Withheld at Source. The CA likewise failed to consider in its Decision the absence of several Certificates of Creditable Tax Withheld at Source. It immediately granted the refund without first verifying whether the fact of withholding was established by the Certificates of Creditable Tax Withheld at Source as required under Section 10 of Revenue Regulation No. 6-85. As correctly pointed out by the CTA, the certifications (Exhibit UU) issued by respondent cannot be considered in the absence of the required Certificates of Creditable Tax Withheld at Source. The burden is on the taxpayer to prove its entitlement to the refund. Moreover, the fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayer’s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer.[20] And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund. [21] Hence, for failing to prove its entitlement to a tax refund, respondent’s claim must be denied. Since tax refunds partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer, evidence in support of a claim must likewise be strictissimi scrutinized and duly proven. CASE SYLLABI: 228 | M s . N o l a i d a A g u i r r e


Taxation; Tax Refund; Requisites for taxpayer claiming for a tax credit or refund of creditable withholding tax.—A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: 1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and 3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld. Same; Same; It is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be withheld at the source.—Based on the entries in the return, the income derived from rentals and sales of real property upon which the creditable taxes were withheld were not included in respondent’s gross income as reflected in its return. Since no income was reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be withheld at the source. Same; Same; It is not the duty of the government to disprove a taxpayer’s claim for refund; the burden of establishing the factual basis of a claim for a refund rests on the taxpayer.—The fact that the petitioner failed to present any evidence or to refute the evidence presented by respondent does not ipso facto entitle the respondent to a tax refund. It is not the duty of the government to disprove a taxpayer’s claim for refund. Rather, the burden of establishing the factual basis of a claim for a refund rests on the taxpayer. Same; Same; There is no automatic grant of a tax refund.—And while the petitioner has the power to make an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers does not create a presumption in favor of the correctness of the returns. The taxpayer must still present substantial evidence to prove his claim for refund. As we have said, there is no automatic grant of a tax refund. Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No. L-23912. March 15, 1968 Fernando, J. Facts: An assessment in the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses “as joint tenants with full rights of survivorship and not as tenants in common” was made by the Commissioner of Internal Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the death of the wife, the above shares being conjugal property. Jose Concepcion, as ancillary administrator of the estate of Mary H. Mitchell-Roberts, and Jack F. Mitchell-Roberts, husband of the deceased, opposed and maintained that there was no transmission of property since under English law, ownership of all property acquired during the marriage vests in the husband, and that the shares of stock were issued to the spouses “as joint tenants with full rights of survivorship and not as tenants in common. Not being agreeable to the theory entertained by the Commissioner of Internal Revenue, Concepcion and Mitchell-Roberts, in CTA Case 168, appealed such a decision under RA 1125. The Court of Tax Appeals, however and on 29 April 1957, 229 | M s . N o l a i d a A g u i r r e


dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of 30 days. That decision became final. On 14 June 1957, Concepcion and Mitchell-Roberts paid the taxes in question amounting to P1,181.33 (as estate tax) and P2,616.10 (as inheritance tax), inclusive of delinquency penalties, and at the same time filed a claim for the refund of said amounts. Without waiting for the decision of the Commissioner of Internal Revenue on the claim for refund, Concepcion and Mitchell-Roberts instituted an appeal with the Court of Tax Appeals on 11 June 1959 in order to avoid the prescriptive period of two years provided for in Section 306 of the Revenue Code. The Court of Tax Appeals ordered the Commissioner of Internal Revenue to refund the inheritance and estate taxes paid in the amount of P3,797.43. The Commissioner filed a petition for review with the Supreme Court. Issue: Whether a taxpayer who had lost his right to dispute the validity of an assessment, the period for appealing to the Court of Tax Appeals having expired, as found by such Court in a previous case in a decision now final, and who thereafter paid under protest could then, relying on Section 306 of the National Internal Revenue Code sue for recovery on the ground of its illegality? Held: No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was reaffirmed categorically in this language: "Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable, And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on the merits. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense." Once the matter has reached the stage of finality in view of the failure to appeal, it logically follows, in the appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could no longer be reopened through the expedient of an appeal from the denial of petitioner's request for cancellation of the warrant of distraint and levy." In the same way then that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment, which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken. Clearly then, the liability of respondent Concepcion as an ancillary administrator of the estate of the deceased wife and of respondent Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate tax and P2,616.10 as inheritance tax was beyond question. Having paid the same, respondents are clearly devoid of any legal right to sue for recovery. CASE SYLLABUS: Taxation; Recovery of tax illegally collected, denied where taxpayer had failed to appeal in due time.— Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose 230 | M s . N o l a i d a A g u i r r e


appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time. Commissioner of Internal Revenue vs. Court of Appeals, 234 SCRA 348, G.R. No. 106611. July 21, 1994 Regalado, J. Facts: In a letter dated August 26, 1986, herein private respondent corporation filed a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate of the excess of its carried-over total quarterly payments over the actual income tax due, plus carried-over withholding tax payments on government securities and rental income, as computed in its final income tax return for the calendar year ending December 31, 1985. 3 Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4 In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does not ipso facto merit a refund. On June 24, 1991, herein petitioner filed with the tax court a manifestation and motion praying for the suspension of the proceedings in the said case on the ground that the claim of Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of the required confirmation receipts which would show whether or not the aforestated amount was actually paid and remitted to the BIR. The tax court rendered its decision, it held that petitioner is entitled to a refund but only for the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in its 1983 income tax return is hereby denied on the ground of prescription. Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking Corp. in the amount of P13,314,506.14 representing the overpaid income taxes for 1984 and 1985, A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole ground that the statements and certificates of taxes allegedly withheld are not conclusive evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental motion for reconsideration was thereafter filed, wherein it was contended for the first time that herein private respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and business taxes covered by Demand/Assessment Notice



Oppositions to both the basic and supplemental motions for reconsideration were filed by private respondent Citytrust. Thereafter, the Court of Tax Appeals issued a resolution denying both motions As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's findings of deficiency income and business tax liabilities against private respondent for the year 1984 bars such payment. Issue: Whether or not private respondent is entitled for a refund. Held: The Court ruled that the case be remanded to the CTA for further proceedings. The Court of Tax Appeals erred in denying petitioner's supplemental motion for reconsideration alleging bringing to said court's attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year. The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund. Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or contained any understatement or undervaluation, no tax collected under such assessment shall be recovered by any suits unless it is proved that the said list, statement, or return was not false nor fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells and mines." Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. 23 This would necessarily require and entail additional efforts and expenses on the part of the Government, impose a burden on and a drain of government funds, and impede or delay the collection of much-needed revenue for governmental operations. 232 | M s . N o l a i d a A g u i r r e


CASE SYLLABI: Administrative Law; The Government is not bound by the errors committed by its governmental agents.—It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Taxation; Taxes are the lifeblood of the nation.—Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government’s financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Same; To award tax refund despite the existence of deficiency assessment is an absurdity.—Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioner’s supplemental motion for reconsideration alleging and bringing to said court’s attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year. Same; The grant of a refund is founded on the assumption that the tax return is valid.—The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund. Same; Actions; Multiplicity of suits; To grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits.—Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and entail additional efforts and expenses on the part of the Government, impose a burden on and a drain of government funds, and impede or delay the collection of much-needed revenue for governmental operations. Vda. de San Agustin vs. Commissioner of Internal Revenue, 364 SCRA 802, G.R. No. 138485. September 10, 2001 Vitug, J. 233 | M s . N o l a i d a A g u i r r e


Facts: The BIR assessed the estate of Atty. Agustin, and the sole heir (herein petitioner) paid the assessed tax on protest and thereafter claimed a refund on appeal. The Commissioner opposed the said petition, alleging that the CTA’s jurisdiction was not properly invoked inasmuch as no claim for a tax refund of the deficiency tax collected was filed with the Bureau of Internal revenue before the petition was filed. Issue: Whether the filing of the claim for refund in this cases is essential before the filing of the petition for review on the matter. Held: NO. The case has a striking resemblance to Roman Catholic Archbishop of Cebu vs CIR (4 SCRA 279). The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the CTA. Then respondent CIR set up several defences, one of which was the petitioner had failed to first file a written claim for refund, pursuant to section 306 (now 229) of the tax code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner’s recourse to it, the CTA dismissed the petition for lack of jurisdiction. On appeal to this court, the Court held: We agree with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing for appeals from `(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue allows an appeal from a decision of the Collector in cases involving `disputed assessments’ as distinguished from cases involving `refunds of internal revenue taxes, fees or other charges, x x x’; that the present action involves a disputed assessment’; because from the time petitioner received assessments Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to forestall the sale of his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities.”



The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer’s appeal to it. CASE SYLLABI: Taxation; Actions; Tax Refunds; To hold that the taxpayer has lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under Section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case—the law should not be interpreted as to result in absurdities.—The case has a striking resemblance to the controversy in Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The petitioner in that case paid under protest the sum of P5,201.52 by way of income tax, surcharge and interest and, forthwith, filed a petition for review before the Court of Tax Appeals. Then respondent Collector (now Commissioner) of Internal Revenue set up several defenses, one of which was that petitioner had failed to first file a written claim for refund, pursuant to Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of a written claim for refund was fatal to petitioner’s recourse to it, the Court of Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this Court, the tax court’s ruling was reversed; the Court held: “We agree with petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing for appeals from—x x x allows an appeal from a decision of the Collector in cases involving ‘disputed assessments’ as distinguished from cases involving ‘refunds of internal revenue taxes, fees or other charges, x x x’; that the present action involves a disputed assessment’; because from the time petitioner received assessments Nos. 17-EC-00301-55 and 17-AC600107-56 disallowing certain deductions claimed by him in his income tax returns for the years 1955 and 1956, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the Court a quo, only to forestall the sale of his properties that had been placed under distraint by the respondent Collector since December 4, 1957. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law, should not be interpreted as to result in absurdities.” The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer’s appeal to it. Same; The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code.—The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the twenty-five percent thereof comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be 235 | M s . N o l a i d a A g u i r r e


subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. Same; Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions.—Regrettably for petitioner, the need for an authority from the probate court in the payment of the deficiency estate tax, over which respondent Commissioner has hardly any control, is not one that can negate the application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions. ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957, G.R. No. 96322. December 20, 1991 Gutierrez, Jr., J. Facts: The petitioner corporation is a domestic corporation engaged in the business of real estate investment and management consultancy. On April 15, 1982, the petitioner corporation filed with the Bureau of Internal Revenue its annual corporate income tax return for the calendar year ending December 31, 1981 reporting a net loss of P2,957,142.00. In the said return, the petitioner corporation declared as creditable all taxes withheld at source by various withholding agents. The withholding agents aforestated paid and remitted the above amounts representing taxes on rental, commission and consultancy income of the petitioner corporation to the Bureau of Internal Revenue from February to December 1981. In a letter dated December 29, 1983 addressed to the respondent Commissioner of Internal Revenue, the petitioner corporation filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld. Pending action of the respondent Commissioner on its claim for refund, the petitioner corporation, on April 13, 1984, filed a petition for review with the respondent Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes. On January 27, 1988, the respondent CTA dismissed the petition for review after a finding that the twoyear period within which the petitioner corporation's claim for refund should have been filed had already prescribed pursuant to Section 292 of the National Internal Revenue Code of 1977, as amended. Acting on the petitioner corporation's motion for reconsideration, the respondent CTA in its resolution dated September 27, 1988 denied the same for having been filed out of time. It ruled that the reckoning date for purposes of counting the two-year prescriptive period within which the petitioner corporation could file a claim for refund was December 31, 1981 when the taxes withheld at source were paid and remitted to the Bureau of Internal Revenue by its withholding agents, not April 15, 1982, the date when the petitioner corporation filed its final adjustment return. On January 14, 1989, the petitioner corporation filed with us its petition for review which we referred to the respondent appellate court in our resolution dated February 15, 1990 for proper determination and disposition. On May 28, 1990, the respondent appellate court affirmed the decision of the respondent CTA 236 | M s . N o l a i d a A g u i r r e


Issue: Whether or not the right of petitioner to claim for refund has already prescribed. Held: Petitioner corporation had until April 15, 1984 within which to file its claim for refund. The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation's filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund. Section 70, subparagraph (b) of the same Code states when the income tax return with respect to taxpayers like the petitioner corporation must be filed. Thus: Sec. 70 (b) Time of filing the income return - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petitioner corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on 15 April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed pursuant to subparagraph (c) of the aforementioned codal provision which reads: Sec. 70 (c) - Time payment of the income tax - The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Sections 68 and 69 shall be paid at the time the declaration or return is filed asprescribed by the Commissioner of Internal Revenue. If we were to uphold the respondent appellate court in making the "date of payment" coincide with the "end of the taxable year," the petitioner corporation at the end of the 1981 taxable year was in no position then to determine whether it was liable or not for the payment of its 1981 income tax. Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that: Section 8. Claims for tax credit or refund — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement, duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid and the amount of tax withheld therefrom. 237 | M s . N o l a i d a A g u i r r e


The term "return" in the case of domestic corporations like ACCRAIN refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986. Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription. It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982. CASE SYLLABUS: Taxation; Prescription of action to claim refund; When two-year prescriptive period commences to run.—Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10,1989 in the case of Commissioner of lnternal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. Commissioner of lnternal Revenue vs. TMX Sales, Inc., 205 SCRA 184, G.R. No. 83736. January 15, 1992 Gutierrez, J. Facts: TMX Sales Inc. filed its quarterly income tax for the 1st quarter of 1981. It declared P571,174.31 and paying an income tax of P247,019 on May 13, 1981. However, during the subsequent quarters, TMX 238 | M s . N o l a i d a A g u i r r e


suffered losses. On April 15, 1982, when TMX filed its Annual Income Tax Return for the year ended in December 31, 1981, it declared a net loss of P6,156,525. On July 9, 1982, TMX filed with the Appellate Division of BIR for refund in the amount of P247,010 representing overpaid income tax. His claim was not acted upon by the Commissioner of Internal Revenue. On May 14, 1984, TMX Sales filed a petition for review before the Court of Tax Appeals against CIR, p raying that the CIR be ordered to refund to TMX the amount of P247,010. The CIR averred that TMX is already barred for claiming the refund since more than 2 years has elapsed between the payment (May 15, 1981) and the filing of the claim in court (March 14, 1984). The Court of Tax Appeals rendered a decision granting the petition of TMX Sales and ordered CIR to refund the amount mentioned. Hence, this appeal of CIR. Issue: Whether or not TMX Sales Inc. is entitled to a refund considering that two years has already elapsed since the payment of the tax Held: Yes. Petition denied. Sec. 292, par. 2 of the National Internal Revenue Code stated that “in any case, no such suit or proceeding shall be begun after the expiration of two years from the date of the payment of the tax or penalty regardless of any supervening cause that may arise after payment.” This should be interpreted in relation to the other provisions of the Tax Code. The most reasonable and logical application of the law would be to compute the 2-year prescriptive period at the time of the filing of the Final Adjustment Return or the Annual Income Tax Return, where it can finally be ascertained if the tax payer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. Since TMX filed the suit on March 14, 1984, it is within the 2-year prescriptive period starting from April 15, 1982 when they filed their Annual Income Tax Return.

StatCon maxim: The intention of the legislature must be ascertained from the whole text of the law and every part of the act is taken into view. CASE SYLLABI: Taxation; Statutory Construction; Interpretatio talis in ambiguis semper frienda est, ut evitatur inconveniens et absurdum; Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted.—Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general 239 | M s . N o l a i d a A g u i r r e


legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al., 73 SCRA 162 [1976]) Every section, provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect contemplated by the legislature. Same; Recovery of tax erroneously or illegally collected; The twoyear prescriptive period provided in Section 292 (now Sec. 230 of the Tax Code) should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.—Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. Same; Same; Prescription; Case at bar; Private respondent TMX Sales, Inc. suit for a refund is not yet barred by prescription.—In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by prescription. Systra Philippines, Inc. vs. Commissioner of Internal Revenue, 533 SCRA 776, G.R. No. 176290. September 21, 2007 Corona, J. Facts: This is a case where a second motion for reconsideration was filed by petitioner. Systra likewise questioned the substantive aspect of CTA decisions. Petitioner had creditable taxes which they opted to carry over to the succeeding year 2001. In 2001 ITR, it indicated that creditable withholding taxes will also be carried over to next year’s tax as credit. However, on August 9, 2001, petitioner instituted a claim for refund of its unutilized creditable withholding taxes. Due to BIR’s inaction, petitioner filed a petition for review. CTA partially granted the petition but denied claim for refund because petitioner was precluded from claiming a refund. Once it was made for a particular taxable period, the option to carry over become irrevocable. Issue: Whether or not the exercise of the option to carry-over excess income tax credits bars a taxpayer from claiming the excess tax credits for refund. Held:



It was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years.” Section 76 of the present tax code formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits “may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years until fully utilized. Nevertheless, the amount will not be forfeited in favor of the government but will remain in the taxpayer’s account.” A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2 options: a. To carry over the excess credit; b. To apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76 of the Tax Code. The phrase “such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and; As a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. CASE SYLLABI: Taxation; Two options in favor of a corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid; Remedies are in the alternative and the choice of one precludes the other; The irrevocability rule embodied in the last sentence of Section 76 of the Tax Code prevents a taxpayer from claiming twice the excess quarterly taxes paid.—A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase “such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters 241 | M s . N o l a i d a A g u i r r e


of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. Sithe Phils. Holdings vs. Commissioner of Internal Revenue, CTA Case No. 6274, April 4, 2003 Acosta, PJ. Facts: Petitioner filed with the BIR its Tentative Corporate Annual ITR for the calendar year ended 31 Dec. 1998, a gross income of P259, 617, 830. And total deductions of P181, 987,048, leaving petitioner with a taxable income amounting to P77, 630, 782.00 and corresponding income tax liability of P26, 394,466.00. Petitioner filed its 1999 tentative CAITR declaring gross income of P47, 246,000.00 and total deductions in the amount of P134, 765,287.00, resulting to a net loss in the amount of P87,519,287.00. Petitioner subsequently flied a reduced income amount, foreign exchange gain amount, and total deductions, leaving petitioner with a taxable income amount of P73, 111,435.00. As of the end of taxable year 1999, petitioner had an aggregate amount of overpaid income tax and unutilized withholding tax credits of P4, 117,343.00. Considering the overpaid income tax and available withholding tax and available withholding tax credits were utilized in 1999, due to petitioner’s loss position, petitioner indicated its intention of filing a claim for refund by marking the appropriate box on the face of the Final Return for the said year. Petitoner filed an administrative claim for refund and/or issuance of tax credit certificate of the overpaid income tax and unutilized withholding tax credit certificate of the overpaid income tax and unutilized withholding tax credits for the taxable years 1998-1999 in the total amount of P4,177,343.00. Failing to obtain an affirmative relief from the respondent on the said administrative claim for refund, petitioner was compelled to elevate the matter before the CTA. Issues: 1. Whether or not the amount of overpaid and unutilized creditable taxes were carried over to the succeeding taxable year. 2. Whether or not Petitioner is entitled to refund and/or credit the amount of the overpayment and unutilized creditable taxes for 1998-1999. Held: 1. Yes, for the year 1998. By the clear wording of Sec. 76 of the NIRC, by the filing, it enables a taxpayer to ascertain whether it has a tax still due or an excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund the excess or overpayment income 242 | M s . N o l a i d a A g u i r r e


tax, then he could carry it over to the succeeding taxable year or he may credit or refund the excess amount paid, as the case may be. When the petitioner opted to carry over its excess tax credit to the succeeding taxable year, it has in effect availed of the privilege allowed only by Section 76. Thus, it is absurd for petitioner to exercise the option to carry over the excess amount paid and on the same breath, invoke the inapplicability of Section 76. 2. Yes, for the year 1999. Fundamental is the rule that in order to be entitled to refund of excess creditable withholding tax at source, petitioner must comply with the following three basic requirements: a. The claim for refund was filed within the 2 year prescriptive period provided under Section 204 (c) in relation to Section 299 b. That the fact of withholding is established by a copy of statement duly issued by the payer (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom c. The income upon which the taxes were withheld were included in the return of the recipient. From the documents submitted, petitioner showed compliance on the aforesaid requirements. It is likewise significant to note that the unutilized creditable withholding tax was no longer carried over to the succeeding taxable year as shown in the petitioner’s 2000 AITR. BPI-Family Savings Bank, Inc. vs. Court of Appeals, 330 SCRA 507, G.R. No. 122480. April 12, 2000 Panganiban, J. Facts: Petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to P 112,491. Petitioner indicated in its 1989 Income tax Return that it would apply the amount as a tax credit for the succeeding taxable year, 1990. However, it did not apply the amount as a tax refund, instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its claim with the CTA. The CTA and CA, denied the claim for tax refund. It opined that since petitioner declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a credit for the following year, it was presumed to have done so and failed to overcome this presumption because it did not present its 1990 Return, which would have shown that the amount in dispute was not applied as a tax credit. Issue: Whether BPI can still opt to claim a tax refund? Held: 243 | M s . N o l a i d a A g u i r r e


YES. The undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently there is no reason for the BIR and this court to withhold the tax refund which rightfully belongs to the petitioner. Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of petitioner. Technicalities a nd legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. CASE SYLLABI: Appeals; As a rule, the factual findings of the appellate court are binding on the Supreme Court; Exceptions.—We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding on this Court. This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. This case is one such exception. Taxation; Court of Tax Appeals; Pleadings and Practice; Procedural Rules; Strict procedural rules generally frown upon the submission of the Tax Return after the trial, but the law creating the Court of Tax Appeals specifically provides that proceedings before it “shall not be governed strictly by the technical rules of evidence”—the paramount consideration remains the ascertainment of truth.—Strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it “shall not be governed strictly by the technical rules of evidence.” The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy. In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error. Same; Tax Refunds; If a taxpayer suffered a net loss in a subsequent year, incurring no tax liability to which a previous year’s tax credit could be applied, there is no reason for the Bureau of Internal Revenue to withhold the tax refund which rightfully belongs to the taxpayer.—It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this 244 | M s . N o l a i d a A g u i r r e


Court. To repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the petitioner. Same; Judicial Notice; Judgments; Courts are not authorized to take judicial notice of the contents of the records of other cases, even when such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been heard or are actually pending before the same judge.—As a rule, “courts are not authorized to take judicial notice of the contents of the records of other cases, even when such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been heard or are actually pending before the same judge.” Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to be known to judges because of their judicial functions. In this case, the Court notes that a copy of the Decision in CTA Case No. 4897 was attached to the Petition for Review filed before this Court. Significantly, respondents do not claim at all that the said Decision was fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision, claiming merely that the Court cannot take judicial notice thereof. Same; Tax Refunds; Rules of Procedure and Technicalities; Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens—if the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes.—Respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. Philam Asset Management, Inc. vs. Commissioner of Internal Revenue, 477 SCRA 761, G.R. Nos. 156637 and 162004. December 14, 2005 Panganiban, J. Facts: On April 3, 1998, petitioner filed its annual corporate income tax return for the taxable year 1997 representing a net loss, [but did not mark the option box provided in the BIR form to signify its intention either to carry over the excess credit or to claim a refund. Consequently, it failed to utilize to utilize the creditable tax withheld. On September 11, 1998, petitioner filed an administrative claim for refund with the BIR (for the) unutilized excess tax credits for calendar year 1997. The claim for refund yielded no action on the part of the BIR. 245 | M s . N o l a i d a A g u i r r e


On April 13, 1999, petitioner filed its Annual Income Tax Return with the BIR for the taxable year 1998 declaring a net loss. It likewise did not signify its intention of either to carry over the excess credit or to claim a refund. Consequently, it filled out the portion “Prior Year’s Excess Credits” in its 1999FAR] Respondent denied the claim of petitioner for a refund of excess taxes withheld in 1997 and 1998, because the latter had not indicated in its ITR for that year whether it was opting for a credit or a refund. According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR. As this option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words, petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments. Issue: Whether Philam is entitled to a tax refund for the taxable years 1997 and 1998. Held: YES for 1997; NO for 1998 as it had already chose tax credit- irrevocability rule applies For TAXABLE YEAR 1997: In the present case, although petitioner did not mark the fund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit, On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to tax refund of its 1997 excess tax credits. For TAXABLE YEAR 1998: the fact that it filled out the portion “Prior Year’s Excess Credits” in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states “Less: Tax Credits/Payments.” The contention that it merely filled out that portion because it was a requirement -- and that to have done otherwise would have been tantamount to falsifying the FAR -- is a long shot. Failure to indicate the amount of “prior year’s excess credits” does not mean falsification by a taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has been -- or will be -- filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes. Second, the resulting redundancy in the claim of petitioner for a refund of its 1998 excess tax credits on November 14, 2000 cannot be countenanced. It cannot be allowed to avail itself of a tax refund and a tax credit at the same time for the same excess income taxes paid. Besides, disallowing it from getting a tax refund of those excess tax credits will not enervate the two-year prescriptive period under the Tax Code. That period will apply if the carry-over option has not been chosen. Besides, “tax refunds x x x are construed strictly against the taxpayer.” Petitioner has failed to meet the burden of proof required in order to establish the factual basis of its claim for a tax refund. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount 246 | M s . N o l a i d a A g u i r r e


will not be forfeited in the government’s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. CASE SYLLABI: Taxation; Section 76 of the National Internal Revenue Code of 1997 offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due—filing for a tax refund, or availing of a tax credit.—This section applies to the first case before the Court. Differently numbered in 1977 but similarly worded 20 years later (1997), Section 76 offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit. The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. Same; The two options under Section 76 of the National Internal Revenue Code are alternative in nature—the choice of one precludes the other.—These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention—whether to request a tax refund or claim a tax credit—by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. Same; Tax Refunds; Failure to signify one’s intention in the Final Adjustment Return (FAR) does not mean outright barring of a valid request for a refund, should one still choose this option later on.—One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. Same; Same; Rationale; The reason for requiring that a choice be made in the Final Adjustment Return (FAR) upon its filing is to ease tax administration, particularly the self-assessment and collection aspects.—The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. Same; Same; Requiring that the Income Tax Return (ITR) or the Final Adjustment Return of the succeeding year be presented to the Bureau of Internal Revenue in requesting a tax refund has no basis in law and jurisprudence.—In the present case, respondent denied the claim of petitioner for a refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence its 1998 ITR, which could have been the basis for determining whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. 247 | M s . N o l a i d a A g u i r r e


Same; Same; To assert any future claim for a tax refund will be instantly hindered by a failure to signify one’s intention in the Final Adjustment Return is to render nugatory the clear provision that allows for a two-year prescriptive period; When circumstances show that a choice of tax credit has been made, it should be respected, but when indubitable circumstances clearly show that another choice—tax refund—is in order, it should be granted.—The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one’s intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period. In fact, in BPIFamily Savings Bank v. CA, this Court even ordered the refund of a taxpayer’s excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice—a tax refund—is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.” Same; Same; Carry-Over Option; A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters.—The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed. Same; Same; Same; The fact that the corporation filled out the portion “Prior Year’s Excess Credits” in the Final Adjustment Return means that it categorically availed itself of the carry-over option; The Final Adjustment Return is the most reliable firsthand evidence of corporate acts pertaining to income taxes; If an application for a tax refund has been—or will be—filed, then that portion of the Bureau of Internal Revenue form should necessarily be blank, even if the Final Adjustment Return of the previous taxable year already shows an overpayment in taxes.—The fact that it filled out the portion “Prior Year’s Excess Credits” in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states “Less: Tax Credits/Payments.” The contention that it merely filled out that portion because it was a requirement—and that to have done otherwise would have been tantamount to falsifying the FAR—is a long shot. The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and deductions from income taxes due. These entries are not without rhyme or reason. They are required, because they facilitate the tax administration process. Failure to indicate the amount of “prior year’s excess credits” does not mean falsification by a taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has been—or will be—filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes. 248 | M s . N o l a i d a A g u i r r e


Same; Same; Same; Following a natural sequence, the prior year’s excess tax credits will have to be reduced first to answer for any current tax liabilities before the current year’s withheld amounts can be applied.—Even if the FIFO principle were to be applied, the tax credits would have to be in consonance with the usual and normal course of events. In fact, the FAR is cumulative in nature. Following a natural sequence, the prior year’s excess tax credits will have to be reduced first to answer for any current tax liabilities before the current year’s withheld amounts can be applied. Otherwise, there will be no sense in requiring a taxpayer to fill out the line items in the FAR to segregate its sources of tax credits. Same; Same; Same; Once the carry-over option is taken, actually or constructively, it becomes irrevocable.—Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carryover option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government’s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. Commissioner of Internal Revenue vs. Bank of the Philippine Islands, 592 SCRA 219, G.R. No. 178490. July 7, 2009 Chico-Nazario, J. Facts: In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over the excess tax credits from the previous years of 1997, 1998 and 1999. However, BPI failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund of or issuance of a tax credit certificate. BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund. The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a Petition for Review before the CTA, whom denied the claim. The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over and apply its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable period and no application for tax refund or issuance of a tax credit shall be allowed for the same. The Court of Appeals reversed the CTA decision stating that there was no actual carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been applied. The Court of Appeals further stated that even if Section 76 was to be construed strictly and literally, the irrevocability rule would still not bar BPI from seeking a tax refund of its 1998 excess tax credit despite previously opting to carry over the same. The phrase “for that taxable period” qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to only the 1999 taxable period; such that, when the 1999 taxable period expired, the irrevocability of the option of BPI to carry over its excess tax credit from 1998 also expired. 249 | M s . N o l a i d a A g u i r r e


Issue: 1. What is the period captured by the irrevocability rule? 2. Whether or not the taxpayer’s failure to mark the option chosen is fatal to whatever claim Held: 1. The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. 2. No. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration (Philam Asset Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14 December 2005). When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. Therefore, as to which option the taxpayer chose is generally a matter of evidence. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.” Doctrines: 1. The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. 2. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice, a tax refund, is in order, it should be granted. As to which option the taxpayer chose is generally a matter of evidence. “Technicalities and legalisms, however exalted, should not be misused by the government to ke ep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.” CASE SYLLABI: Taxation; Tax Credit; The Court stressed in BPI Family that the undisputed fact is that [BPI-Family] suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied.—This Court decided to grant the claim for refund of BPI-Family after finding that the bank had 250 | M s . N o l a i d a A g u i r r e


presented sufficient evidence to prove that it incurred a net loss in 1990 and, thus, had no tax liability to which its tax credit from 1989 could be applied. The Court stressed in BPI Family that “the undisputed fact is that [BPI-Family] suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the [BPI-Family].” It was on the basis of this fact that the Court granted the appeal of BPI-Family, brushing aside all procedural and technical objections to the same through the following pronouncements: Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of this case, we hold that [BPI-Family] has established its claim. [BPI-Family] may have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Same; Irrevocability Rule; Section 76 remains clear and unequivocal; Once the carry-over option is taken, actually or constructively, it becomes irrevocable.—The Court categorically declared in Philam that: “Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable.” It mentioned no exception or qualification to the irrevocability rule. Same; Same; The controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could not longer make another one.—The controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, “no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” Same; Same; Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.—The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit. Same; Tax Refund; It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same.—The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated 251 | M s . N o l a i d a A g u i r r e


that there would be no unjust enrichment in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI. Same; Failure of the taxpayer to make an appropriate marking of its option in the Income Tax Return (ITR) does not automatically mean that the taxpayer has opted for a tax credit.—Failure of the taxpayer to make an appropriate marking of its option in the ITR does not automatically mean that the taxpayer has opted for a tax credit. The Court ratiocinated in G.R. No. 156637 of Philam: One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. Procedural Rules and Technicalities; Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.—Philam reveals a meticulous consideration by the Court of the evidence submitted by the parties and the circumstances surrounding the taxpayer’s option to carry over or claim for refund. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice—a tax refund—is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.” Asia World Properties Philippine Corporation vs. Commissioner of Internal Revenue, 626 SCRA 172, G.R. No. 171766. July 29, 2010 Carpio, J. Facts: Petitioner maintains that the option to carry-over and apply the excess quarterly income tax against the income tax due in the succeeding taxable years is irrevocable only for the next taxable period when the excess payment was carried over. Thus, petitioner posits that the option to carry-over its 1999 excess income tax payment is irrevocable only for the succeeding taxable year 2000 and that for the taxable year 2001, petitioner is not barred from seeking a refund of the unused tax credits carried over from year 1999. Issue: 252 | M s . N o l a i d a A g u i r r e


Whether the petitioner can opt to avail of tax credit. Held: NO. Section 76 of the NIRC of 1997 clearly states: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore.” Section 76 expressly states that “the option shall be considered irrevocable for that taxable period” – referring to the period comprising the “succeeding taxable years.” Section 76 further states that “no application for cash refund or issuance of a tax credit certificate shall be allowed therefore” – referring to “that taxable period” comprising the “succeeding taxable years.”, Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized. CASE SYLLABI: Taxation; Tax Credit; Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years; The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.—Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized. IMPSA Construction Corp. vs Commissioner of Internal Revenue, CTA EB Case No. 685, May 24, 2011 Palanca-Enriquez, J. Facts: IMPSA is a domestic corporation, engaged in the construction business, including design, supply, assembly, erection, commissioning, constructing etc., but limited to projects either primarily foreign funded or registered under the build rehabilitate operate transfer arrangements. IMPSA entered into a Turkney Contrack with CBK for the construction of power plants. For services rendered, petitioner received income payments, which were allegedly subjected to CWT. Petitioner filed with the BIR for ITR for 2001, reflecting the tax liability, as it declared net loss in the amount of P16, 264,545. Petitioner was unable to utilize the reported income tax payment for the first three quarters, and creditable taxes withheld during the year. IMPSA opted to carry-over the income tax overpayment of P93, 341,528.00 as tax credit to the 253 | M s . N o l a i d a A g u i r r e


succeeding year/quarter, by marking the corresponding box in the return. For 2002, there is also an overpayment from IMPSA amounting to P198, 474,515.00, which IMPSA opted to carry-over.

IMPSA however, changed its mind and revised its option, from “Carry-over” to “refunded”. IMPSA then filed with the BIR on 2004, its claims for refund in excess income taxes paid/withheld for taxable year 2001 (93, 341, 528) and 2002-2003 (161, 383, 7476.24). Due to inaction on both claims and in order to toll the running of the two-year prescriptive period, petitioner filed two separate petitions for review. Issue: WHETHER OR NOT IMPSA IS ENTITLED TO A REFUND OF ITS EXCESS INCOME TAX PAYMENTS AND CWT FOR TAXABLE YEARS 2001 & 2002 EVEN IOF THEY OPTED TO CARRY OVER ITS EXCESS CWT Held: No. The taxable corporation with excess quarterly income tax payments may apply for a tax refund or tax credit, but not both. The two options are alternative in nature. The choice of one precludes the other, and the choice of one versus the other is irrevocable for the tax period until fully utilized. Section 76 however allows certain exceptions on the application of the irrevocability rule. One of which is cessation of the business. Petitioner may opt to claim for refund if it previously chose the irrevocable option to carry-over since there is no more opportunity to utilize such excess credits. However, it must be stressed that in order to exclude the company from the application of the irrevocability rule. The termination of the business operation must be permanent in nature. Thus, it must be proven that petitioner’s business permanently ceased to operate. In this case, petitioner admitted that it has not yet been legally dissolved. Commissioner of Internal Revenue vs. Rhombus Energy Incorporated, CTA EB Case No. 803, October 11, 2012 Palanca-Enriquez, J. Facts: Rhombus filed an Annual ITR for taxable year 2005, respondent indicated that its excess creditable withholding tax ("CWT") for the year 2005 was "To be refunded". On May 29, 2006, respondent filed its Quarterly Income Tax Return for the first quarter of taxable year 2006 showing prior year's excess credits ofP1,500,653.00. On August 25, 2006, respondent filed its Quarterly Income Tax Return for the second quarter of taxable year 2006 showing prior year's excess credits ofP1,500,653.00. On November 27, 2006, respondent filed its Quarterly Income Tax Return for the third quarter of taxable year 2006 showing prior year's excess credits ofP1,500,653.00. On December 29, 2006, respondent filed with the Revenue Region No. 8 an administrative claim for refund 254 | M s . N o l a i d a A g u i r r e


of its alleged excess/unutilized CWT for the year 2005 in the amount ofP1,500,653.00. Respondent filed its Annual Income Tax Return for taxable year 2006 showing prior year's excess credits of PO.OO. Pending petitioner's action on respondent's claim for refund or issuance of a tax credit certificate of its excess/unutilized CWT for the year 2005 and before the lapse of the period for filing an appeal, respondent filed the instant Petition for Review. Issues: 1. WHETHER OR NOT RESPONDENT IS ENTITLED TO ITS CLAIM FOR REFUND OF UNUTILIZED CREDIT ABLE WITHHOLDING T AXES IN THE AMOUNT OF P1,500,653.00, FOR TAXABLE YEAR 2005. 2. WHETHER OR NOT RESPONDENT HAD ALREADY EXERCISED ITS OPTION TO CARRY-OVER ITS CLAIM FOR REFUND OF UNUTILIZED CREDIT ABLE WITHHOLDING TAXES Held: Section 76 gives two options to a taxable corporation whose total quarterly income tax payment in a given taxable year exceeds its total income tax due. These options are (1) be credited or refunded either in the form of cash or credit certificate with the excess amount paid; or (2) carry over the excess credit to the succeeding taxable year. The first option works simply by applying for a cash refund or tax credit certificate with the BIR for any tax on income that is paid in excess of the amount due to the government. The second option, on the other hand, works by applying the refundable amount, as shown on the Final Adjustment Return, of the given taxable year, against the income tax liabilities of the succeeding taxable year. Since petitioner incurred a net loss for taxable year 2005, on December 29, 2006, petitioner filed with Revenue Region 8 an administrative claim for refund of its excess creditable withholding tax for calendar year 2005 in the amount of P1,500,653.00 (Exhibit "!"). In effect, petitioner availed o f the first option provided in Section 76 o f the NIRC of1997, as amended. However, a perusal of petitioner's Quarterly Income Tax Return for the first quarter of taxable year 2006 (Exhibit "DD'') shows that petitioner carried over its unutilized creditable withholding tax for taxable year 2005 in the amount ofP1,500,653.00, subject of the present petition for refund or issuance of a TCC. Also, a perusal of petitioner’s Quarterly Income Tax Return for the second quarter of taxable year 2006 (Exhibit "EE'') shows that petitioner again carried over its unutilized creditable withholding tax for taxable year 2005 in the amount ofP1,500,653.00, subject of the present petition for refund or issuance of a TCC. Likewise, petitioner's Quarterly Income Tax Return for the third quarter of taxable year 2006 (Exhibit "FF") shows that petitioner carried over its unutilized creditable withholding tax for taxable year 2005 in the amount of Pl,500,653.00, subject of the present petition for refund or issuance ofa TCC. It bears stressing that the last paragraph of Section 76 of the NIRC of 1997, as amended, provides that once 255 | M s . N o l a i d a A g u i r r e


the option to carry-over and apply the excess quarterly income tax against income due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance o f a TCC shall be allowed therefore. Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 363 SCRA 840, G.R. No. 144653. August 28, 2001 Mendoza, J. Facts: Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1, 1985, the Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its leased properties and interest from its treasury notes for the period January 1 to June 30, 1985. As required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent of the rental income, in the amount of P118,609.17, while the Central Bank, from which the treasury notes were purchased by FBTC, withheld P55,456.60 from the interest earned thereon. Creditable withholding taxes in the total amount of P174,065.77 were remitted to respondent Commissioner of Internal Revenue. FBTC, however, suffered a net loss of about P64,000,000.00 during the period in question. It also had an excess credit of P2,146,072.57 from the previous year. Thus, upon its dissolution in 1985, FBTC had a refundable amount of P2,320,138.34, representing that year’s tax credit of P174,065.77 and the previous year’s excess credit of P2,146,072.57. As FBTC’s successor-in-interest, petitioner BPI claimed this amount as tax refund, but respondent Commissioner of Internal Revenue refunded only the amount of P2,146,072.57, leaving a balance of P174,065.77. Accordingly, petitioner filed a petition for review in the Court of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid amount. [2] However, in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioner’s petition for review and denied its claim for refund on the ground that the claim had already prescribed. [3] In its resolution, dated August 4, 1995, the Court of Tax Appeals denied petitioner’s motion for reconsideration. [4] Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000, the appeals court affirmed the decision of the CTA.[5] The appeals court subsequently denied petitioner’s motion for reconsideration.[6] Hence this petition. Issue: Whether petitioner’s claim is barred by prescription. Held: After due consideration of the parties’ arguments, we are of the opinion that, in case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by §78 of the Tax Code. Accordingly, we hold that petitioner’s claim for refund is barred by prescription. First. Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited 256 | M s . N o l a i d a A g u i r r e


figures.[7] Hence, this Court has ruled that, at the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return. [8] This Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its income tax return within thirty days after the cessation of its business or thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of the Tax Code and under Sec. 244 of Revenue Regulation No. 2. . .[9] As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under §78 of the Tax Code. It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months after it ceased its operations, before filing its income tax return. Thus, §46(a) of the Tax Code applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, §78 of the Tax Code applies. It is a rule of statutory construction that “[w]here there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.”[10] Second. Petitioner contends that what §78 required was an information return, not an income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting Commissioner of Internal Revenue Ruben B. Ancheta, referring to an “information return” in interpreting Executive Order No. 1026, which amended §78.[12] The contention has no merit. The circular in question must be considered merely as an administrative interpretation of the law which in no case is binding on the courts.[13] The opinion in question cannot be given any effect inasmuch as it is contrary to §244 of Revenue Regulation No. 2, as amended, which was issued by the Minister of Finance pursuant to the authority granted to him by §78 of the Tax Code. This provision states: Sec. 244. Return of corporations contemplating dissolution or retiring from business.— All corporations, partnership, joint accounts and associations, contemplating dissolution or retiring from business without formal dissolution shall, within 30 days after the approval of such resolution authorizing their dissolution, and within the same period after their retirement from business, file their income tax returns covering the profit earned or business done by them from the beginning of the year up to the date of such dissolution or retirement and pay the corresponding income tax due thereon upon demand by the Commissioner of Internal Revenue. . . This regulation prevails over the memorandum circular of the Acting Commissioner of Internal Revenue, which petitioner invokes.



Thus, as required by §244 of Revenue Regulation No. 2, any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code limited the return to be filed by the corporation concerned to a mere information return. It is noteworthy that §78 of the Tax Code was substantially reproduced first in §45(c), of the amendments to the same Tax Code, and later in §52(C) of the National Internal Revenue Code of 1997. Through all the re-enactments of the law, there has been no change in the authority granted to the Secretary (formerly Minister) of Finance to require corporations to submit such other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in existence prior to these amendments. Had Congress intended only information returns, it would have expressly provided so. Third. Considering that §78 of the Tax Code, in relation to §244 of Revenue Regulation No. 2, applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with §292 of the Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the two-year period of prescription ended on July 30, 1987. As petitioner’s claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear that the claim is barred by prescription. CASE SYLLABI: Taxation; Tax Refunds; Prescription; Corporation Law; In case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by §78 of the Tax Code.—After due consideration of the parties’ arguments, we are of the opinion that, in case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by §78 of the Tax Code. Accordingly, we hold that petitioner’s claim for refund is barred by prescription. Same; Same; Same; At the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.—Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that, at the earliest, the twoyear prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return. Same; Same; Same; §46(a) of the Tax Code applies only to instances in which the corporation remain s subsisting and its business operations are continuing.—As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final Adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to six months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under §78 of the Tax Code. It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months after it ceased its operations, 258 | M s . N o l a i d a A g u i r r e


before filing its income tax return. Thus, §46(a) of the Tax Code applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, §78 of the Tax Code applies. It is a rule of statutory construction that “[w]here there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.” Same; Same; Separation of Powers; Debatable questions are for the legislature to decide—the courts do not sit to resolve the merits of conflicting issues.—Petitioner cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following §78 of the Tax Code, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000. Suffice it to say that such a situation may likewise be remedied by resort to §47 of the Tax Code. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by §78 of the Tax Code. In any case, as held in Commissioner of Internal Revenue v. Santos, “Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.” Same; Same; Same; Corporation Law; Any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue.—Thus, as required by §244 of Revenue Regulation No. 2, any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code limited the return to be filed by the corporation concerned to a mere information return. Commissioner of Internal Revenue vs. Philippine National Bank, 474 SCRA 303, G.R. No. 161997. October 25, 2005 Garcia, J. Facts: PNB requested the BIR to issue a tax credit certificate (TCC) on the remaining balance of the advance income tax payment it made in 1991. It should be noted that the request was made considering that, while PNB carried over such credit balance to the succeeding taxable years, i. e., 1992 to 1996, its negative tax position during said tax period prevented it from actually applying the credit balance of P73,298,892.60. Petitioner first scores the CA for concluding that “the amount of advance income tax payment voluntarily remitted to the BIR by the respondent was not a consequence of a prior tax assessment or computation by the taxpayer based on business income” and, therefore, it cannot “ be treated as similar to those national revenue taxes erroneously, illegally or wrongfully paid as to be automatically covered by the two (2) year 259 | M s . N o l a i d a A g u i r r e


limitation under section 230 of the NIRC for the right to its recovery.” Petitioner invokes the all toofamiliar principle that the collection of taxes, being the lifeblood of the nation. Issue: Whether PNB is entitled to a tax refund Held: YES. It is fairly correct to say that the claim for tax credit was specifically pursued to enable the respondent bank to utilize the same for future tax liabilities. In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period. The instant case ought to be distinguished from a situation where, owing to net losses suffered during a taxable year, a corporation was also unable to apply to its income tax liability taxes which the law requires to be withheld and remitted. In the latter instance, such creditable withholding taxes, albeit also legally collected, are in the nature of “erroneously collected taxes” which entitled the corporate taxpayer to a refund under Section 230 of the Tax Code. Analyzing the underlying reason behind the advance payment made by respondent PNB in 1991, the CA held that it would be improper to treat the same as erroneous, wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code. So that even if the respondent’s inability to carry-over the remaining amount of its advance payment to taxable years 1992 to 1996 resulted in excess credit, it would be inequitable to impose the two (2)-year prescriptive period in Section 230 as to bar PNB’s claim for tax credit to utilize the same for future tax liabilities. It bears stressing that respondent PNB remitted the P180 Million in question as a measure of goodwill and patriotism, a gesture noblesse oblige, so to speak, to help the cash-strapped national government. It would thus indeed, be unfair, as the CA correctly observed, to leave respondent PNB to suffer losing millions of pesos advanced by it for future tax liabilities. The cut becomes all the more painful when it is considered that PNB’s failure to apply the balance of such advance income tax payment from 1992 to 1996 was, to repeat, due to business downturn experienced by the bank so that it incurred no tax liability for the period. CASE SYLLABI: Taxation; Actions; No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, . . . , or of any sum, alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.— The core issue in this case pivots on the applicability hereto of the two (2)-year prescriptive period under in 260 | M s . N o l a i d a A g u i r r e


Section 230 (now Sec. 229) of the NIRC, reading: “SEC. 230. Recovery of tax erroneously or illegally collected.—No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, . . , or of any sum, alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two [(2)] years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Same; Same; Statutes; Words and Phrases; Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected. Black defines the term erroneous or illegal tax as one levied without statutory authority.—Section 230 of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected. Black defines the term erroneous or illegal tax as one levied without statutory authority. In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period. Same; Same; In Commissioner of Internal Revenue vs. Philippine American Insurance Co., 244 SCRA 446 (1995), the Supreme Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period.—In Commissioner vs. Phil-Am Life, the Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the Tax Code or special laws, that period would be ten (10) years under Article 1144 of the Civil Code. Significantly, Commissioner vs. PhilAm is partly a reiteration of a previous holding that even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances. Same; Same; Courts; Court of Tax Appeals; Appeals; The rule of long standing is that the Supreme Court will not set aside lightly the conclusions reached by the Court of Tax Appeals (CTA) which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.—The rule of long standing is that the Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. It is likewise settled that to a claimant rests the onus to establish the 261 | M s . N o l a i d a A g u i r r e


factual basis of his or her claim for tax credit or refund. In this case, however, petitioner does not dispute that a portion of the P180 Million PNB remitted to the BIR in 1991 as advance payment remains unutilized for the purpose for which it was intended in the first place. But petitioner asserts that respondent’s right to recover the same is already time-barred. The CTA upheld the position of petitioner. The CA ruled otherwise. We find the CA’s position more in accord with the facts on record and is consistent with applicable laws and jurisprudence. Civil Procedure; Forum Shopping; A party ought to invoke the issue of forum shopping, assuming its presence, at the first opportunity in his motion to dismiss or similar pleading filed in the trial court.— Petitioner presently faults the CA for not having taken notice that PNB’s initiatory pleading before the CTA suffers from an infirmity that justifies the dismissal thereof. But it is evident that the issue of forum shopping is being raised for the first time in this appellate proceedings. Accordingly, the Court loathes to accommodate petitioner’s urging for the dismissal of respondent’s basic claim on the forum shopping angle. As earlier ruled by this Court, a party ought to invoke the issue of forum shopping, assuming its presence, at the first opportunity in his motion to dismiss or similar pleading filed in the trial court. Else, he is barred from raising the ground of forum shopping in the Court of Appeals and in this Court. So it must be here. Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue, 19 SCRA 790, No. L -23611. April 24, 1967 Bengzon, J. 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 effecct 262 | M s . N o l a i d a A g u i r r e


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. CASE SYLLABI: Taxation; Franchise tax; Section 259 of the Tax Code is constitutional—The constitutionality of collecting franchise tax at the rate of 5% of the gross receipts as provided for in Section 259 of the Tax Code, instead of at the lower rate fixed by the franchise granted under Act 667, is a settled matter. Same; Statutes; Law governing assessment for deficiency franchise tax.—Where the Commissioner of Internal Revenue seeks to recover from the taxpayer an amount which was erroneously ref unded to the latter as excess f ranchise tax, said amount is in effect an assessment for deficiency franchise tax. And being so, the right to assess or collect it is governed by Section 331 of the Tax Code rather than by Article 1145 of the New Civil Code. A special law (Tax Code) prevails over a general law (New Civil Code). Same; Prescription of franchise tax.—Deficiency franchise taxes for the period prior to January 1, 1956 cannot be assessed and collected in March, 1961 inasmuch as the five-year prescriptive period for assessing and collecting the same had already expired, Same; Imposition of surcharge; Presence of good faith.—Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed by its franchise, it is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.



JURISDICTION OF THE COURT OF TAX APPEALS Philippine Refining Company vs. Court of Appeals, 256 SCRA 667, G.R. No. 118794. May 8, 1996 Regalado, J. ------------supra---------CASE SYLLABI: Same; Same; Administrative Law; The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases and, through its expertise, it is undeniably competent to determine the issue of whether or not the debt is deductible through the evidence presented before it.— The contentions of PRC that nobody is in a better position to determine when an obligation becomes a bad debt than the creditor itself, and that its judgment should not be substituted by that of respondent court as it is PRC which has the facilities in ascertaining the collectibility or uncollectibility of these debts, are presumptuous and uncalled for. The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether or not the debt is deductible through the evidence presented before it. Same; Same; Same; The findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part.—Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination. Were it not, therefore, due to the desire of this Court to satisfy petitioner’s calls for clarification and to use this case as a vehicle for exemplification, this appeal could very well have been summarily dismissed. Asia International Auctioneers, Inc. vs. Parayno, Jr., 540 SCRA 536, G.R. No. 163445. December 18, 2007 Puno, CJ. Facts: Then CIR Guillermo L. Parayno, Jr. and herein respondent, issued Revenue Memorandum Circular (RMC) No. 31-2003 setting the "Uniform Guidelines on the Taxation of Imported Motor Vehicles through the Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction." The petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of RMC No. 31-2003 for being unconstitutional and an ultra vires act. The RTC granted TRO and a preliminary injunction pending the determination of constitutionality. In response, the respondents filed with the CA a petition for certiorari under Rule 65 of the Rules of Court with prayer for the issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin the trial court from exercising jurisdiction over the case. The same was granted and the CA declared the RTC of Olongapo City bereft of jurisdiction and the TRO and preliminary injunction issued by the same null and void. The CA held that the proper court with 264 | M s . N o l a i d a A g u i r r e


jurisdiction over the matter is the CTA and not the RTC. Hence, the petitioners filed this petition. Petitioners contend that jurisdiction over the case at bar properly pertains to the regular courts as this is "an action to declare as unconstitutional, void”. They explain that they "do not challenge the rate, structure or figures of the imposed taxes, rather they challenge the authority of the respondent Commissioner to impose and collect the said taxes." They claim that the challenge on the authority of the CIR to issue the RMCs does not fall within the jurisdiction of the Court of Tax Appeals (CTA). Issue: Does CTA have jurisdiction to decide the case? Held: The Court ruled in the affirmative. RMCs are considered administrative rulings which are issued from time to time by the CIR. In the case at bar, the assailed revenue regulations and revenue regulations and revenue memorandum circulars are actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the SSEZ to implement Section 12 of RA No. 7227 which provides that “exportation or removal of goods from the territory of the SSEZ to the other parts of the Philippine territory shall be subject to Customs and Tariff Code and other relevant tax laws of the Philippines.” They were issued pursuant to the power of the CIR under Section 4 of the National Internal Revenue Code. Petitioner’s failure to ask for a CIR for a reconsideration of the assailed revenue regulations and RMCs is another reason why the instant case should be dismissed. It is settled that the premature invocation of the court’s intervention is fatal to one’s cause of action. If a remedy within the administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must first be exhausted before the court’s power of judicial review van be sought. The party with an administrative remedy must not only initiate the prescribed administrative procedure to obtain relief but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to the court. CASE SYLLABI: Actions; Jurisdictions; Words and Phrases; Jurisdiction is defined as the power and authority of a court to hear, try and decide a case, and courts may take cognizance of the issue even if not raised by the parties themselves—there is thus no reason to preclude the Court of Appeals from ruling on said issue even if allegedly the same has not yet been resolved by the trial court.—Jurisdiction is defined as the power and authority of a court to hear, try and decide a case. The issue is so basic that it may be raised at any stage of the proceedings, even on appeal. In fact, courts may take cognizance of the issue even if not raised by the parties themselves. There is thus no reason to preclude the CA from ruling on this issue even if allegedly, the same has not yet been resolved by the trial court. Administrative Law; Court of Tax Appeals; Jurisdictions; Revenue Memorandum Circulars (RMCs) are considered administrative rulings which are issued from time to time by the Commissioner of Internal Revenue, and subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.—R.A. No. 1125, as amended, states: Sec. 7. Jurisdiction.—The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided—(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, 265 | M s . N o l a i d a A g u i r r e


penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; x x x (emphases supplied) We have held that RMCs are considered administrative rulings which are issued from time to time by the Same; Same; Exhaustion of Administrative Remedies; It is settled that the premature invocation of the court’s intervention is fatal to one’s cause of action—if a remedy within the administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must first be exhausted before the court’s power of judicial review can be sought.—Petitioners’ failure to ask the CIR for a reconsideration of the assailed revenue regulations and RMCs is another reason why the instant case should be dismissed. It is settled that the premature invocation of the court’s intervention is fatal to one’s cause of action. If a remedy within the administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must first be exhausted before the court’s power of judicial review can be sought. The party with an administrative remedy must not only initiate the prescribed administrative procedure to obtain relief but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to the court. British American Tobacco vs. Camacho, 562 SCRA 511, G.R. No. 163583. August 20, 2008 Ynares-Santiago, J. Facts: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted. In June 2001 British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for the purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to 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 price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Thus filed before the Regional Trial Court (RTC) of Makati, Branch 61, and a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of 266 | M s . N o l a i d a A g u i r r e


Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. The trial court rendered a decision upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 222003 and Revenue Memorandum Order No. 6-2003. On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene with attached Comment-in-Intervention. This was followed by the Motions for Leave to Intervene of Fortune Tobacco Corporation, Mighty Corporation, and JT International, S.A., with their respective Comments-in-Intervention. The Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the Court on the constitutionality of Section 145 of the NIRC and its Annex “D” because they are manufacturers of cigarette brands which are included in the said Annex. Hence, their intervention is proper since the protection of their interest cannot be addressed in a separate proceeding. According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net retail price as of December 31, 2003 now enjoy the same status quo provision that prevents the BIR from reclassifying cigarettes included in Annex “D.” It added that the Court has no power to pass upon the wisdom of the legislature in retaining Annex “D” in RA 9334; and that the nullification of said Annex would bring about tremendous loss of revenue to the government, chaos in the collection of taxes, illicit trade of cigarettes, and cause decline in cigarette demand to the detriment of the farmers who depend on the tobacco industry. Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of Section 145 and its implementing rules and regulations because it entered into the cigarette industry fully aware of the existing tax system and its consequences. Petitioner imported cigarettes into the country knowing that its suggested retail price, which will be the initial basis of its tax classification, will be confirmed and validated through a survey by the BIR to determine the correct tax that would be levied on its cigarettes. Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes. On August 7, 2006, the OSG manifested that it interposes no objection to the motions for intervention. Therefore, considering the substantial interest of the intervenors, and in the higher interest of justice, the Court admits their intervention. Issues: 1. Whether or not Fortune Tobacco is correct that petitioner should have filed the petition in the CTA instead of RTC; 2. Whether or not Sec 145 of the NIRC violates the equal protection clause and uniformity of taxation clauses; and 3. Whether or not Revenue Regulation are invalid insofar as they empower BIR to reclassify and update the classification of new brands every two years or earlier. Held:



1. The CTA has no jurisdiction to rule on the constitutionality of BIR issuances. The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part: Sec. 7. Jurisdiction. — The CTA shall exercise: a.

Exclusive appellate jurisdiction to review by appeal, as herein provided:

1.

Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2.

Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; xxx.[25]

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. 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. 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. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.[26] In Drilon v. Lim,[27] it was held: We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality of 268 | M s . N o l a i d a A g u i r r e


a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of whether the assailed law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. 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.[28] Petitioner, therefore, properly filed the subject case before the RTC. 2. Section 145 of the National Internal Revenue Code is Constitutional. In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the four-fold test has been met in the present case. As held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It has been held that "in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest. Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply to future conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarette brands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brand from its operation nor single out a brand for the purpose of imposition of excise taxes. 3. The Revenue Regulation is invalid. In order to implement RA 8240 following its effectively on January 1, 1997, the BIR issued Revenue Regulations No. 1-97, dated December 13, 1996, which mandates a one-time classification only.[79] Upon their launch, new brands shall be initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted within three (3) months to determine their current net retail prices and, thus, fix their official tax classifications. However, the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated February 17, 2003, which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier) based on their current net retail 269 | M s . N o l a i d a A g u i r r e


prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, dated March 11, 2003, prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003. This was patent error on the part of the BIR for being contrary to the plain text and legislative intent of RA 8240. It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former. CASE SYLLABUS: Court of Tax Appeals; Jurisdiction; Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same.—The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part: x x x While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. 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. 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. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. Negros Consolidated Farmers Association Multi-Purpose Cooperative vs. Commissioner of Internal Revenue, CTA Case No. 7994, February 17, 2012, and Resolution on the Motion for Reconsideration promulgated on March 24, 2012 Acosta, PJ. Facts: Respondent submits that CTA erred in ruling that it has jurisdiction to rule on the validity of Revenue Regulations No. 13-2008 issued by the Commissioner of Internal Revenue. Issue: Whether or not the CTA has a jurisdiction to rule on the validity of revenue regulations. 270 | M s . N o l a i d a A g u i r r e


Held: The Motion for Reconsideration is devoid of merit. As already emphasized in the assailed Decision, this Court is of the opinion that it has jurisdiction to rule on the validity of a rule or regulation issued by the Bureau of Internal Revenue, in this case, Revenue Regulations No. 13-2008 which was issued in the exercise of the Commissioner's power to make rulings or opinions in connection with the implementation of the provisions of the National Internal Revenue Code, in particular, Section 109 thereof. Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals [CTA for brevity]), as amended, such rulings of the Commissioner of Internal Revenue are appealable to that court, thus: "SEC. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; xxx xxx xxx." (Emphasis added) "SEC. 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, or the Commissioner of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. xxx xxx xxx." (Emphasis added) "SEC. 18. . . . — No judicial proceeding against the Government involving matters arising under the National Internal Revenue Code, the Customs Law or the Assessment Law shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the Court of Tax Appeals and disposed of in accordance with the xxx xxx xxx." (Emphasis added) The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled: "Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely an attempt to nullify General Circular No. V-148, which does not adjudicate or settle any controversy, and that, accordingly, this case is not within the jurisdiction of the Court of Tax Appeals. "We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection of taxes and license fees to adhere strictly to the interpretation given by the defendant to the statutory provisions abovementioned, as set forth in the Circular. The same incorporates, therefore, a decision of the Collector of Internal Revenue (now Commissioner of Internal Revenue) on the manner of enforcement of the said statute, the administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it comes within the purview of Republic Act No. 1125, Section 7 of which provides that the Court of Tax Appeals 'shall exercise exclusive appellate jurisdiction to review by appeal . . . decisions 271 | M s . N o l a i d a A g u i r r e


of the Collector of Internal Revenue in . .. matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue.' . . ." (Emphasis added) Contrast with the case cited by respondent in support of the Motion for Partial Reconsideration, specifically the case of British American Tobacco vs. Jose Isidro Camacho, et al. (G.R. No. 163583, August 20, 2008), the constitutionality of Republic Act (RA) No. 8424 and RA 9334, including the implementing regulations, viz.: Revenue Regulations Nos. 1-97, 9-2003, and 22-2003 and Revenue Memorandum Order No. 6-2003 were raised and the Supreme Court ruled that the jurisdiction of the Court of Tax Appeals does not include cases where the constitutionality of a law or rule is challenged. Clearly, in the case at bar, no question on constitutionality is raised. Anent respondent's claim that the Court of Tax Appeals' Second Division had ruled in the case of Commissioner of Internal Revenue vs. United Cadiz Sugar Farmers Association Multi-Purpose Cooperative, that it had no jurisdiction to rule on the validity of RR No. 13-2008 "as it does not indicate that the Court of Tax Appeals' jurisdiction includes the power to decide or rule on the validity of a rule or Republic Act No. 1125, as amended by Republic Act Nos. 3457, 9282, and 9503." Suffice it to say that the decision of its co-division is not binding on this Court which is co-equal to the other. Further, it must be stressed that judicial decisions that form part of our legal system are only the decisions of the Supreme Court and not of the appellate courts. St. Paul College of San Rafael vs. Commissioner of Internal Revenue Court of Tax Appeals (En Banc) EB No. 874 promulgated May 27, 2013 Facts: On December 13, 2010, Respondent Commissioner of Internal Revenue (CIR) issued BIR Ruling No. 1432010, which held that Petitioner St. Paul College of San Rafael (SPC) may be held liable for DST on school diplomas. On January 13, 2011, SPC filed a Petition for Review with the Court of Tax Appeals (CTA) praying for the reversal of BIR Ruling No. 143-2010. On June 19, 2011, the Court in Division dismissed SPC’s petition on the ground of failure to exhaust administrative remedies and lack of jurisdiction. Upon denial of its Motion for Reconsideration, SPC appealed to the CTA En Banc. Issues: 1. Did SPC fail to exhaust the administrative remedies prescribed by law? 2. Does the CTA have jurisdiction to reverse the ruling of the CIR? Held: 1. Yes. SPC failed to exhaust the administrative remedies before seeking judicial intervention. The proper remedy was to file an appeal with the Secretary of Finance. Section 4 of the Tax Code provides that the Secretary of Finance has the power to review rulings of the CIR interpreting the provisions of the Tax Code and other tax laws. The Secretary of Finance issued Department Order No. 23-01 prescribing the guidelines for appeal by taxpayers of adverse rulings issued by the CIR. Under the said order, a taxpayer may seek the review of an adverse ruling issued by the CIR within 30 days from receipt thereof.



SPC’s claim that it is exempt from the rule on exhaustion of administrative remedies as the petition allegedly raises purely questions of law has no merit. The Supreme Court previously ruled that a party cannot, in the guise of raising pure questions of law, seek judicial intervention without exhausting the available administrative remedies. The premature invocation of the court’s intervention is lethal to one’s cause of action. In the absence of waiver or estoppel, the case can be dismissed for failure to state a cause of action. 2. No. The CTA has no jurisdiction to rule on the validity or constitutionality of a rule, regulation or ruling issued by the CIR. The Supreme Court previously ruled that while the law confers on the CT jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. The determination of whether a set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Adamson vs. Court of Appeals, 588 SCRA 27, G.R. No. 120935 & G.R. No. 124557. May 21, 2009 3. Puno, CJ. ----------supra----------Dispositive portion: Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as amended, the rulings of the Commissioner are appealable to the CTA, thus: SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; Republic Act No. 8424, titled “An Act Amending the National Internal Revenue Code, As Amended, And for Other Purposes,” later expanded the jurisdiction of the Commissioner and, correspondingly, that of the CTA, thus: SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. – The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.



The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282. [26] It provides: SEC. 7. Section 7 of the same Act is hereby amended to read as follows: Sec. 7. Jurisdiction. — The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; (3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; xxx (b) Jurisdiction over cases involving criminal offenses as herein provided: (1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: 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. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized. (2) Exclusive appellate jurisdiction in criminal offenses:



(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. (c) Jurisdiction over tax collection cases as herein provided: (1) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court. (2) Exclusive appellate jurisdiction in tax collection cases: (a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction. These laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents. CASE SYLLABUS: Same; Court of Tax Appeals; Republic Act Nos. 8424 and 9282, even as they expanded the jurisdiction of the Court of Tax Appeals (CTA), did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the National Internal Revenue Code (NIRC).—These laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents. 275 | M s . N o l a i d a A g u i r r e


Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines, Inc., 635 SCRA 162, G.R. No. 169225. November 17, 2010 Leonardo- De Castro, J. Facts: Petitioner argues that the CTA had no jurisdiction over the case since the CTA itself had ruled that the assessment had become final and unappealable. Citing Protector’s Services Inc. V. CA, the CIR argued that, after the lapse of the 30-day period to protest, respondent may no longer dispute the correctness of the assessment and its appeal to the CTA should be dismissed. The CIR took issue with the CTA’s pronouncement that it had jurisdiction to decide “other matters” related to the tax assessment such as the issue on the right to collect the same since the CIR maintains that when the law says that the CTA has jurisdiction over “other matters’’, it presupposes that the tax assessment has not become final and unappealable. Issue: Whether the CTA has jurisdiction to take cognizance of the case at bar.

Held: The CTA has jurisdiction. We cannot countenance the CIR’s assertion with regard to this point. The jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the term “other matters” referred to by the CIR in its argument can be found in number (1) of the aforementioned provision, to wit: Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided – 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law as part of law administered by the Bureau of Internal Revenue. The assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision upon which petitioner’s theory with regard to the parameters of the term “other matters” can be supported or even deduced. What is rather clearly apparent, however, is that the term “other matters” is limited only by the qualifying phrase that follows it. Thus, on the strength of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal Revenue (BIR). The CTA law clearly bestows jurisdiction to the CTA even on “other matters arising under the National Internal Revenue Code”. Thus, the issue of whether the right of the CIR to collect has prescribed, collection being one of the duties of the BIR, is considered covered by the term “other matters”. The fact 276 | M s . N o l a i d a A g u i r r e


that assessment has become final for failure to protest only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, this issue is entirely distinct from the issue of whether the right to collect has in fact prescribed. The Court ruled that the right to collect has indeed prescribed since there was no proof that the request for reinvestigation was in fact granted/acted upon by the CIR. Thus, the period to collect was never suspended. CASE SYLLABI: Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the Court of Tax Appeals (CTA) is not limited to cases which involve decisions of the Commissioner of Internal Revenue (CIR) on matters relating to assessments or refunds.-- the assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision upon which petitioner’s theory with regard to the parameters of the term “other matters” can be supported or even deduced. What is rather clearly apparent, however, is that the term “other matters” is limited only by the qualifying phrase that follows it. Thus, on the strength of such observation, we have previously ruled that the appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws administered by the Bureau of Internal Revenue (BIR). Same; Same; Under Section 3, 1986 of NIRC, the issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters’ over which the Court of tax Appeals has appellate jurisdiction.-- the issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters” over which the CTA has appellate jurisdiction. Same; Same; the phraseology of section 7, number (1), denotes an intent to review the CTA’s jurisdiction over disputed assessments and over “other matters’’ arising under the NIRC or other laws administered by the BIR as separate and independent of each other.-- the phraseology of Section 7, number (1), denotes an intent to view the CTA’s jurisdiction over disputed assessments and over “other matters” arising under the NIRC or other laws administered by the BIR as separate and independent of each other. This runs counter to petitioner’s theory that the latter is qualified by the status of the former, i.e., an “other matter” must not be a final and unappealable tax assessment or, alternatively, must be a disputed assessment. Same; Same; The mere existence of an adverse decision, ruling or inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the CTA.-- the first paragraph of Section 11 of Republic Act No. 1125,as amended by Republic Act No. 9282, belies petitioner’s assertion as the provision is explicit that, for as long as a party is adversely affected by any decision, ruling or inaction of petitioner, said party may file an appeal with the CTA within 30 days from receipt of such decision or ruling. The wording of the provision does not take into account the CIR’s restrictive interpretation as it clearly provides that the mere existence of an adverse decision, ruling or inaction along with the timely filing of an appeal operates to validate the exercise of jurisdiction by the CTA. City of Manila vs. Judge Grecia-Cuerdo, G.R. No. 175723, February 4, 2014 Peralta, J. Facts: 277 | M s . N o l a i d a A g u i r r e


On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the complaint denominated as one for “Refund or Recovery of Illegally and/or Erroneously–Collected Local Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction” which was docketed as Civil Case No. 04–0019–CFM before public respondent’s sala [at Branch 112]. In its Order3 dated July 9, 2004, the RTC granted private respondents’ application for a writ of preliminary injunction. Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004. Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and October 15, 2004 Orders of the RTC.6 In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners’ petition for certiorari holding that it has no jurisdiction over the said petition. The CA ruled that since appellate jurisdiction over private respondents’ complaint for tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals (CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case should, likewise, be filed with the CTA. Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November 29, 2006. Issue: Whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case. Held: The Court rules in the affirmative. On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a collegiate court with special jurisdiction. Pertinent portions of the amendatory act provides thus: Sec. 7. Jurisdiction. – The CTA shall exercise: Exclusive appellate jurisdiction to review by appeal, as herein provided: xxxx 3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of BP 129.



The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases. Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as partial, not total. In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the inherent powers of a court of justice. Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to the due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted powers; and include the power to maintain the court’s jurisdiction and render it effective in behalf of the litigants. 38 Thus, this Court has held that “while a court may be expressly granted the incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted court has power to do all things that are reasonably necessary for the administration of justice within the scope of its jurisdiction and for the enforcement of its judgments and mandates.”39 Hence, demands, matters or questions ancillary or incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of by the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the court may thus be called on to consider and decide matters which, as original causes of action, would not be within its cognizance.40 Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction. CASE SYLLABI: 279 | M s . N o l a i d a A g u i r r e


Taxation; The CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued by the RTC in a local tax case. -In order for any appellate court to effectively exercise its appellate jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the transfer should only be considered as partial, not total. Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo, et al. [118 Phil. 1022 (1963)] that “if a case may be appealed to a particular court or judicial tribunal or body, then said court or judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate jurisdiction.” This principle was affirmed in De Jesus v. Court of Appeals (G.R. No. 101630, August 24, 1992) where the Court stated that “a court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal or writ of error, the final orders or decisions of the lower court.”

ABATEMENT OF TAX/ TAX COMPROMISE Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No. 159694. January 27, 2006 Panganiban, CJ. -----------supra---------In this case the Court ruled that the assessment notice against the estate of the decease is invalid. Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise. Fact: In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment. Issue: Whether or not the compromise entered into is valid. 280 | M s . N o l a i d a A g u i r r e


Held: The Court affirmed the decision of the CA. Ruling of the Court of Appeals In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the law on which they were based; otherwise, they were deemed void.[6] The appellate court held that while administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them.[7] Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality. The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of the estate’s tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum rates, the National Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine qua non to the perfection and consummation of any compromise.[8] Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or not.[9] Where the law did not distinguish, courts too should not distinguish. Hence, this Petition. [10] It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos distingueredebemos. Where the law does not distinguish, we should not distinguish.

*********END OF PART I*********


Tax 2 Case Digests Part 1 Remedies Under the NIRC of Atty. Lock's Syllabus Complete

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