CASES FOR DIGEST PART I.docx

7/26/2019 CASES FOR DIGEST PART I.docx

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FIRST DIVISION

G.R. No. L-28896, February 17, 1988

COMMISSIONER OF INTERNL REVEN!E, "ETITIONER, VS.LG!E, INC., ND T#E CO!RT OF T$ ""ELS,

RES"ONDENTS.

D E C I S I O N

CR!%, &.'

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 asany arbitrariness will negate the very reason for governmentitself. It is therefore necessary to reconcile the apparentlyconicting interests of the authorities and the taxpayers sothat the real purpose of taxation, which is the promotion ofthe common good, may be achieved.

The main issue in this case is whether or not the Collector ofInternal Revenue correctly disallowed the !",###.##deduction claimed by private respondent $lgue as legitimatebusiness expenses in its income tax returns. The corollaryissue is whether or not the appeal of the private respondentfrom the decision of the Collector of Internal Revenue wasmade on time and in accordance with law.

%e deal &rst with the procedural 'uestion.

The record shows that on (anuary )*, )+", the privaterespondent, a domestic corporation engaged in engineering,construction and other allied activities, received a letterfrom the petitioner assessing it in the total amount of-,)-.-" as delin'uency income taxes for the years )+"-and )+"+./)0On (anuary )-, )+", $lgue &led a letter of


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protest or re'uest for reconsideration, which letter wasstamp1received on the same day in the o2ice of thepetitioner./30On 4arch )3, )+", a warrant of distraint andlevy was presented to the private respondent, through its

counsel, $tty. $lberto 5uevara, (r., who refused to receive iton the ground of the pending protest./0$ search of theprotest in the doc6ets of the case proved fruitless. $tty.5uevara produced his &le copy and gave a photostat to 7IRagent Ramon Reyes, who deferred service of the warrant./*0On $pril !, )+", $tty. 5uevara was &nally informed that the7IR was not ta6ing any action on the protest and it was onlythen that he accepted the warrant of distraint and levyearlier sought to be served./"08ixteen days later, on $pril 3,

)+", $lgue &led a petition for review of the decision of theCommissioner of Internal Revenue with the Court of Tax$ppeals./0

The above chronology shows that the petition was &ledseasonably. $ccording to Rep. $ct 9o. ))3", the appeal maybe made within thirty days after receipt of the decision orruling challenged./!0It is true that as a rule the warrant ofdistraint and levy is :proof of the &nality of theassessment:/-0and :renders hopeless a re'uest forreconsideration,:/+0being :tantamount to an outright denialthereof and ma6es the said re'uest deemed re;ected.:/)#07utthere is a special circumstance in the case at bar thatprevents application of this accepted doctrine.

The proven fact is that four days after the privaterespondent received the petitioneruring the intervening period, the warrant waspremature and could therefore not be served.


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$s the Court of Tax $ppeals correctly noted,/))0the protest&led by private respondent was not pro formaand was basedon strong legal considerations. It thus had the e2ect of

suspending on (anuary )-, )+", when it was &led, thereglementary period which started on the date theassessment was received, vi?., (anuary )*, )+". The periodstarted running again only on $pril !, )+", when theprivate respondent was de&nitely informed of the impliedre;ection of the said protest and the warrant was &nallyserved on it. @ence, when the appeal was &led on $pril 3,)+", only 3# days of the reglementary period had beenconsumed.

9ow for the substantive 'uestion.

The petitioner contends that the claimed deduction of!",###.## was properly disallowed because it was not anordinary, reasonable or necessary business expense. TheCourt of Tax $ppeals had seen it di2erently. $greeing with$lgue, it held that the said amount had been legitimatelypaid by the private respondent for actual services rendered.The payment was in the form of promotional fees. Thesewere collected by the payees for their wor6 in the creation ofthe Aegetable Oil Investment Corporation of the hilippinesand its subse'uent purchase of the properties of thehilippine 8ugar Bstate >evelopment Company.

arenthetically, it may be observed that the petitioner hadoriginally claimed these promotional fees to be personal

holding company income/)30

but later conformed to thedecision of the respondent court re;ecting this assertion./)0In fact, as the said court found, the amount was earnedthrough the ;oint e2orts of the persons among whom it wasdistributed. It has been established that the hilippine 8ugarBstate >evelopment Company had earlier appointed $lgueas its agent, authori?ing it to sell its land, factories and oil


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manufacturing process. ursuant to such authority, $lberto5uevara, (r., Bduardo 5uevara, Isabel 5uevara, Bdith ODarell, and ablo 8anche? wor6ed for the formation of theAegetable Oil Investment Corporation, inducing other

persons to invest in it./)*0

Eltimately, after its incorporationlargely through the promotion of the said persons, this newcorporation purchased the 8B>C properties./)"0Dor thissale, $lgue received as agent a commission of )3",###.##,and it was from this commission that the !",###.##promotional fees were paid to the aforenamed individuals./)0

There is no dispute that the payees duly reported theirrespective shares of the fees in their income tax returns and

paid the corresponding taxes thereon./)!0The Court of Tax$ppeals also found, after examining the evidence, that nodistribution of dividends was involved./)-0

The petitioner claims that these payments are &ctitiousbecause most of the payees are members of the same familyin control of $lgue. It is argued that no indication was madeas to how such payments were made, whether by chec6 or incash, and there is not enough substantiation of suchpayments. In short, the petitioner suggests a tax dodge, anattempt to evade a legitimate assessment by invo6ing animaginary deduction.

%e &nd that these suspicions were ade'uately met by theprivate respondent when its resident, $lberto 5uevara, andthe accountant, Cecilia A. de (esus, testi&ed that thepayments were not made in one lump sum but periodically

and in di2erent amounts as each payee


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everything seemed to be informal. This arrangement wasunderstandable, however, in view of the close relationshipamong the persons in the family corporation.

%e agree with the respondent court that the amount of thepromotional fees was not excessive. The total commissionpaid by the hilippine 8ugar Bstate >evelopment Co. to theprivate respondent was )3",###.##./3)0$fter deducting thesaid fees, $lgue still had a balance of "#,###.## as clearpro&t from the transaction. The amount of !",###.## was#F of the total commission. This was a reasonableproportion, considering that it was the payees who didpractically everything, from the formation of the Aegetable

Oil Investment Corporation to the actual purchase by it ofthe 8ugar Bstate properties.

This &nding of the respondent court is in accord with thefollowing provision of the Tax CodeG:8BC. #.Deductions from gross income.1 In computing netincome there shall be allowed as deductions 1

HaExpenses:

H)In general.1 $ll the ordinary and necessary expenses paidor incurred during the taxable year in carrying on any tradeor business, including a reasonable allowance for salaries orother compensation for personal services actually rendered=x x x:/330

and Revenue Regulations 9o. 3, 8ection !# H), reading asfollowsG

:8BC. !#. Compensation for personal services.1 $mong theordinary and necessary expenses paid or incurred incarrying on any trade or business may be included areasonable allowance for salaries or other compensation forpersonal services actually rendered. The test of deductibilityin the case of compensation payments is whether they are


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reasonable and are, in fact, payments purely for service. Thistest and its practical application may be further stated andillustrated as followsG

:$ny amount paid in the form of compensation, but not infact as the purchase price of services, is not deductible. Ha$n ostensible salary paid by a corporation may be adistribution of a dividend on stoc6. This is li6ely to occur inthe case of a corporation having few stoc6holders,practically all of whom draw salaries. If in such a case thesalaries are in excess of those ordinarily paid for similarservices, and the excessive payment correspond or bear aclose relationship to the stoc6holdings of the o2icers of

employees, it would seem li6ely that the salaries are not paidwholly for services rendered, but the excessive payments area distribution of earnings upon the stoc6. x x x:Hromulgated Deb. )), )+), # O.5. 9o. )-, 3".

It is worth noting at this point that most of the payees werenot in the regular employ of $lgue nor were they itscontrolling stoc6holders./30

The 8olicitor 5eneral is correct when he says that theburden is on the taxpayer to prove the validity of the claimeddeduction. In the present case, however, we &nd that theonus has been discharged satisfactorily. The privaterespondent has proved that the payment of the fees wasnecessary and reasonable in the light of the e2orts exertedby the payees in inducing investors and prominentbusinessmen to venture in an experimental enterprise and

involve themselves in a new business re'uiring millions ofpesos. This was no mean feat and should be, as it was,su2iciently recompensed.

It is said that taxes are what we pay for civili?ed society.%ithout taxes, the government would be paraly?ed for lac6of the motive power to activate and operate it. @ence,


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despite the natural reluctance to surrender part of one


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SECOND DIVISION

G.R. No. 682)2, May 26, 199)

COMMISSIONER OF INTERNL REVEN!E, "ETITIONER, VS.TO*(O S#I""ING CO. LTD., RE"RESENTED +( SORIMONT

STEMS#I" GENCIES, INC., ND CO!RT OF T$""ELS, RES"ONDENTS.

D E C I S I O N

"!NO, &.'

Dor resolution is whether or not private respondent To6yo8hipping Co. Jtd., is entitled to a refund or tax credit foramounts representing pre1payment of income and commoncarrierecember )+-#, 9$8ETR$/30chartered 4KA5ardenia to load ),"## metric tons of raw sugar in thehilippines./0On >ecember 3, )+-#, 4r. Bdilberto Jising,the operations supervisor of 8oriamont $gency,/*0paid there'uired income and common carrier DIAB@E9>RB> T%B9TL1T@RBB B8O8 and 8BAB9TL1DIABCB9T$AO8 H"+,"3.!" and DORTL18BAB9 T@OE8$9>

8IM @E9>RB> 9I9BTBB9 B8O8 H*!,)+.##, or a totalof O9B @E9>RB> 8BAB9 T@OE8$9> O9B @E9>RB>DORTL1T%O B8O8 and 8BAB9TL1DIAB CB9T$AO8H)#!,)*3.!" based on the expected gross receipts of thevessel./"0Epon arriving, however, at 5uimaras ort of Iloilo,the vessel found no sugar for loading. On (anuary )#, )+-),9$8ETR$ and private respondent


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to have the vessel sail for (apan without any cargo.

Claiming the pre1payment of income and common carrierRB> 8BAB9T@OE8$9> O9B @E9>RB> DORTL1T%O B8O8 and8BAB9TL1DIAB CB9T$AO8 H)#!,)*3.!" before petitionerCommissioner of Internal Revenue on 4arch 3, )+-).etitioner failed to act promptly on the claim, hence, on 4ay)*, )+-), private respondent &led a petition for review/0before public respondent Court of Tax $ppeals.

etitioner contested the petition. $s special and a2irmativedefenses, it alleged, the followingG that taxes are presumedto have been collected in accordance with law= that in anaction for refund, the burden of proof is upon the taxpayer toshow that taxes are erroneously or illegally collected, andthe taxpayer


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investigating petitioner


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etitioner now contendsG H) private respondent has theburden of proof to support its claim of refund= H3 it failed toprove that it did not reali?e any receipt from its charter

agreement= and H it suppressed evidence when it did notpresent its charter agreement.

%e &nd no merit in the petition.

There is no dispute about the applicable law. It is section 3*HbH3 of the 9ational Internal Revenue Code which at thattime provides as followsG

:$ corporation organi?ed, authori?ed, or existing under thelaws of any foreign country, engaged in trade or businesswithin the hilippines, shall be taxable as provided insubsection Ha of this section upon the total net incomederived in the preceding taxable year from all sources withinthe hilippinesG rovided, however, That internationalcarriers shall pay a tax of two and one1half per cent H3 )K3Fon their gross hilippine billingsG


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%e agree with petitioner that a claim for refund is in thenature of a claim for exemption/-0and should be construed inr0 ur against the taxpayer./+0Ji6ewise, there

can be no disagreement with petitioner


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the petition even if it did not present evidence at all. Theinsincerity of petitionerecision and for good reason.Taxpayers owe honesty to government ;ust as government

owes fairness to taxpayers.

In its last e2ort to retain the money erroneously prepaid bythe private respondent, petitioner contends that privaterespondent suppressed evidence when it did not present itscharter agreement with 9$8ETR$. The contention cannotsucceed. It presupposes without any basis that the charteragreement is pre;udicial evidence against the privaterespondent./)#0$llegedly, it will show that private respondent

earned a charter fee with or without transporting itssupposed cargo from Iloilo to (apan. The allegation simplyremained an allegation and no court of ;ustice will regard itas truth. 4oreover, the charter agreement could have beenpresented by petitioner itself thru the proper use of asubpoena duces tecum. It never did either because ofneglect or because it 6new it would be of no help to bolsterits position./))0Dor whatever reason, the petitioner cannotta6e to tas6 the private respondent for not presenting whatit mista6enly calls :suppressed evidence.:

%e cannot but bewail the unyielding stance ta6en by thegovernment in refusing to refund the sum of O9B@E9>RB> 8BAB9 T@OE8$9> O9B @E9>RB> DORTLT%O B8O8 $9> 8BAB9TL DIAB CB9T$AO8 H)#!,)*3.!"erroneously prepaid by private respondent. The tax waspaid way bac6 in )+-# and despite the clear showing that it

was erroneously paid, the government succeeded in delayingits refund for &fteen H)" years. $fter &fteen H)" long yearsand the expenses of litigation, the money that will be &nallyrefunded to the private respondent is ;ust worth a damagednic6el. This is not, however, the 6ind of success thegovernment, especially the 7IR, needs to increase itscollection of taxes. Dair deal is expected by our taxpayers


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from the 7IR and the duty demands that 7IR should refundwithout any unreasonable delay what it has erroneouslycollectedG Our ruling in Roa 4. Cour o Ta //ea:/)30isapropos to recallG

:The power of taxation is sometimes called also the power todestroy. Therefore it should be exercised with caution tominimi?e in;ury to the proprietary rights of a taxpayer. Itmust be exercised fairly, e'ually and uniformly, lest the taxcollector 6ill the


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T#IRD DIVISION

G.R. No. 122


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$lso assailed is the 9ovember -, )++" C$ Resolution/"0denying reconsideration.

The Dacts

The facts of this case were summari?ed by the C$ in thiswiseG:This case involves a claim for tax refund in the amount of))3,*+).## representing petitioners tax withheld for theyear )+-+.

In its Corporate $nnual Income Tax Return for the year)+-+, the following items are reectedG

Income ),#)!,+),-).##>eductions ),#3,3)-,!+).##9et IncomeHJoss H-,3-,+#.##

TaxableIncomeHJoss

-,3-,+#.##

JessG

)+--TaxCredit

)-",##).##

)+-+TaxCredit

))3,*+).##

TOT$J$4OE9T

3+!,*+3.##

RBDE9>$7JB

:It appears from the foregoing )+-+ Income Tax Return thatpetitioner had a total refundable amount of 3+!,*+3inclusive of the ))3,*+).## being claimed as tax refund in


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the present case. @owever, petitioner declared in the same)+-+ Income Tax Return that the said total refundableamount of 3+!,*+3.## will be applied as tax credit to thesucceeding taxable year.

:On October )), )++#, petitioner &led a written claim forrefund in the amount of ))3,*+).## with the respondentCommissioner of Internal Revenue alleging that it did notapply the )+-+ refundable amount of 3+!,*+3.## Hincluding))3,*+).## to its )++# $nnual Income Tax Return or othertax liabilities due to the alleged business losses it incurredfor the same year.

:%ithout waiting for respondent Commissioner of InternalRevenue to act on the claim for refund, petitioner &led apetition for review with respondent Court of Tax $ppeals,see6ing the refund of the amount of ))3,*+).##.

:The respondent Court of Tax $ppeals dismissed petitionerspetition on the ground that petitioner failed to present asevidence its Corporate $nnual Income Tax Return for )++#to establish the fact that petitioner had not yet credited theamount of 3+!,*+3.## Hinclusive of the amount ))3,*+).##which is the sub;ect of the present controversy to its )++#income tax liability.

:etitioner &led a motion for reconsideration, however, thesame was denied by respondent court in its Resolution dated4ay , )++*.:/0

$s earlier noted, the C$ a2irmed the CT$. @ence, this

etition./!0

Ruling of the Court of $ppeals

In a2irming the CT$, the Court of $ppeals ruled as followsG:It is incumbent upon the petitioner to show proof that it hasnot credited to its )++# $nnual income Tax Return, the


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amount of 3+!,*+3.## Hincluding ))3,*+).##, so as torefute its previous declaration in the )+-+ Income TaxReturn that the said amount will be applied as a tax credit inthe succeeding year of )++#. @aving failed to submit such

re'uirement, there is no basis to grant the claim for refund.x x x

:Tax refunds are in the nature of tax exemptions. $s such,they are regarded as in derogation of sovereign authorityand to be construed strictissimi +urisagainst the person orentity claiming the exemption. In other words, the burden ofproof rests upon the taxpayer to establish by su2icient andcompetent evidence its entitlement to the claim for

refund.:/-0Issue

In their 4emorandum, respondents identify the issue in thiswiseG:The sole issue to be resolved is whether or not petitioner isentitled to the refund of ))3,*+).##, representing excesscreditable withholding tax paid for the taxable year )+-+.: /+0

The Courts Ruling

The etition is meritorious.

Ma3 Iue'Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxesfor the year )+-+ and was thus entitled to a refund

amounting to ))3,*+). ursuant to 8ection +/)#0

of the)+- Tax Code which states that a corporation entitled to arefund may opt either H) to obtain such refund or H3 tocredit said amount for the succeeding taxable year,petitioner indicated in its )+-+ Income Tax Return that itwould apply the said amount as a tax credit for thesucceeding taxable year, )++#. 8ubse'uently, petitioner


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informed the 7ureau of Internal Revenue H7IR that it wouldclaim the amount as a tax refund, instead of applying it as atax credit. %hen no action from the 7IR was forthcoming,petitioner &led its claim with the Court of Tax $ppeals.

The CT$ and the C$, however, denied the claim for taxrefund. 8ince petitioner declared in its )+-+ Income TaxReturn that it would apply the excess withholding tax as atax credit for the following year, the Tax Court held thatpetitioner was presumed to have done so. The CT$ and theC$ ruled that petitioner failed to overcome this presumptionbecause it did not present its )++# Return, which wouldhave shown that the amount in dispute was not applied as a

tax credit. @ence, the C$ concluded that petitioner was notentitled to a tax refund.

%e disagree with the Court of $ppeals. $s a rule, the factual&ndings of the appellate court are binding on this Court.This rule, however, does not apply where, inter alia, the;udgment is premised on a misapprehension of facts, orwhen the appellate court failed to notice certain relevantfacts which if considered would ;ustify a di2erent conclusion./))0This case is one such exception.

In the &rst place, petitioner presented evidence to prove itsclaim that it did not apply the amount as a tax credit. >uringthe trial before the CT$, 4s. Lolanda Bsmundo, the managerof petitioners accounting department, testi&ed to this fact.It li6ewise presented its claim for refund and a certi&cationissued by 4r. 5il Jope?, petitioners vice1president, stating

that the amount of ))3,*+) :has not been andKor will not beautomatically creditedKo2set against any succeeding'uarters income tax liabilities for the rest of the calendaryear ending >ecember ), )++#.: $lso presented were the'uarterly returns for the &rst two 'uarters of )++#.

The 7ureau of Internal Revenue, for its part, failed to


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controvert petitioners claim. In fact, it presented noevidence at all. 7ecause it ought to 6now the tax records ofall taxpayers, the CIR could have easily disprovedpetitioners claim. To repeat, it did not do so.

4ore important, a copy of the Dinal $d;ustment Return for)++# was attached to petitioners 4otion forReconsideration &led before the CT$./)30$ &nal ad;ustmentreturn shows whether a corporation incurred a loss orgained a pro&t during the taxable year. In this case, thatReturn clearly showed that petitioner incurred "3,*-#,)!as net loss in )++#. Clearly, it could not have applied theamount in dispute as a tax credit.

$gain, the 7IR did not controvert the veracity of the saidreturn. It did not even &le an opposition to petitioners4otion and the )++# Dinal $d;ustment Return attachedthereto. In denying the 4otion for Reconsideration, however,the CT$ ignored the said Return. In the same vein, the C$did not pass upon that signi&cant document.

True, strict procedural rules generally frown upon thesubmission of the Return after the trial. The law creating theCourt of Tax $ppeals, however, speci&cally provides thatproceedings before it :shall not be governed strictly by thetechnical rules of evidence.:/)0The paramount considerationremains the ascertainment of truth. Aerily, the 'uest fororderly presentation of issues is not an absolute. It shouldnot bar courts from considering undisputed facts to arrive ata ;ust determination of a controversy.

In the present case, the Return attached to the 4otion forReconsideration clearly showed that petitioner su2ered a netloss in )++#. Contrary to the holding of the C$ and the CT$,petitioner could not have applied the amount as a tax credit.In failing to consider the said Return, as well as the otherdocumentary evidence presented during the trial, the


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appellate court committed a reversible error.

It should be stressed that the rationale of the rules ofprocedure is to secure a ;ust determination of every action.

They are tools designed to facilitate the attainment of;ustice./)*07ut there can be no ;ust determination of thepresent action if we ignore, on grounds of strict technicality,the Return submitted before the CT$ and even before thisCourt./)"0To repeat, the undisputed fact is that petitionersu2ered a net loss in )++#= accordingly, it incurred no taxliability to which the tax credit could be applied.Conse'uently, there is no reason for the 7IR and this Courtto withhold the tax refund which rightfully belongs to the

petitioner.

ublic respondents maintain that what was attached topetitioners 4otion for Reconsideration was not the &nalad;ustment Return, but petitioners &rst two 'uarterlyreturns for )++#./)0This allegation is wrong. $n examinationof the records shows that the )++# Dinal $d;ustment Returnwas attached to the 4otion for Reconsideration. On theother hand, the two 'uarterly returns for )++# mentioned byrespondent were in fact attached to the etition for Review&led before the CT$. Indeed, to rebut respondents speci&ccontention, petitioner submitted before us its 8urre;oinder,to which was attached the 4otion for Reconsideration andBxhibit :$: thereof, the Dinal $d;ustment Return for )++#./)!0

CT$ Case No. -/

etitioner also calls the attention of this Court, as it haddone before the CT$, to a >ecision rendered by the TaxCourt in CT$ Case 9o. *-+!, involving its claim for refundfor the year )++#. In that case, the Tax Court held that:petitioner su2ered a net loss for the taxable year )++# x xx.:/)-0Respondent, however, urges this Court not to ta6e;udicial notice of the said case./)+0


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$s a rule, :courts are not authori?ed to ta6e ;udicial notice ofthe contents of the records of other cases, even when suchcases have been tried or are pending in the same court, and

notwithstanding the fact that both cases may have beenheard or are actually pending before the same ;udge.:/3#0

7e that as it may, 8ection 3, Rule )3+ provides that courtsmay ta6e ;udicial notice of matters ought to be 6nown to;udges because of their ;udicial functions. In this case, theCourt notes that a copy of the >ecision in CT$ Case 9o.*-+! was attached to the etition for Review &led before thisCourt. 8igni&cantly, respondents do not claim at all that the

said >ecision was fraudulent or nonexistent. Indeed, they donot even dispute the contents of the said >ecision, claimingmerely that the Court cannot ta6e ;udicial notice thereof.

To our mind, respondents reasoning underscores thewea6ness of their case. Dor if they had really believed thatpetitioner is not entitled to a tax refund, they could haveeasily proved that it did not su2er any loss in )++#. Indeed,it is noteworthy that respondents opted notto assail thefactappearing therein 11 that petitioner su2ered a net loss in)++# in the same way that it refusedto controvert thesame factestablished by petitioners other documentaryexhibits.

In any event, the >ecision in CT$ Case 9o. *-+! is not thesole basis of petitioners case. It is merely one more bit ofinformation showing the star6 truthG petitioner did not use

its )+-+ refund to pay its taxes for )++#.Dinally, respondents argue that tax refunds are in the natureof tax exemptions and are to be construed strictissimi +urisagainst the claimant. Ender the facts of this case, we holdthat petitioner has established its claim. etitioner may havefailed to strictly comply with the rules of procedure= it may


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have even been negligent. These circumstances, however,should not compel the Court to disregard this cold,undisputed factG that petitioner su2ered a net loss in )++#,and that it could not have applied the amount claimed as tax

credits.

8ubstantial ;ustice, e'uity and fair play are on the side ofpetitioner. Technicalities and legalisms, however exalted,should not be misused by the government to 6eep money notbelonging to it and thereby enrich itself at the expense of itslaw1abiding citi?ens. If the 8tate expects its taxpayers toobserve fairness and honesty in paying their taxes, so must itapply the same standard against itself in refunding excess

payments of such taxes. Indeed, the 8tate must lead by itsown example of honor, dignity and uprightness.

%@BRBDORB, the etition is hereby ($NTEDand theassailed >ecision and Resolution of the Court of $ppeals(E0E(1EDand 1ET $1IDE. The Commissioner of InternalRevenue is ordered to refund to petitioner the amount of))3,*+) as excess creditable taxes paid in )+-+. 9o costs.

8O OR>BRB>.

)elo, &Chairman', 2urisima,and on*aga#(e!es, JJ.,concur.

0itug, J.,abroad, on o2icial business.


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Su/re0e Cour o e "://3e

))- hil. )+

G.R.No. L-18>>=, &u:y >1, 196>

&OSE DE +OR&, "ETITIONER ND ""ELLEE, VS. VICENTEG. GELL, ET L., RES"ONDENTS ND ""ELLNTS.

D E C I S I O N

+!TIST NGELO, &.'(ose de 7or;a has been delin'uent in the payment of his realestate taxes since )+"- for properties located in the City of4anila and asay City and has o2ered to pay them with twonegotiable certi&cates of indebtedness 9os. #* and #"in the amounts of !+.*# and !)!.+, aforesaid negotiablecerti&cates, the applicants for bac6pay rights covered bythem being respectively Rafael Ai?caya and ablo 7atario

Juna.The o2ers to pay real estate taxes in 'uestion were re;ectedby the city treasurers of both 4anila and asay cities on theground of their limited negotiability under 8ection 3,Republic $ct 9o. #*, as amended by Republic = $ct -##,and in the case of the city treasurer of 4anila on the furtherground that he was ordered not to accept them by the citymayor, for which reason 7or;a was prompted to bring the

'uestion to the Treasurer of the hilippines who opined,among others, that the negotiable certi&cates cannot beaccepted as payment of real estate taxes inasmuch as thelaw provides for their acceptance from their bac6pay holderonl!or the original applicant himself, but not his assignee.In his letter of $pril 3+, )+# to the Treasurer of the


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hilippines, however, 7or;a entertained hope that thecerti&cates would be accepted for payment in view of thefact that they were already long past due and redeemable,but his hope was frustrated. 8o on (une, #, )+#, 7or;a &led

an action against the treasurers of both the City of 4anilaand asay City, as well as the Treasurer of the hilippines, tocompel them to execute an act which the law allegedlyre'uires them to perform, to witG to accept the above1mentioned certi&cates of indebtedness considering that theywere already due and redeemable so as not to deprive himillegally of his privilege to pay his obligation to thegovernment thru such means

Respondents in due time &led their answer setting up , thereasons for their refusal to accept the certi&cates, and afterthe re'uisite trial was held, the court a %uorendered t;udgment the dispositive part of which readsG

:%herefore, the treasurers of the City of 4anila and asayCity, their agents and other persons acting in their behalfare hereby en;oned from including petitioner


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the correlative legal duty to accept the certi&cates inpayment of said taxesP= H3 can compensation be invo6ed toextinguish appellee


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incorporation, by1laws, or rules and regulations to thecontrary, accept or discount at not more than three and one1half per centum per annumfor ten years a negotiablecerti&cate of indebtedness which shall be issued by the

treasurer of the hilippines upon application by a holder of abac6pay ac6nowledgment.

To begin with, it cannot be contended that appellants are induty bound to accept the negotiable certi&cates ofindebtedness held by appellee in payment of his real estatetaxes for the simple reason that they were not obligationssubsisting at the time of the approval of Republic $ct 9o.#* which too6 e2ect on (une )-,)+*-. It should be noted

that the real estate taxes in 'uestion have reference to thosedue in )+"- and subse'uent years. The law is explicit that inorder that a certi&cate may be used in payment of anobligation the same must be subsisting at the time of itsapproval even if we hold that a tax parta6es of thischaracter. 9either can it be contended that appellee cancompel the government to accept the alleged certi&cates ofindebtedness in payment of his real estate taxes underproviso 9o. 3 above 'uoted also for the reason that in order

that such payment may be allowed the tax must be owed bythe applicant himself. This is the correct implication thatmay be drawn from the use by the law of the word :histaxes:. Aerily, the right to use the bac6pay certi&cate insettlement of taxes is given only to an applicant and not toany holder of any negotiable certi&cate to whom the law onlygives the right to have it discounted by a Dilipino citi?en orcorporation under certain limitations. @ere appellee is nothimself the applicant of the certi&cate h in 'uestion. @e ismerely an assignee thereof, or a subse'uent holder whoseright is at most to have it discounted upon maturity or tonegotiate it in the meantime.$ fortiori it may be concludedthat, not having the right to use said certi&cates to pay histaxes, appellee cannot compel appellants to accept them ashe re'uests in the present petition for mandamus. $s a


29/878

conse'uence, we can not but hold that mandamus does notlie against appellants because they have in no way neglectedto perform an act en;oined upon them by law as a duty, norhave they unlawfully excluded appellee from the use or

en;oyment of a right to which he is entitled./)0

%e are aware of the cases/30cited by the courta %uowhereinthe government ban6ing institutions were ordered to acceptthe bac6pay certi&cates of petitioners in payment of theirindebtedness to them, but they are not here in point becausein the cases mentioned the petitioners were applicants andoriginal holders of the corresponding bac61 pay certi&cates.@ere appellee is not. %ith regard to the second issue, i.e.

whether compensation can be invo6ed insofar as the twoobligations are concerned, $rticles )3!- and )3!+ of thenew Civil Code provideG

:$rt. )3!-. Compensation shall ta6e place when twopersons, in their own right, are creditors and debtors of eachother.

:$rt. )3!+. In order that compensation may be proper, it is

necessaryGH) That each one of the obligors be bound principally, andthat he be at the same time a principal creditor of the other=

H3 That both debts consist in a sum of money, or if thethings due are consummable, they be of the same 6ind, andalso of the same 'uality if the latter has been stated=

H That the two debts be due=

H* That they be li'uidated and demandable=

H" That over neither of them there be any retention orcontroversy, commenced by third persons and communicatedin due time to the debtor.:


30/878

It is clear from the above legal provisions that compensationcannot be e2ected with regard to the two obligations in'uestion. In the &rst place, the debtor insofar as thecerti&cates of indebtedness are concerned is the Republic of

the hilippines, whereas the real estate taxes owed byappellee are due to the City of 4anila and asay City, eachone of which having a distinct and separate personality fromour Republic. %ith regard to the Certi&cates, the creditor isthe appellee while the debtor is the Republic of thehilippines. $nd with regard to the taxes, the creditors arethe City of 4anila and asay City while the debtor is theappellee. It appears, therefore, that each one of the obligorsconcerning the two obligations is not at the same time the

principal creditor of the other. It cannot also be said forcertain that certi&cates are already due. $lthough on theirfaces the certi&cates issued to appellee state that they areredeemable on (une )-,)+"-, yet the law does not say thatthey are redeemable from its approval on (une )-, )+"- but:within ten years from the date of issuance: of thecerti&cates. There is no certainty, therefore, when thecerti&cate are really redeemable with in the meaning of thelaw. 8ince the re'uisites for the accomplishment of legalcompensation cannot be ful&lled, the latter cannot ta6eplace with regard to the two obligations as found by thecourta %uo.

%herefore, the decision appealed from is reversed. Thepetition for mandamus is dismissed. The in;unction issuedagainst respondents1appellants is hereby lifted. 9o costs.

2adilla, 7a3rador, Concepcion,, (e!es, J.8.7., 8arrera,

2aredes, Di*on, (egala, and)akalintal, JJ., concur.


31/878


)!- hil. )"*

FIRST DIVISION

G.R. No. L->1>6=, 1979

MISEL ". VER, S COMMISSIONER OF INTERNLREVEN!E, ND &IME RNET, S REGIONL DIRECTOR,

REVEN!E REGION NO. 1


32/878

abovementioned special proceedings, Hpar. , $nnex $,etition, pp. )+13#, Rollo. The claim represents theindebtedness to the 5overnment of the late Juis >. Tongoyfor de&ciency income taxes in the total sum of ,3"*.-# as

above stated, covered by $ssessment 9otices 9os. ))1"#13+1)1))#)13)1 and ))1"#13+1)1))#-!"1*, to which motionwas attached roof of Claim H$nnex 7, etition, pp. 3)133,Rollo. The $dministrator opposed the motion solely on thearound that the claim was barred under 8ection ", Rule -of the Rules of Court Hpar. *, opposition to 4otion for$llowance of Claim, pp. 313*, Rollo. Dinding theopposition well1founded, the respondent (udge, (ose D.Dernande?, dismissed the motion for allowance of claim &led

by herein petitioner, Regional >irector of the 7ureau ofInternal Revenue, in an order dated (uly 3+, )++ H$nnex >,etition p. 3, Rollo. On 8eptember )-, )++, a motion forreconsideration was &led, of the Order of (uly 3+, )++, butwas denied in an Order dated October !, )++.

@ence, this appeal on certiorari, petitioner assigning thefollow errorsG

:). The lower court erred in holding that the claim for taxesby the government against the estate of Juis >. Tongoy was&led beyond the period provided in 8ection 3, Rule - of theRules of Court.

3. The lower court erred in holding that the claim for taxesof the government was already barred under 8ection ", Rule- of the Rules of Court.:

which raise the sole issue of whether or not the statute ofnon1claims, 8ection ", Rule - of the 9ew Rule of Court,bars claim of the government for unpaid, taxes, still withinthe period of limitation prescribed in 8ection ) and 3 ofthe 9ational Internal Revenue Code.


33/878

8ection ", Rule -, as invo6ed by the respondent$dministrator in his Opposition to the 4otion for $llowanceof Claim, etc. of the petitioners reads as followsG

:$ll claims for money against the decedent, arising fromcontracts, express or implied, whether the same be due, notdue, or contingent, all claims for funeral expenses andexpenses for the last sic6ness of the decedent, and ;udgmentfor money against the decedent, must be &led within thetime limited in the notice= otherwise they are barred forever,except that they may be set forth as counterclaims in anyaction that the executor of administrator may bring againstthe claimants. %here an executor or administrator

commence an action, or prosecutes an action alreadycommenced by the deceased in his lifetime, the debtor mayset forth by answer the claims he has against the decedent,instead of presenting them independently to the court asherein provided, and mutual claims may be set o2 againsteach other in such action= and if &nal ;udgment is renderedin favor of the defendant, the amount so determined shall beconsidered the true balance against the estate, as thoughthe claim had been presented directly before the court in the

administration proceedings. Claims not yet due, orcontingent may be approved at their present value.:

$ perusal of the afore'uoted provisions shows that it ma6esno mention of claims for monetary obligations of thedecedent created by law, such as taxes which is entirely ofdi2erent character from the claims expressly enumeratedtherein, such asG :all claims for money against the decedentarising from contract, express or implied, whether the same

be due, not due or contingent, all claims for funeralexpenses and expenses for the last sic6ness of the decedentand ;udgment for money against the decedent.: Ender thefamiliar rule of statutory construction of expressio unius estexclusio alterius, the mention of one thing implies theexclusion of another thing not mentioned. Thus, if a statute


34/878

enumerates the things upon which it is to operate,everything else must necessarily, and by implication beexcluded from its operation and e2ect HCrawford, 8tatutoryConstruction, pp. *1".

In the case of Commissioner of Internal Revenue vs. IlaganBlectric Ice lant, et. al., 5. R. 9o. J13#-), >ecember #,)++ it was held that the assessment, collection andrecovery of taxes, as welt as the matter of prescriptionthereof are governed by the provisions of the 9ationalInternal Revenue Code, particularly 8ections ) and 3thereof, and not by other provisions of law. H8ee also JimTio, >y @eng and >ee (ue vs. Court of Tax $ppeals

Collector of Internal Revenue, 5. R. 9o. J1)#-), 4arch 3+,)+"-. Bven without being speci&cally mentioned, theprovisions of 8ection 3 of Rule - of the Rules of Court mayreasonably be presumed to have been also in the mind of theCourt as not a2ecting the aforecited 8ection of the 9ationalInternal Revenue Code.

In the case of ineda vs. CDI of Tayabas, "3 hil. -#, it waseven more pointedly held that :taxes assessed against the

estate of a deceased person x x x need not be submitted tothe committee on claims in the ordinary course ofadministration. In the exercise of its control over theadministrator, the court may direct the payment of suchtaxes upon motion showing that the taxes have beenassessed against the estate.: The abolition of the Committeeon Claims does not alter the basic ruling laid down givingexception to the claim for taxes from being &led as the otherclaims mentioned in the Rule should be &led before the

Court. Claims for taxes may be collected even after thedistribution of the decedent


35/878

The reason for the more liberal treatment of claims for taxesagainst a decedent


36/878

Durthermore, as held in Commissioner of Internal Revenuevs. ineda supra, citing the last paragraph of 8ection )" ofthe Tax Code payment of income tax shall be a lien in favorof the 5overnment of the hilippines from the time the

assessment was made by the Commissioner of InternalRevenue until paid with interests, penalties, etc. 7y virtue ofsuch lien, this Court held that the property of the estatealready in the hands of an heir or transferee may be sub;ectto the payment of the taxi due the estate. $ fortiori, beforethe inheritance has passed to the heirs, the unpaid taxes duethe decedent may be collected, even without its having beenpresented under 8ection 3 of Rule - of the Rules of Court.It may truly be said that until the property of the estate of

the decedent has vested in the heirs, the decedent,represented by his estate, continues as if he were still alive,sub;ect to the payment of such taxes as would be collectiblefrom the estate even after his death. Thus in the caseabovecited, the income taxes sought to be collected weredue from the estate, for the three years )+*, )+*! and )+*-following his death in 4ay, )+*".

Bven assuming arguendo that claims for taxes have to be

&led within the time prescribed in 8ection 3, Rule - of theRules of Court, the claim in 'uestion may be &led even afterthe expiration of the time originally &xed therein, as may begleaned from the italici?ed portion of the Rule herein citedwhich readsG

:8ection. 3. Time within which claims shall be &led. 1 In thenotice provided in the preceding section, the court shallstate the time for the &ling of claims against the estate,

which shall not be more than twelve H)3 nor less than six Hmonths after the date of the &rst publication of the notice.@owever, at any time before an order of distribution isentered, on application of a creditor who has failed to &le hisclaim within the time previously limited, the court may forcause shown and on such terms as are e'uitable, allow such


37/878

claim to be &led within a time not exceeding one H) month.:Hunderscoring supplied

In the instant case, petitioners &led an application H4otion

for $llowance of Claim and for and Order of ayment ofTaxes which, though &led after the expiration of the timepreviously limited but before an order of the distribution isentered, should have been granted by the respondent court,in the absence of any valid ground, as none was shown,;ustifying denial of the motion, specially considering that itwas for allowance of claim for taxes due from the estate,which in e2ect represents a claim of the people at large, theonly reason given for the denial being that the claim was

&led out of the previously limited period, sustaining therebyprivate respondents< contention, erroneously as has beendemonstrated.

;#EREFORE, the order appealed from is reversed. 8incethe Tax Commissioner.

Teehankee, &Chairman', )akasiar, 9ernande*, uerrero, and

)elencio#errera, JJ., concur.


38/878


)3! hil. )#"

G.R. No. L-22>)6, &u:y 21, 1967

RE"!+LIC OF T#E "#ILI""INES, "LINTIFF-""ELLNT,VS. "EDRO +. "TNO, DEFENDNT-""ELLEE.

D E C I S I O N

NGELES, &.'This is an appeal from an order of the Court of Dirst Instanceof $gusan in civil case 9o. +3", dismissing plainti2


39/878

the aforesaid years, is due from defendant= that on Debruary)*, )+"-, plainti2, through the >eputy Commissioner ofInternal Revenue, sent a letter of demand with enclosedincome tax assessment to the defendant re'uiring him to pay

the said amount= that notwithstanding repeated demands thedefendant refused, failed and neglected to pay said taxes=and that the assessment for the payment of the taxes in'uestion has become &nal, executory and demandable,because it was not contested before the Court of Tax $ppealsin accordance with the provisions of section )) of Republic$ct 9o. ))3".

>efendant moved to dismiss the complaint on two grounds,

namelyG H) that the action is barred by prior ;udgment,defendant having been ac'uitted in criminal cases 9os. 3#-+and 3#+# of the same court, which were prosecutions forfailure to &le income tax returns and for nonpayment ofincome taxes= and H3 that the action has prescribed.

$fter considering the motion to dismiss, the oppositionthereto and the re;oinder to the opposition, the lower courtentered the order appealed from, holding that the only cause

of action left to the plainti2 in its complaint is the collectionof the income tax due for the taxable year )+"" and theresidence tax HClass 7 for )+", )+"* and )+"". $ motionto reconsider said order was denied, whereupon plainti2interposed the instant appeal, which was brought directly tothis Court, the 'uestions involved being purely legal.

The conclusion of the trial court, that the present action isbarred by prior ;udgment, is anchored on the following

rationaleG

:There is no 'uestion that the defendant herein has beenaccused in Criminal Cases 9os. 3#-+ and 3#+# of this Courtfor not &ling his income tax returns and for non1payment ofincome taxes for the years )+" and )+"*. In both cases, he


40/878


41/878

Internal Revenue Code has provided the imposition of thepenalty of imprisonment or &ne, or both, for refusal orneglect to pay income tax or to ma6e a return thereof, itfailed to provide the collection of said tax in criminal

proceedings. The only civil remedies provided for thecollection of income tax, in Chapters I and II, Title IM of theCode and section ) thereof, are distraint of goods,chattels, etc. or by ;udicial action, which remedies aregenerally exclusive in the absence of a contrary intent fromthe legislator. Heople vs. $rnault, 5. R. 9o. J1*3--,9ovember 3#, )+"3= eople vs. Tierra, 5. R. 9os. J1)!)!!1)!)-#, >ecember 3-, )+* Considering that the5overnment cannot see6 satisfaction of the taxpayer


42/878


43/878


)3) hil. !""

G.R. No. L-22=7=, 196)

T#E "#ILI""INE G!RNT( CO., INC., "ETITIONER, VS.T#E COMMISSIONER OF INTERNL REVEN!E ND T#E

CO!RT OF T$ ""ELS, RES"ONDENTS.

D E C I S I O N

RE(ES, &.+.L., &.'

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance

contracts, on various dates, with foreign insurance companies not doing business in the

Philippines, namely: Imperio Compania de Seguros, a !nion y "l #eni$ "spafiol, %verseas

&ssurances Corp., td., Sociedad &nonima de 'easeguros &lian(a, To)io *arine + #ire Insurance

Co., td., !nion &ssurance Society td., Swiss 'einsurance Company and Tariff 'einsurance

imited. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion

of the premiums on insurances it has originally underwritten in the Philippines, in consideration

for the assumption by the latter of liability on an euivalent portion of the ris)s insured. Saidreinsurance contracts were signed by Philippine Guaranty Co., Inc. in *anila and by the foreign

reinsurers outside the Philippines, e$cept the contract with Swiss 'einsurance Company, which

was signed by both parties in Swit(erland.

The reinsurance contracts made the commencement o the reinsurers- liability simultaneous with

that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc.

was reuired to )eep a register in *anila where the ris)s ceded to the foreign reinsurers were

entered, and entry therein was binding upon the reinsurers. & proportionate amount of ta$es on

insurance premiums not recovered from the original assured were to be paid for by the foreign

reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering

their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc. in an amount

eual to / of the reinsurance premiums. Conflicts and or differences between the parties under

the reinsurance contracts were to be arbitrated in *anila. Philippine Guaranty Co., Inc. and Swiss

'einsurance Company stipulated that their contract shall be construed by the laws of the

Philippines.


44/878

Pursuant to the aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign

reinsurers the following premiums:

012 P345,466.70

014 750,470.3

Said premiums were e$cluded by Philippine Guaranty Co., Inc. from its gross income when it filed

its income ta$ returns for 012 and 010. #urthermore, it did not withhold or pay ta$ on them.

Conseuently, per letter dated &pril 02, 011, the Commissioner of Internal 'evenue assessed

against Philippine Guaranty Co., Inc. withholding ta$ on the ceded reinsurance premiums, thus:

012

Gross premium per investigation P763,38.88

999999999999

ithholding ta$ due thereon at

54/P034,41.88

5/ surcharge 46,004.88

Compromise for non;filing of

withholding income ta$ return088.88

999999999999

T%T& &*%!"P528,672.88


45/878

014

Gross premium per investigation P738,338.63

999999999999

ithholding ta$ due thereon at

54/P037,400.88

5/ surcharge 46,32.88

Compromise for non;filing of

withholding income ta$ return 088.88

T%T& &*%!" P524,264.88

????????????

Philippine Guaranty Co., Inc. protested the assessment on the ground that reinsurance premiums

ceded to foreign reinsurers not doing business in the Philippines are not sub@ect to withholding

ta$. Its protest was denied and it appealed to the Court of Ta$ &ppeals.

%n Auly 6, 0162, the Court of Ta$ &ppeals rendered @udgment with this dispositive portion:

BIn view of the foregoing considerations, petitioner Philippine Guaranty Co., Inc. is hereby

ordered to pay to the Commissioner of Internal 'evenue the respective sums of P585,015.88 and

P072,02.88 for the total sum of P27,24.88 as withholding income ta$es for the years 012

and 014, plus the statutory delinuency penalties thereon. ith costs against petitioner.B

Philippine Guaranty Co., Inc., has appealed, uestioning the legality of the Commissioner of

Internal 'evenue-s assessment for withholding ta$ on the reinsurance premiums ceded in 012

and 014 to the foreign reinsurers.


46/878

Petitioner maintains that the reinsurance premiums in uestion did not constitute income from

sources within the Philippines because the foreign reinsurers did not engage in business in the

Philippines, nor did they have office here.

The reinsurance contracts however show that the transactions or activities that constituted the

underta)ing to reinsure Philippine Guaranty Co., Inc. against losses arising from the original

insurances in the Philippines were performed in the Philippines. The liability of the foreign

reinsurers commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the

original insurances. Philippine Guaranty Co., lnc, )ept in *anila a register of the ris)s ceded to

the foreign reinsurers. "ntries made in such register bound the foreign reinsurers, locali(ing in

the Philippines the actual cession of the ris)s and premiums and assumption of the reinsurance

underta)ing by the foreign reinsurers. Ta$es on premiums imposed by Section 5 of the Ta$

Code for the privilege of doing insurance business in the Philippines were payable by the foreign

reinsurers when the same were not recoverable from the original assured. The foreign reinsurers

paid Philippine Guaranty Co., Inc. an amount euivalent to / of the ceded premiums, in

consideration for administration and management by the latter of the affairs of the former in thePhilippines in regard to their reinsurance activities here. =isputes and differences between the

parties were sub@ect to arbitration in the City of *anila. & the reinsurance contracts, e$cept that

with Swiss 'einsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines

and later signed by the foreign reinsurers abroad. &lthough the contract between Philippine

Guaranty Co., Inc. and Swiss 'einsurance Company was signed by both parties in Swit(erland,

the same specifically provided that its provision shall be construed according to the laws of the

Philippines, thereby manifesting a clear intention of the parties lo sub@ect themselves to

Philippine laws.

Section 54 of the Ta$ Code sub@ects foreign corporations to ta$ on their income from sourceswithin the Philippines. The word BsourcesB has been interpreted as the activity, property or

service giving rise to the income.D0EThe reinsurance premiums were income created from the

underta)ing of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc.

against liability for loss under original insurances. Such underta)ing, as e$plained above, too)

place in the Philippines. These insurance premiums therefore came from sources within the

Philippines and, hence, are sub@ect to corporate income ta$.

The foreign insurers place of business should not be confused with their place of activity.

>usiness implies continuity and progression of transactionsD5Ewhile activity may consist of only a

single transaction. &n activity may occur outside the place of business. Section 54 of the Ta$

Code does not reuire a foreign corporation to engage in business in the Philippines in sub@ecting

its income to ta$. It suffices that the activity creating the income is performed or done in the

Philippines. hat is controlling, therefore, is not the place of businessbut the place of activity

that created an income.

Petitioner further contends that the reinsurance premiums are not income from sources within

the Philippines because they are not specifically mentioned in Section 27 of the Ta$ Cede. Section


47/878

27 is not an all inclusive enumeration, for it merely directs that the )inds of income mentioned

therein should be treated as income from sources within the Philippines but it does not reuire

that other )inds of income should not be considered li)ewise.

The power to la$ is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State-s sovereignty and a means to give the citi(enry an army

to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to

serve, public improvements designed for the en@oyment of the citi(enry and those which come

within the State-s territory, and facilities and protection which a government is supposed to

provide. Considering that the reinsurance premiums in uestion were afforded protection by the

government and the recipient foreign reinsurers e$ercised rights and privileges guaranteed by

our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the

state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner

of Internal 'evenue reuiring no withholding of the ta$ due on the reinsurance premiums inuestion relieved it of the duty to pay the corresponding withholding ta$ thereon. This defense of

petitioner may free it from the payment of surcharges or penalties imposed for failure to pay the

corresponding withholding ta$, but it certainly would not e$culpate it from liability to pay such

withholding ta$. The Government is not estopped from collecting ta$es by the mista)es or errors

of its agents.D2E

In respect to the uestion of whether or not reinsurance premiums ceded to foreign reinsurers

not doing business in the Philippines are sub@ect to withholding ta$ under Sections 2 and 4 of

the Ta$ Code, suffice it to state that this uestion has already been answered in the affirmative

in &le$ander owden + Co., td. vs. Collector of Internal 'evenue, ;01215, &pril 00, 016.

#inally, petitioner contends that the withholding ta$ should be computed from the amount

actually remitted to the foreign reinsurers instead of from the total amount ceded. &nd since it

did not remit any amount to its foreign insurers in 012 and 014, no withholding ta$ was due.

The pertinent section of the Ta$ Code states:

BSec. 4. Payment of corporation income tax at source .FIn the case of foreign corporation

sub@ect to ta$ation under this Title not engaged in trade or business within the Philippines and

not having any office or place of business therein, there shall be deducted and withheld at the

source in the same manner and upon the same items as is provided in section fifty;three a ta$

eual to twenty;fourper centumthereof, and such ta$ shall be returned and paid in the same

manner and sub@ect to the same conditions as provided in that &ction.B

The applicable portion of Section 2 provides:


48/878

"(b) Non-resident aliens.F&ll persons, corporations and general copartnerships companias

colectivasH, in whatever capacity acting, including lessees or mortgagors of real or personal

property, trustees acting in any trust capacity, e$ecutors, administrators receivers, conservators,

fiduciaries, employers, and all officers and employees of the Government of the Philippines

having the control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries,

wages, premiums, annuities, compensation, remunerations, emoluments, or other fi$ed or

determinable annual or periodical gains, profits, and income of any non;resident alien individual,

not engaged in trade or business within the Philippines and not having any office or place of

business therein, shall e$ceptH in the cases provided for in subsection aH of this sectionH deduct

and withhold from such annual or periodical gains, profits, and income a ta$ eual to twelveper

centumhereof: Provided, That no such deduction or withholding shall be reuired in the case of

dividends paid by a foreign corporation unless 0H such corporation is engaged in trade or

business within the Philippines or has an office or place of business therein, and 5H more than

eighty;fiveper centumof the gross income of such corporation for the three;year period ending

with the lose of its ta$able year preceding the declaration of such dividends or for such part of

such period as the corporation has been in e$istenceH was derived from sources within thePhilippines as determined under the provisions of section thirty;seven: Provided, further. That

the Collector of Internal 'evenue may authori(e such ta$ to be deducted and withheld from the

interest upon any securities the owners of which are not )nown to the withholding agent.B

The above;uoted provisions allow no deduction from the income therein enumerated in

determining the amount to be withheld. &ccordingly, in computing the withholding ta$ due on the

reinsurance premiums in uestion, no deduction shall be recogni(ed.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is

hereby ordered to pay to the Commissioner of Internal 'evenue the sums of P585.015.88 andP072.02.88, or a total amount of P27 24.88, as withholding ta$ for the years 012 and 014,

respectively. If the amount of P27.24.88 is not paid within 28 days from the date this

@udgment becomes final there shall be collected a surcharge of / on the amount unpaid, plus

interest at the rate of 0/ a month from the date of delinuency to the date of payment,

provided that the ma$imum amount that may be collected as interest shall not e$ceed the

amount corresponding to a period of three 2H years. ith costs against petitioner.

SO ORDERED.

Bengzon, ! !, Bautista #ngelo, oncepcion, $eyes, !B!%!, Barrera, Paredes, &izon and $egala,

!, concur.

D0E*ertens, Ar., Aacob. aw %n #ederal Income Ta$ation, ol. 3, Section 4.57.


49/878

D5EImperial vs. Collector of Internal 'evenue, ;7154, September 28, 01.

D2Eilado vs. Collector of Internal 'evenue, 088 Phil, 533J 2 %ff. Ga(., 540J Koppel PhilippinesH,

Inc. vs. Collector of Internal 'evenue, ;088, September 01, 0160J CompaLia General de

Tobacos de #ilipinas vs. City of *anila, ;060601, Aune 51, 0162.

R E S O L U T I O N

BENGZON, J.P., J.:

The Philippine Guaranty Company, Inc. moves for the reconsideration of our decision,

promulgated on &pril 28, 016, holding it liable for the payment of income ta$ which it should

have withheld and remitted to the >ureau of Internal 'evenue in the total sum of P27,24.88.

The grounds raised in the instant motion all spring from movant-s view that the Court of Ta$

&ppeals as well as this Court found it Binnocentof the charges of violating, wilfully or negligently,

sub;section cH of Section 2 and Section 0 of the


50/878

officer filed after such time, and it is shown that the failure to file it was due to a reasonable

cause, no such addition shall be made to the ta$. N N NB

It will be noted that the first half of the above;uoted section covers failure to file a return,

willingly andOor due to negligence, in which case the surcharge is 8/. In the second part of the

law it covers failure to ma)e and file a return Bnot due to willful neglectB, in which case only 5/

surcharge should be added. &s a further concession to the ta$payer the above;uoted section

provides that if Bit is shown that the failure to, file it was due to a reasonable cause, no such

addition shall be made to the ta$B.

It would, therefore, be incorrect for movant to state that it was found Binnocent of the charges of

violating, willfully or negligently, sub;section cH of Section 2 and Section 4B. #or, precisely, the

mere fact that it was e$empted from paying the penalty necessarily implies violation of Section

2cH. iolating Section 2cH is one thingJ imposing the penalty for such violation under Section

75DNEis another. If it is found that the failure to file is due to a reasonable cause, then e$emption

from surcharge sets in but never e$emption from payment o the ta$ due.

Since movant failed to pay the ta$ due, in the sum of P27,24.88, this Court ordered it to pay

the same. Simply because movant was relieved from paying the surcharge for failure to file the

necessary returns, it now wants us to absolve it from paying even the tax. This, we cannot do.

The non;imposition of the 5/ surcharge does not carry with it remission of the ta$.

*ovant argues that it could not be e$pected to withhold the ta$, for as early as &ugust 03, 012

the >oard of Ta$ &ppeals held in the case of #ran)lin >a)erD0Ethat the reinsurance premiums in

uestion were not sub@ect to withholding. %n top of that, movant maintains, the Commissioner of

Internal 'evenue, in reply to the uery of its accountants and auditors, issued on September ,

012 an opinion subscribing to the ruling in the #ran)lin >a)er case. &s already e$plained in our

decision a mista)e committed by Government agents is not binding on the Government.

Inasmuch as movant insists on this point in its motion for reconsideration, we shall further

elaborate on the same. Section 588 of the Income Ta$ 'egulations e$pressly grants protection to

him only if and when he follows strictly what has been provided therein.

Section 2 cH ma)es the withholding agent personally liable for the income ta$ withheld under

Section 4. It states:

BSec. 2 cH $eturn and payment.F"very person reuired to deduct and withhold any ta$ under

this section shall ma)e return thereof, in duplicate, on or before the fifteenth day of &pril of each

year, and, on or before the time fi$ed by law for the payment of the ta$, shall pay the amount

withheld to the officer of the Government of the Philippines authori(ed to receive it. "very such

person is made personally liable for such ta$, and is indemnified against the claims and demands

of any person for the amount of any payments made in accordance with the provisions of this

section.B


51/878

The law sets no condition for the personal liability of the withholding agent to attach. The reason

is to compel the withholding agent to withhold the ta$ under all circumstances. In effect, the

responsibility for the collection of the ta$ as well as the payment thereof is concentrated upon

the person over whom the Government has @urisdiction. Thus, the withholding agent is

constituted the agent of both the Government and the ta$payer. ith respect to the collection

andOor withholding of the ta$, he is the Government-s agent. In regard to the filing of the

necessary income ta$ return and the payment of the ta$ to the Government, he is the agent of

the ta$payer. The withholding agent, therefore, is no ordinary government agent especially

because under Section 2 cH he is held personally liable for the ta$ he is duty bound to

withholdJ whereas, the Commissioner of Internal 'evenue and his deputies are not made liable

by law. *ovant then further contends that as agent of the Government it was released from

liability for the ta$ after it was advised by the Commissioner of Internal 'evenue that the

reinsurance premiums involved were not sub@ect to withholding. It relies on the provisions of the

second paragraph of Section 588 of the Income Ta$ 'egulations, which states:

BIn case of doubt, a withholding agent may always protect himself by withholding the ta$ due,

and promptly causing a uery to be addressed to the Commissioner of Internal 'evenue for the

determination of whether or not the income paid to an individual is not sub@ect to withholding. In

case the Commissioner of Internal 'evenue decides that the income paid to an individual is not

sub@ect to withholding. The withholding agent may thereupon remit the amount of ta$ withheld.B

The section above;uoted rela$es the application of the stringent provisions of Section 62 of the

Ta$ Code. &ccordingly, it grants e$emption from ta$ liability, and in so doing, it lays down steps

to be ta)en by the withholding agent, namely, 0H that he withholds the ta$ due, 5H that hepromptly addresses a uery to the Commissioner of Internal 'evenue for determination whether

or not the income paid to an individual is sub@ect to withholdingJ and 2H that the Commissioner

of Internal 'evenue decides that such income is not sub@ect to withholding. Strict observance of

said steps is reuired of a withholding agent before he could be released from liability. Generally,

the law frowns upon e$emption from ta$ation, hence, an e$; empting provision should be

construed strictissimi uris.D5E

It may be illuminating to mention here however that the Income Ta$ 'egulations was issued by

the Secretary of #inance upon his authority, Bto promulgate all needful rules and regulations of

the effective enforcementB of the provisions of the Ta$ Code.D2EThe mission therefore of Section

588, uoted above, is to implement Section 2 of the Ta$ Code for no other purpose than to

enforce its provisions effectively. It should also be noted, that Section 2 provides for no

e$emption from the duty to withhold e$cept in the cases of ta$;free covenant bonds and

dividends.

The facts in this case do not support a finding that movant complied with Section 588. #or, it has

not been shon that it ithheld the amount of ta$ due before it in*uiredfrom the >ureau of


52/878

Internal 'evenue as to the ta$ability of the reinsurance premiums involved. &s a matter of fact,

the Court of Ta$ &ppeals found that Bupon advice of its accountants and auditors, N N N petitioner

did not collect and remit to the Commissioner of Internal 'evenue the withholding ta$B. This

finding of fact of the lower court, unchallenged as it is, may not be disturbed.D4E

The reuirement in Section 588 that the withholding agent should first ithholdthe ta$ before

addressing a uery to the Commissioner of Internal 'evenue is not without a meaning for it is in

)eeping with the general operation of our ta$ laws: payment precedes defense. Prior to the

creation of the Court of Ta$ &ppeals, the remedy of a ta$payer was to pay an internal revenue

ta$ first and file a claim for refund later.DEThis remedy has not been abrogated, for the law

creating the Court of Ta$ &ppeals merely gives to the ta$payer an additional remedy. ith

respect to customs duties the consignee or importer concerned is reuired to pay them under

protest, before he is allowed to uestion legality of the imposition. D6Ei)ewise, validity of a realty

ta$ cannot be assailed until after the ta$payer has paid the ta$ under protest.D7EThe legislature,

in adopting such measures in our ta$ laws, only wanted to be assured that ta$es are paid and

collected without delay. #or ta$es are the lifeblood of government. &lso, such measures tend toprevent collusion between the ta$payer and the ta$ collector. >y uestioning a ta$-s legality

without first paying it, a ta$payer, in collusion with >.l.'. officials, can unduly delay, if not totally

evade, the payment of such ta$.

%fcourse, in this case there was absolutely no such collusion. Precisely, the Philippine Guaranty

Company, Inc. was absolved from the payment of the 5/ surcharge for non;filing of income ta$

returns inasmuch as the Ta$ Court as well as this Court believes that its omission was due to a

reasonable cause.

WHEREFORE, the motion for reconsideration is denied.

SO ORDERED.

7eng?on!!, Bautista #ngelo, oncepcion, Reyes, (.7.J., >i?on, Regala,4a6alintal, and Saldivar, ((., concur.


53/878


54/878

*,+*!."

. $rmy and 9avy Club3,-)3.+

"*. 4anila 5olf Club

*,*!-.*"

". %ac6 %ac6 5olf Club,Casino Bspaol, etc..

,+*#.+3

T O T L #,)-.--

The claim for deduction thereof is based upon receiptsissued, not by the entities in which the alleged expenses hadbeen incurred, but by the o2icers of 5oodrich who allegedlypaid them.

The claim must be re;ected. If the expenses had really beenincurred, receipts or chits would have been issued by theentities to which the payments had been made, and it wouldhave been easy for 5oodrich or its o2icers to produce suchreceipts. Those issued by said o2icers merely attest to theirclaim that they had incurred and paid said expenses. Theydo not establish payment of said alleged expenses to theentities in which the same are said to have been incurred.The Court of Tax $ppeals erred, therefore, in allowing thededuction thereof.

The alleged bad debts areG

). ortillo


55/878

)!,-)#.3

. 7ataan $uto 8eat Cover!.)

*. Tres $migos $uto 8upply),!#.)

". . C. Teodoro"#.##

. Ordnance 8ervice, . $.-.*3

!. Ordnance 8ervice, . C!+.3

-. 9ational Jand 8ettlement$dministration ,#3#.!

+. 9ational CoconutCorporation

**.!*

)#. Interior Caltex 8ervice8tation

),"#".-!

)). 8an (uan $uto 8upply*,"#.*

)3. $C8$*".

). hilippine 9aval atrol)*.)-

)*. 8urplus ropertyCommission

3!!.-

)". $lvare? $uto 8upply3-".3

). Jion 8hoe 8tore )),-.+

)!. Rui? @ighway Transit3,"#.##

)-. Bs'uire $uto 8eat Cover


56/878

,".+*

TOT$J "#,*"".*)

The issue, in connection with these debts, is whether or notthe same had been properly deducted as bad debts for theyear )+"). In this connection, we &ndG

ortillo


57/878

This account had been outstanding since )+*+. Counsel forthe taxpayer had merely sent demand letters HBxh. 71)without success.

. C. Teodoro H"#.##GIn )+*+, the account was !").+). In )+"), the debtor paid)#).+), thus leaving a balance of "#.##, which thetaxpayer charged o2 as bad debt in the same year. In )+"3,the debtor made another payment of )#.##.

Ordnance 8ervice, . $. H-.*3G

In )+*+, the outstanding account of this government agencywas -)!."". 5oodrich


58/878

7oard of Ji'uidators, which promised to pay uponavailability of funds. In )+), the debt was fully paid.

Interior Caltex 8ervice 8tation H),"#".-!G

The original account was 3,!#".-!, when, in )+"#, it wasturned over for collection to counsel for 5oodrich Hp. )",CT$ Records. Counsel began sending letters of collectionin $pril )+"#. Interior Caltex made partial payments, so thatas of >ecember, )+"), the balance outstanding was),"#".-!. The debtor paid 3##, in )+"3= )).3#, in )+"*=!"#.##, in )+)= and ##.## in )+3. The account hadbeen written o2 as bad debt in )+").

The claim for deduction of these ten H)# debts should bere;ected. 5oodrich has not established either that the debtsare actually worthless or that it had reasonable grounds tobelieve them to be so in )+"). Our statute permits the de1duction of debts :actually ascertained to be worthless withinthe taxable year,: obviously to prevent arbitrary action bythe taxpayer, to unduly avoid tax liability.

The re'uirement of ascertainment of worthlessness re'uiresproof of two factsG H) that the taxpayer did in fact ascertainthe debt to be worthless, in the year for which the deductionis sought= and H3 that, in so doing, he acted in good faith. /)0

5ood faith on the part of the taxpayer is not enough. @emust show, also, that he had reasonably investigated therelevant facts and had drawn a reasonable inference fromthe information thus obtained by him. /30Respondent herein

has not ade'uately made such showing.The payments made, some in full, after some of theforegoing accounts had been characteri?ed as bad debts,merely stresses the undue haste with which the same hadbeen written o2. $t any rate, respondent has not proventhat said debts were worthless. There is no evidence that


59/878

the debtors can not pay them. It should be noted also that,in violation of Revenue Regulations 9o. 3, 8ection )#3,respondent had not attached to its income tax returns astatement showing the propriety of the deductions therein

made for alleged bad debts.Epon the other hand, we &nd that the following accountswere properly written o2G

8an (uan $uto 8upply H*,"#.*G

This account was contracted in )+"#. Referred, forcollection, to respondent


60/878


61/878


62/878

SECOND DIVISION

G.R. No. 1=6611, &u:y 21, 199ecember ), )+-"./0


74/878

Two days later, or on $ugust 3-, )+-, in order to interruptthe running of the prescriptive period, Citytrust &led apetition with the Court of Tax $ppeals, doc6eted therein asCT$ Case 9o. *#++, claiming the refund of its income tax

overpayments for the years )+-, )+-* and )+-" in the totalamount of )+,+!),!*".##./*0

In the answer &led by the O2ice of the 8olicitor 5eneral, forand in behalf of therein respondent commissioner, it wasasserted that the mere averment that Citytrust incurred anet loss in )+-" does not ipso facto merit a refund= that theamounts of ,)),33.##, ),+"+,")*.## and 3-,3-.##claimed by Citytrust as )+- income tax overpayment, taxes

withheld on proceeds of government securities investments,as well as on rental income, respectively, are not properlydocumented= that assuming arguendothat petitioner isentitled to refund, the right to claim the same has prescribedwith respect to income tax payments prior to $ugust 3-,)+-*, pursuant to 8ections 3+3 and 3+" of the 9ationalInternal Revenue Code of )+!!, as amended, since thepetition was &led only on $ugust 3-, )+-. /"0

On Debruary 3#, )++), the case was submitted for decisionbased solely on the pleadings and evidence submitted byherein private respondent Citytrust. @erein petitioner couldnot present any evidence by reason of the repeated failure ofthe Tax CreditKRefund >ivision of the 7IR to transmit therecords of the case, as well as the investigation reportthereon, to the 8olicitor 5eneral./0

@owever, on (une 3*, )++), herein petitioner &led with the

tax court a manifestation and motion praying for thesuspension of the proceedings in the said case on the groundthat the claim of Citytrust for tax refund in the amount of)+,+!),!*".## was already being processed by the TaxCreditKRefund >ivision of the 7IR, and that said bureau wasonly awaiting the submission by Citytrust of the re'uired


75/878

con&rmation receipts which would show whether or not theaforestated amount was actually paid and remitted to the7IR./!0

Citytrust &led an opposition thereto, contending that sincethe Court of Tax $ppeals already ac'uired ;urisdiction overthe case, it could no longer be divested of the same= and,further, that the proceedings therein could not be suspendedby the mere fact that the claim for refund was beingadministratively processed, especially where the case hadalready been submitted for decision. It also argued that the7IR had already conducted an audit, citing therefor BxhibitsL, L1), L13 and L1 adduced in the case, which clearly showed

that there was an overpayment of income taxes and forwhich a tax credit or refund was due to Citytrust. Theforegoing exhibits are allegedly conclusive proof of and anadmission by herein petitioner that there had been anoverpayment of income taxes./-0

The tax court denied the motion to suspend proceedings onthe ground that the case had already been submitted fordecision since Debruary 3#, )++). /+0

Thereafter, said court rendered its decision in the case, thedecretal portion of which declaresG

:%@BRBDORB, in view of the foregoing, petitioner isentitled to a refund but only for the overpaid taxes incurredin )+-* and )+-". The refundable amount as shown in its)+- income tax return is hereby denied on the ground ofprescription. Respondent is hereby ordered to grant a refund

to petitioner Citytrust 7an6ing Corp. in the amount of),)*,"#.)* representing the overpaid income taxes for)+-* and )+-", recomputed as followsG

)+-* Income tax due*,!)",".##

JessG )+-* Uuarterly


76/878

payments ),3)*,"++.##Q

)+-* Tax Credits

%KT on int. on

govE payable)"#,3"3.##

$mount refundable for )+-*H),3+,.!)+-" Income tax due Hloss 1# P

JessG %KT on rentals ,!).*!Q

Tax OverpaymentH,!).*!Q

JessG DC>E payable

)-,-!*.##$mount Refundable for )+-" H)!,-*3.*!

QNote:

These credits are smaller than the claimed amount becauseonly the above &gures are well supported by the variousexhibits presented during the hearing.

9o pronouncement as to costs.8O OR>BRB>.: /)#0

The order for refund was based on the following &ndings ofthe Court of Tax $ppealsG H) the fact of withholding hasbeen established by the statements and certi&cates of


77/878

withholding taxes accomplished by herein privaterespondentivision, dated $ugust -, )++), he came to6now only lately that Citytrust had outstanding tax liabilitiesfor )+-* in the amount of ","--,!*#.+) representingde&ciency income and business taxes covered by>emandK$ssessment 9otice 9o. D$81)1-*1##3+)1##3+. /)0

Oppositions to both the basic and supplemental motions forreconsideration were &led by private respondent Citytrust. /)*0Thereafter, the Court of Tax $ppeals issued a resolution

denying both motions for the reason that 8ection "3 Hb ofthe Tax Code, as implemented by Revenue Regulation 1-",only re'uires that the claim for tax credit or refund mustshow that the income received was declared as part of thegross income, and that the fact of withholding was dulyestablished. 4oreover, with regard to the argument raised in


78/878

the supplemental motion for reconsideration anent thede&ciency tax assessment against herein petitioner, the taxcourt ruled that since that matter was not raised in thepleadings, the same cannot be considered, invo6ing therefor

the salutary purpose of the omnibus motion rule which is toobviate multiplicity of motions and to discourage dilatorypleadings./)"0

$s indicated at the outset, a petition for review was &led byherein petitioner with respondent Court of $ppeals which indue course promulgated its decision a2irming the ;udgmentof the Court of Tax $ppeals. etitioner eventually elevatedthe case to this Court, maintaining that said respondent

court erred in a2irming the grant of the claim for refund ofCitytrust, considering that, &rstly, said private respondentfailed to prove and substantiate its claim for such refund=and, secondly, the bureauivision of the said bureau, despite repeated


79/878

re'uests./)!0It was under such a predicament and indeference to the tax court that ultimately, said records beingstill unavailable, herein petitionerivision of the 7IR still continued to actadministratively on the claim for refund previously &led

therein, instead of forwarding the records of the case to theCourt of Tax $ppeals as ordered./)-0

It is a long and &rmly settled rule of law that the5overnment is not bound by the errors committed by itsagents./)+0In the performance of its governmental functions,the 8tate cannot be estopped by the neglect of its agent ando2icers. $lthough the 5overnment may generally beestopped through the a2irmative acts of public o2icers

acting within their authority, their neglect or omission ofpublic duties as exempli&ed in this case will not and shouldnot produce that e2ect.

9owhere is the aforestated rule more true than in the &eldof taxation./3#0It is axiomatic that the 5overnment cannot and


80/878

must not be estopped particularly in matters involving taxes.Taxes are the lifeblood of the nation through which thegovernment agencies continue to operate and with which the8tate e2ects its functions for the welfare of its constituents. /3)0

The errors of certain administrative o2icers should never beallowed to ;eopardi?e the 5overnment


81/878

or fraudulent or contained any understatement orundervaluation, no tax collected under such assessmentshall be recovered by any suits unless it is proved that thesaid list, statement, or return was not false nor fraudulent

and did not contain any understatement or undervaluation=but this provision shall not apply to statemen

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