Cases Part 1 -Taxation I

8/10/2019 Cases Part 1 -Taxation I

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(1) G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessaryhindrance On the other hand, such collection should be made in accordance with law as anyarbitrariness will negate the very reason for government itself. It is therefore necessary to reconcilethe apparently conflicting interests of the authorities and the taxpayers so that the real purpose oftaxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowedthe P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses inits income tax returns. The corollary issue is whether or not the appeal of the private respondentfrom the decision of the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporationengaged in engineering, construction and other allied activities, received a letter from the petitionerassessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and1959.1On January 18, 1965, Algue flied a letter of protest or request for reconsideration, whichletter was stamp received on the same day in the office of the petitioner. 2On March 12, 1965, awarrant 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. 3A search ofthe protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gavea photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4On April 7, 1965,

Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it wasonly then that he accepted the warrant of distraint and levy earlier sought to be served.5Sixteen dayslater, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner ofInternal Revenue with the Court of Tax Appeals.6

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.7It istrue that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8andrenders hopeless a request for reconsideration," 9being "tantamount to an outright denial thereofand makes the said request deemed rejected." 10But there is a special circumstance in the case atbar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice ofassessment, it filed its letter of protest. This was apparently not taken into account before thewarrant of distraint and levy was issued; indeed, such protest could not be located in the office of thepetitioner. 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 andcould therefore not be served.

As the Court of Tax Appeals correctly noted," 11the protest filed by private respondent was notproformaand was based on strong legal considerations. It thus had the effect of suspending on January


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18, 1965, when it was filed, the reglementary period which started on the date the assessment wasreceived, viz., January 14, 1965. The period started running again only on April 7, 1965, when theprivate respondent was definitely informed of the implied rejection of the said protest and the warrantwas finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of thereglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed becauseit was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals hadseen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by theprivate respondent for actual services rendered. The payment was in the form of promotional fees.These were collected by the Payees for their work in the creation of the Vegetable Oil InvestmentCorporation of the Philippines and its subsequent purchase of the properties of the Philippine SugarEstate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional feesto be personal holding company income 12but later conformed to the decision of the respondent

court rejecting this assertion.13

In fact, as the said court found, the amount was earned through thejoint efforts of the persons among whom it was distributed It has been established that the PhilippineSugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sellits land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation ofthe Vegetable Oil Investment Corporation, inducing other persons to invest in it. 14Ultimately, after itsincorporation largely through the promotion of the said persons, this new corporation purchased thePSEDC properties.15For this sale, Algue received as agent a commission of P126,000.00, and itwas from this commission that the P75,000.00 promotional fees were paid to the aforenamedindividuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income

tax returns and paid the corresponding taxes thereon.17

The Court of Tax Appeals also found, afterexamining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members ofthe same family in control of Algue. It is argued that no indication was made as to how suchpayments were made, whether by check or in cash, and there is not enough substantiation of suchpayments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimateassessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not madein one lump sum but periodically and in different amounts as each payee's need arose. 19It should

be remembered that this was a family corporation where strict business procedures were not appliedand immediate issuance of receipts was not required. Even so, at the end of the year, when thebooks were to be closed, each payee made an accounting of all of the fees received by him or her,to make up the total of P75,000.00. 20Admittedly, everything seemed to be informal. Thisarrangement was understandable, however, in view of the close relationship among the persons inthe family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. Thetotal commission paid by the Philippine Sugar Estate Development Co. to the private respondent


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was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clearprofit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was areasonable proportion, considering that it was the payees who did practically everything, from theformation of the Vegetable Oil Investment Corporation to the actual purchase by it of the SugarEstate properties. This finding of the respondent court is in accord with the following provision of theTax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed asdeductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year incarrying on any trade or business, including a reasonable allowance for salaries or othercompensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid orincurred in carrying on any trade or business may be included a reasonable allowance for salaries orother compensation for personal services actually rendered. The test of deductibility in the case ofcompensation payments is whether they are reasonable and are, in fact, payments purely forservice. This test and deductibility in the case of compensation payments is whether they arereasonable and are, in fact, payments purely for service. This test and its practical application maybe further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is notdeductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend onstock. This is likely to occur in the case of a corporation having few stockholders, Practically all ofwhom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar

services, and the excessive payment correspond or bear a close relationship to the stockholdings ofthe officers of employees, it would seem likely that the salaries are not paid wholly for servicesrendered, but the excessive payments are a distribution of earnings upon the stock. . . .(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue norwere they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validityof the claimed deduction. In the present case, however, we find that the onus has been dischargedsatisfactorily. The private respondent has proved that the payment of the fees was necessary andreasonable in the light of the efforts exerted by the payees in inducing investors and prominentbusinessmen to venture in an experimental enterprise and involve themselves in a new businessrequiring millions of pesos. This was no mean feat and should be, as it was, sufficientlyrecompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would beparalyzed for lack of the motive power to activate and operate it. Hence, despite the naturalreluctance to surrender part of one's hard earned income to the taxing authorities, every person whois able to must contribute his share in the running of the government. The government for its part, isexpected to respond in the form of tangible and intangible benefits intended to improve the lives of


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the people and enhance their moral and material values. This symbiotic relationship is the rationaleof taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by thosein the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in alldemocratic 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 come to hissuccor. For all the awesome power of the tax collector, he may still be stopped in his tracks if thetaxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed ontime with the respondent court in accordance with Rep. Act No. 1125. And we also find that theclaimed deduction by the private respondent was permitted under the Internal Revenue Code andshould therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMEDin toto,withoutcosts.

SO ORDERED.

Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

(2) G.R. No. 134062 April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,vs.BANK OF THE PHILIPPINE ISLANDS,Respondent.

D E C I S I O N

CORONA, J.:

This is a petition for review on certiorari1of a decision2of the Court of Appeals (CA) dated May 29,1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3and resolution4of theCourt of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA CaseNo. 4715.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessedrespondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamptaxes for the year 1986 in the total amount of P129,488,656.63:

1986Deficiency Percentage Tax
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Deficiency percentage tax P 7, 270,892.88

Add: 25% surcharge 1,817,723.22

20% interest from 1-21-87 to 10-28-88 3,215,825.03

Compromise penalty

15,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13

1986Deficiency Documentary Stamp Tax

Deficiency percentage tax P93,723,372.40

Add: 25% surcharge 23,430,843.10

Compromise penalty15,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed asshown above. Said assessment has been based on return(filed by you)(as verified)(made bythis Office)(pending investigation)(after investigation). You are requested to pay the aboveamount to this Office or to our Collection Agent in the Office of the City or Deputy ProvincialTreasurer of xxx6

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even inthe vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiencyassessment is to inform taxpayer why he has incurred a deficiency so that he can make an intelligentdecision on whether to pay or to protest the assessment. This is all the more so when theassessment involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even in the briefest form,why he believes the taxpayer has a deficiency documentary and percentage taxes, and as to thepercentage tax, it is important that the taxpayer be informed also as to what particular percentagetax the assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forgedbetween your office and the Bankers Association of the Philippines [BAP] on this issue and of BPIssubmission of its computations under this compromise. There is therefore no basis whatsoever forthis assessment, assuming it is on the subject of the BAP compromise. On the other hand, if itrelates to documentary stamp tax on some other issue, we should like to be informed about whatthose issues are.
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3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessmentmay be protested since your letter does not even tell the taxpayer what particular percentage tax isinvolved and how your examiner arrived at the deficiency. As soon as this is explained and clarifiedin a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay orprotest the assessment.7

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised againstthe validity of our assessment still we obliged to explain the basis of the assessments.

xxx xxx xxx

this constitutes the final decision of this office on the matter.8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8,1991 letter.9This was denied in a letter dated December 12, 1991, received by BPI on January 21,

1992.10

On February 18, 1992, BPI filed a petition for review in the CTA.11In a decision dated November 16,1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had becomefinal and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of theNational Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA1125.12It denied reconsideration in a resolution dated May 27, 1996.13

On appeal, the CA reversed the tax courts decision and resolution and remanded the case to theCTA14for a decision on the merits.15It ruled that the October 28, 1988 notices were not validassessments because they did not inform the taxpayer of the legal and factual bases therefor. Itdeclared that the proper assessments were those contained in the May 8, 1991 letter which provided

the reasons for the claimed deficiencies.

16

Thus, it held that BPI filed the petition for review in theCTA on time.17The CIR elevated the case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamptaxes for 1986 had already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 27018(now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representativefinds that proper taxes should be assessed, he shall first notify the taxpayer of hisfindings.Within a period to be prescribed by implementing regulations, the taxpayer shall berequired to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue anassessment based on his findings.

xxx xxx xxx (emphasis supplied)

Were the October 28, 1988 Notices Valid Assessments?
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The first issue for our resolution is whether or not the October 28, 1988 notices19were validassessments. If they were not, as held by the CA, then the correct assessments were in the May 8,1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for areconsideration of the findings which the CIR denied in his December 12, 1991 letter, received byBPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February18, 1992 would be well within the 30-day period provided by law.20

The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalidassessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) whichwas designed for the precise purpose of notifying taxpayers of the assessed amounts due anddemanding payment thereof.21He contends that there was no law or jurisprudence then thatrequired notices to state the reasons for assessing deficiency tax liabilities.22

BPI counters that due process demanded that the facts, data and law upon which the assessmentswere based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section228), specifically provides that:

"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is

made; otherwise, the assessment shall be void."

According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what dueprocess requires even under the former Section 270.

BPIs contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representativefinds that proper taxes should be assessed, he shall first notify the taxpayer of hisfindings: Provided, however, That a preassessment notice shall not be required in the followingcases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the assessment ismade; otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments ofthe deficiency taxes were made. He merely notified BPI of his findings, consisting only of thecomputation of the tax liabilities and a demand for payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997).23In CIR v.Reyes,24we held that:

In the present case, Reyes was not informed in writing of the law and the facts on which theassessment of estate taxes had been made. She was merely notified of the findings by the CIR, whohad simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,otherwise known as the Tax Reform Act of 1997.
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First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. Theold requirement of merelynotifying the taxpayer of the CIR's findings was changed in1998to informingthe taxpayer of not only the law, but also of the facts on which an assessmentwould be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On

April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.During those dates, RA 8424 was already in effect. The notice required under the old law was nolonger sufficient under the new law.25(emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270, the onlyrequirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old lawrequired a written statement to the taxpayer of the law and facts on which the assessments werebased. The Court cannot read into the law what obviously was not intended by Congress. Thatwould be judicial legislation, nothing less.

Jurisprudence, on the other hand, simply required that the assessments contain a computation of taxliabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed

period.26

Everything considered, there was no doubt the October 28, 1988 notices sufficiently metthe requirements of a valid assessment under the old law and jurisprudence.

The sentence

[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment ismade; otherwise, the assessment shall be void

was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequotedsentence.27The fact that the amendment was necessary showed that, prior to the introduction of theamendment, the statute had an entirely different meaning.28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not anaffirmation of what the law required under the former Section 270. The amendment introduced by RA8424 was an innovation and could not be reasonably inferred from the old law.29Clearly, thelegislature intended to insert a new provision regarding the form and substance of assessmentsissued by the CIR.30

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] ofthe legal and factual basis of the formers decision to charge the latter for deficiency documentary

stamp and gross receipts taxes.31

In other words, the CAs theory was that BPI was deprived of due process when the CIR failed toinform it in writing of the factual and legal bases of the assessments even if these were not calledfor under the old law.

We disagree.
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Indeed, the underlying reason for the law was the basic constitutional requirement that "no personshall be deprived of his property without due process of law."32We note, however, what the CTA hadto say:

xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunityto discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI]ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh]out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counselhonestly tell this Court that they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Managerof the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets whichcontain his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the sameworksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the natureand basis of the assessments, and was given all the opportunity to contest the same but ignored itdespite the notice conspicuously written on the assessments which states that "this ASSESSMENTbecomes final and unappealable if not protested within 30 days after receipt." Counsel resorted todilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to thecause of his client.33

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated

exclusively to the consideration of tax problems, has necessarily developed an expertise on thesubject, and its conclusions will not be overturned unless there has been an abuse or improvidentexercise of authority. Such findings can only be disturbed on appeal if they are not supported bysubstantial evidence or there is a showing of gross error or abuse on the part of the [CTA].34

Under the former Section 270, there were two instances when an assessment became final andunappealable: (1) when it was not protested within 30 days from receipt and (2) when the adversedecision on the protest was not appealed to the CTA within 30 days from receipt of the finaldecision:35

Sec. 270. Protesting of assessment.1a\^/phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration orreinvestigation in such form and manner as may be prescribed by the implementing regulationswithin thirty (30) days from receipt of the assessment; otherwise, the assessment shall become finaland unappealable.
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If the protest is denied in whole or in part, the individual, association or corporation adverselyaffected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt ofthe said decision; otherwise, the decision shall become final, executory and demandable.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should have protestedthe same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did notqualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in aproper letter of assessment, we shall inform you of the taxpayers decision on whether to payor protest the assessment."36Hence, by its own declaration, BPI did not regard this letter as aprotest against the assessments. As a matter of fact, BPI never deemed this a protest since it did noteven consider the October 28, 1988 notices as valid or proper assessments.

The inevitable conclusion is that BPIs failure to protest the assessments within the 30 -day periodprovided in the former Section 270 meant that they became final and unappealable. Thus, the CTAcorrectly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputingthe correctness of the assessments or invoking any defense that would reopen the question of its

liability on the merits.37

Not only that. There arose a presumption of correctness when BPI failed toprotest the assessments:

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer hasthe 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 superiorofficers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38

Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemedto have failed to appeal the CIRs final decision regarding the disputed assessments within the 30 -day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "finaldecision on the matter." BPI therefore had 30 days from the time it received the decision on June

27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal inthe CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer therepercussions of its omission. We have already declared that:

the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever hisaction on an assessment questioned by a taxpayer constitutes his final determination on thedisputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On thebasis of his statement indubitably showing that the Commissioner's communicated action ishis final decision on the contested assessment, the aggrieved taxpayer would then be able totake recourse to the tax court at the opportune time. Without needless difficulty, the taxpayerwould be able to determine when his right to appeal to the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayerto continually delay the finality of the assessment and, consequently, the collection of theamount demanded as taxes by repeated requests for recomputation andreconsideration. On the part of the [CIR], this would encourage his office to conduct a careful andthorough study of every questioned assessment and render a correct and definite decision thereonin the first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in thedark and speculate as to which action constitutes the decision appealable to the tax court. Of greaterimport, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness inadministrative action.39(emphasis supplied)
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Either way (whether or not a protest was made), we cannot absolve BPI of its liability under thesubject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve aconsiderable amount of money. Be that as it may, we cannot legally presume the existence ofsomething which was never there. The state will be deprived of the taxes validly due it and the public

will suffer if taxpayers will not be held liable for the proper taxes assessed against them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist norendure. A principal attribute of sovereignty, the exercise of taxing power derives its source from thevery existence of the state whose social contract with its citizens obliges it to promote public interestand common good. The theory behind the exercise of the power to tax emanates from necessity;without taxes, government cannot fulfill its mandate of promoting the general welfare and well-beingof the people.40

WHEREFORE, the petition is hereby GRANTED.The May 29, 1998 decision of the Court of Appealsin CA-G.R. SP No. 41025 is REVERSED andSET ASIDE.

SO ORDERED.

(3) G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,vs.VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,CITY MAYOR and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J .:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly onbehalf of other videogram operators adversely affected. It assails the constitutionality of PresidentialDecree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers toregulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). TheDecree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) daysafter completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, PresidentialDecree No. 1994 amended the National Internal Revenue Code providing,inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, readyfor playback, regardless of length, an annual tax of five pesos; Provided, That locally manufacturedor imported blank video tapes shall be subject to sales tax.
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On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers

Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court tointervene in the case, over petitioner's opposition, upon the allegations that intervention wasnecessary for the complete protection of their rights and that their "survival and very existence isthreatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to

file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,videotapes, discs, cassettes or any technical improvement or variation thereof, have greatlyprejudiced the operations of moviehouses and theaters, and have caused a sharp decline intheatrical attendance by at least forty percent (40%) and a tremendous drop in the collection ofsales, contractor's specific, amusement and other taxes, thereby resulting in substantial lossesestimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from

rentals, sales and disposition of videograms, and such earnings have not been subjected to tax,thereby depriving the Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viabilityof the movie industry, particularly the more than 1,200 movie houses and theaters throughout thecountry, and occasioned industry-wide displacement and unemployment due to the shutdown ofnumerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government tocreate an environment conducive to growth and development of all business industries, including themovie industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate thedire financial condition of the movie industry upon which more than 75,000 families and 500,000workers depend for their livelihood, but also provide an additional source of revenue for theGovernment, and at the same time rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes aclear and present danger to the moral and spiritual well-being of the youth, and impairs the mandateof the Constitution for the State to support the rearing of the youth for civic efficiency and thedevelopment of moral character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb theseblatant malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people andbetraying the national economic recovery program, bold emergency measures must be adopted withdispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the localgovernment is a RIDER and the same is not germane to the subject matter thereof;


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2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violationof the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferredupon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post factolaw; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall beexpressed in the title thereof" 1is sufficiently complied with if the title be comprehensive enough toinclude the general purpose which a statute seeks to achieve. It is not necessary that the titleexpress each and every end that the statute wishes to accomplish. The requirement is satisfied if all

the parts of the statute are related, and are germane to the subject matter expressed in the title, oras long as they are not inconsistent with or foreign to the general subject and title. 2An act having asingle general subject, indicated in the title, may contain any number of provisions, no matter howdiverse they may be, so long as they are not inconsistent with or foreign to the general subject, andmay be considered in furtherance of such subject by providing for the method and means of carryingout the general object." 3The rule also is that the constitutional requirement as to the title of a billshould not be so narrowly construed as to cripple or impede the power of legislation. 4It should begiven practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is arider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision oflaw to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price orrental rate, as the case may be, for every sale, lease or disposition of a videogram containing areproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of thetax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to themunicipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall beshared equally by the City/Municipality and the Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for theaccomplishment of, the general object of the DECREE, which is the regulation of the video industrythrough the Videogram Regulatory Board as expressed in its title. The tax provision is notinconsistent with, nor foreign to that general subject and title. As a tool for regulation 6it is simplyone of the regulatory and control mechanisms scattered throughout the DECREE. The expresspurpose of the DECREE to include taxation of the video industry in order to regulate and rationalizethe heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra.Those preambles explain the motives of the lawmaker in presenting the measure. The title of theDECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough toinclude the purposes expressed in its Preamble and reasonably covers all its provisions. It is


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unnecessary to express all those objectives in the title or that the latter be an index to the body of theDECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does notcease to be valid merely because it regulates, discourages, or even definitely deters the activities

taxed. 8The power to impose taxes is one so unlimited in force and so searching in extent, that thecourts scarcely venture to declare that it is subject to any restrictions whatever, except such as restin the discretion of the authority which exercises it. 9In imposing a tax, the legislature acts upon itsconstituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted bythe realization that earnings of videogram establishments of around P600 million per annum havenot been subjected to tax, thereby depriving the Government of an additional source of revenue. It isan end-user tax, imposed on retailers for every videogram they make available for public viewing. Itis similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thusshifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all

videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need forregulating the video industry, particularly because of the rampant film piracy, the flagrant violation ofintellectual property rights, and the proliferation of pornographic video tapes. And while it was alsoan objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature toimpose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has beenrepeatedly held that "inequities which result from a singling out of one particular class for taxation or

exemption infringe no constitutional limitation". 12 Taxation has been made the implement of thestate's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE bythe former President under Amendment No. 6 of the 1973 Constitution providing that "whenever inthe judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable toact adequately on any matter for any reason that in his judgment requires immediate action, he may,in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, whichshall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clausesufficiently summarizes the justification in that grave emergencies corroding the moral values of thepeople and betraying the national economic recovery program necessitated bold emergencymeasures to be adopted with dispatch. Whatever the reasons "in the judgment" of the thenPresident, considering that the issue of the validity of the exercise of legislative power under the said

Amendment still pends resolution in several other cases, we reserve resolution of the questionraised at the proper time.


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4. Neither can it be successfully argued that the DECREE contains an undue delegation oflegislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit thedirect assistance of other agencies and units of the government and deputize, for a fixed and limitedperiod, the heads or personnel of such agencies and units to perform enforcement functions for theBoard" is not a delegation of the power to legislate but merely a conferment of authority or discretionas to its execution, enforcement, and implementation. "The true distinction is between the delegation

of power to make the law, which necessarily involves a discretion as to what it shall be, andconferring authority or discretion as to its execution to be exercised under and in pursuance of thelaw. The first cannot be done; to the latter, no valid objection can be made." 14Besides, in the verylanguage of the decree, the authority of the BOARD to solicit such assistance is for a "fixed andlimited period" with the deputized agencies concerned being "subject to the direction and control ofthe BOARD." That the grant of such authority might be the source of graft and corruption would notstigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties willnot be without adequate remedy in law.

5. The DECREE is not violative of the ex post factoprinciple. An ex post factolaw is, among othercategories, one which "alters the legal rules of evidence, and authorizes conviction upon less ordifferent testimony than the law required at the time of the commission of the offense." It is

petitioner's position that Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days afterthe effectivity of this Decree within which to register with and secure a permit from the BOARD toengage in the videogram business and to register with the BOARD all their inventories ofvideograms, including videotapes, discs, cassettes or other technical improvements or variationsthereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram foundin the possession of any person engaged in the videogram business without the required proof ofregistration by the BOARD, shall be prima facie evidence of violation of the Decree, whether thepossession of such videogram be for private showing and/or public exhibition.

raises immediately aprima facieevidence of violation of the DECREE when the required proof of

registration of any videogram cannot be presented and thus partakes of the nature of an ex postfactolaw.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, etal. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing thatthe presumption of innocence may be overcome by a contrary presumption founded upon theexperience of human conduct, and enacting what evidence shall be sufficient to overcome suchpresumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, ATREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enactthat when certain facts have been proved that they shall be prima facie evidence of the existence of

the guilt of the accused and shift the burden of proof provided there be a rational connectionbetween the facts proved and the ultimate facts presumed so that the inference of the one from proofof the others is not unreasonable and arbitrary because of lack of connection between the two incommon experience". 16

Applied to the challenged provision, there is no question that there is a rational connection betweenthe fact proved, which is non-registration, and the ultimate fact presumed which is violation of theDECREE, besides the fact that theprima facie presumption of violation of the DECREE attaches


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only after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective incharacter.

6. We do not share petitioner's fears that the video industry is being over-regulated and being easedout of existence as if it were a nuisance. Being a relatively new industry, the need for its regulationwas apparent. While the underlying objective of the DECREE is to protect the moribund movie

industry, there is no question that public welfare is at bottom of its enactment, considering "the unfaircompetition posed by rampant film piracy; the erosion of the moral fiber of the viewing public broughtabout by the availability of unclassified and unreviewed video tapes containing pornographic filmsand films with brutally violent sequences; and losses in government revenues due to the drop intheatrical attendance, not to mention the fact that the activities of video establishments are virtuallyuntaxed since mere payment of Mayor's permit and municipal license fees are required to engage inbusiness. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the videoindustry. On the contrary, video establishments are seen to have proliferated in many placesnotwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency ofthe DECREE. These considerations, however, are primarily and exclusively a matter of legislativeconcern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis fordeclaring a statute invalid. This is as it ought to be. The principle of separation of powers has in themain wisely allocated the respective authority of each department and confined its jurisdiction tosuch a sphere. There would then be intrusion not allowable under the Constitution if on a matter leftto the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherenceto the rule of law, as there ought to be, the last offender should be courts of justice, to which rightlylitigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms andprescriptions. The attack on the validity of the challenged provision likewise insofar as there may be

objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challengedstatute. We find no clear violation of the Constitution which would justify us in pronouncingPresidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.


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(4) Fels Energy, Inc. vs. Province of BatangasG.R. No. 168557. February 16, 2007.

Callejo Sr., J.

Facts:On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 330

MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,denominated as an Energy Conversion Agreement, was for a period of five years. Article 10 statesthat NPC shall be responsible for the payment of taxes. (other than (i) taxes imposed or calculatedon the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii)construction permit fees, environmental permit fees and other similar fees and charges. PolarEnergy then assigned its rights under the Agreement to Fels despite NPCs initial opposition.

FELS received an assessment of real property taxes on the power barges from Provincial AssessorLauro C. Andaya of Batangas City. FELS referred the matter to NPC, reminding it of its obligationunder the Agreement to pay all real estate taxes. It then gave NPC the full power and authority torepresent it in any conference regarding the real property assessment of the Provincial Assessor.NPC filed a petition with the LBAA. The LBAA ordered Fels to pay the real estate taxes. The LBAA

ruled that the power plant facilities, while they may be classified as movable or personal property,are nevertheless considered real property for taxation purposes because they are installed at aspecific location with a character of permanency. The LBAA also pointed out that the owner of thebargesFELS, a private corporationis the one being taxed, not NPC. A mere agreement makingNPC responsible for the payment of all real estate taxes and assessments will not justify theexemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS.Finally, the LBAA also ruled that the petition was filed out of time.

Fels appealed to the CBAA. The CBAA reversed and ruled that the power barges belong to NPC;since they are actually, directly and exclusively used by it, the power barges are covered by theexemptions under Section 234(c) of R.A. No. 7160. As to the other jurisdictional issue, the CBAAruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in

accordance with Section 206 of R.A. No. 7160. Upon MR, the CBAA reversed itself.

Issue:Whether or not the petitioner may be assessed of real property taxes.

Held:YES. The CBAA and LBAA power barges are real property and are thus subject to realproperty tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissedfor failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumedcorrect and made in good faith, with the taxpayer having the burden of proving otherwise. Besides,factual findings of administrative bodies, which have acquired expertise in their field, are generallybinding and conclusive upon the Court; we will not assume to interfere with the sensible exercise ofthe judgment of men especially trained in appraising property. Where the judicial mind is left indoubt, it is a sound policy to leave the assessment undisturbed. We find no reason to depart from

this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a powercompany brought an action to review property tax assessment. On the citys motion to dismiss, theSupreme Court of New York held that the barges on which were mounted gas turbine power plantsdesignated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plantbarges, and the accessory equipment mounted on the barges were subject to real property taxation.


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Moreover, Article 415 (9) of the New Civil Code provides that docks and structures which, thoughfloating, are intended by their nature and object to remain at a fixed place on a river, lake, or coastare considered immovable property. Thus, power barges are categorized as immovable property bydestination, being in the nature of machinery and other implements intended by the owner for anindustry or work which may be carried on in a building or on a piece of land and which tend directlyto meet the needs of said industry or work.

Petitioners maintain nevertheless that the power barges are exempt from real estate tax underSection 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used bypetitioner NPC, a government- owned and controlled corporation engaged in the supply, generation,and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitionerFELS, which in fine, is the entity being taxed by the local government. As stipulated under Section2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,fittings, machinery and equipment on the Site used in connection with the Power Barges which have

been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Bargesfor the purpose of converting Fuel of NAPOCOR into electricity.

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking itsexemption in Section 234 (c) of R.A. No. 7160. Indeed, the law states that the machinery must beactually, directly and exclusively used by the government owned or controlled corporation;nevertheless, petitioner FELS still cannot find solace in this provision because Section 5.5, Article 5of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply ofthenecessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the PowerBarges to convert such Fuel into electricity in accordance with Part A of Article 7.

It is a basic rule that obligations arising from a contract have the force of law between the parties.Not being contrary to law, morals, good customs, public order or public policy, the parties to thecontract are bound by its terms and conditions.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is theexception. The law does not look with favor on tax exemptions and the entity that would seek to bethus privileged must justify it by words too plain to be mistaken and too categorical to bemisinterpreted. Thus, applying the rule of strict construction of laws granting tax exemptions, and therule that doubts should be resolved in favor of provincial corporations, we hold that FELS isconsidered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall beresponsible for the payment of all real estate taxes and assessments, does not justify the exemption.The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is betweenFELS and NPC and does not bind a third person not privy thereto, in this case, the Province ofBatangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the localgovernments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimitedin its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to


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be found only in the responsibility of the legislature which imposes the tax on the constituency whoare to pay for it. The right of local government units to collect taxes due must always be upheld toavoid severe tax erosion. This consideration is consistent with the State policy to guarantee theautonomy of local governments and the objective of the Local Government Code that they enjoygenuine and meaningful local autonomy to empower them to achieve their fullest development asself-reliant communities and make them effective partners in the attainment of national goals.

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the neededrevenues to finance and support myriad activities of the local government units for the delivery ofbasic services essential to the promotion of the general welfare and the enhancement of peace,progress, and prosperity of the people.

(5) G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., andCOURT OF TAX APPEALS, respondents.

PUNO, J.:

For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund ortax credit for amounts representing pre-payment of income and common carrier's taxes under theNational Internal Revenue Code, section 24 (b) (2), as amended.1

Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship

Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980,NASUTRA2chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. 3OnDecember 23, 1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, 4paid therequired income and common carrier's taxes in the respective sums of FIFTY-NINE THOUSANDFIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) andFORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONEHUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVECENTAVOS (P107,142.75) based on the expected gross receipts of the vessel.5Upon arriving,however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981,NASUTRA and private respondent's agent mutually agreed to have the vessel sail for Japan withoutany cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt wasrealized from the charter agreement, private respondent instituted a claim for tax credit or refund ofthe sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS andSEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue onMarch 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, privaterespondent filed a petition for review6before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: thattaxes are presumed to have been collected in accordance with law; that in an action for refund, the


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burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and thetaxpayer's failure to sustain said burden is fatal to the action for refund; and that claims for refundare construed strictly against tax claimants.7

After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with the mentioned statutoryrequirement by having filed a written claim for refund within the two-year period from date ofpayment; 2) the respondent has not issued any deficiency assessment nor disputed the correctnessof the tax returns and the corresponding amounts of prepaid income and percentage taxes; and 3)the chartered vessel sailed out of the Philippine port with absolutely no cargo laden on board ascleared and certified by the Customs authorities; nonetheless 4) respondent's apparent bit ofreluctance in validating the legal merit of the claim, by and large, is tacked upon the "examiner whois investigating petitioner's claim for refund which is the subject matter of this case has not yetsubmitted his report. Whether or not respondent will present his evidence will depend on the saidreport of the examiner." (Respondent's Manifestation and Motion dated September 7, 1982). Be thatas it may the case was submitted for decision by respondent on the basis of the pleadings andrecords and by petitioner on the evidence presented by counsel sansthe respective memorandum.

An examination of the records satisfies us that the case presents no dispute as to relatively simplematerial facts. The circumstances obtaining amply justify petitioner's righteous indignation to a moreexpeditious action. Respondent has offered no reason nor made effort to submit any controvertingdocuments to bash that patina of legitimacy over the claim. But as might well be, towards the end ofsome two and a half years of seeming impotent anguish over the pendency, the respondentCommissioner of Internal Revenue would furnish the satisfaction of ultimate solution by manifestingthat "it is now his turn to present evidence, however, the Appellate Division of the BIR has alreadyrecommended the approval of petitioner's claim for refund subject matter of this petition. Theexaminer who examined this case has also recommended the refund of petitioner's claim. Withoutprejudice to withdrawing this case after the final approval of petitioner's claim, the Court ordered theresetting to September 7, 1983." (Minutes of June 9, 1983 Session of the Court) We need not

fashion any further issue into an apparently settled legal situation as far be it from a comedy of errorsit would be too much of a stretch to hold and deny the refund of the amount of prepaid income andcommon carrier's taxes for which petitioner could no longer be made accountable.

On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, thispetition for review on certiorari.

Petitioner now contends: (1) private respondent has the burden of proof to support its claim ofrefund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) itsuppressed evidence when it did not present its charter agreement.

We find no merit in the petition.

There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal RevenueCode which at that time provides as follows:

A corporation organized, authorized, or existing under the laws of any foreign country, engaged intrade or business within the Philippines, shall be taxable as provided in subsection (a) of this sectionupon the total net income derived in the preceding taxable year from all sources within thePhilippines: Provided, however, That international carriers shall pay a tax of two and one-half percent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue


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We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum ofONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVECENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way backin 1980 and despite the clear showing that it was erroneously paid, the government succeeded indelaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation,the money that will be finally refunded to the private respondent is just worth a damaged nickel. This

is not, however, the kind of success the government, especially the BIR, needs to increase itscollection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands thatBIR should refund without any unreasonable delay what it has erroneously collected. Our rulinginRoxas v. Court of Tax Appeals12is apropos to recall:

The power of taxation is sometimes called also the power to destroy. Therefore it should beexercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercisedfairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in orderto maintain the general public's trust and confidence in the Government this power must be used

justly and not treacherously.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15,

1983, is AFFIRMED in toto. No costs.

SO ORDERED.

(6) PILIPINAS SHELL PETROLEUM CORPORATION vs COMMISSIONER OF INTERNALREVENUE

G.R. No. 172598

The Case

Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006Decision[1]of the Court of Tax Appeals (CTA) En Bancin CTA EB No. 64, which upheld respondentsassessment against petitioner for deficiency excise taxes for the taxable years 1992 and 1994 to1997. Said En Bancdecision reversed and set aside the August 2, 2004 Decision[2]and January 20,2005 Resolution[3]of the CTA Division in CTA Case No. 6003 entitled Pilipinas Shell PetroleumCorporation v. Commissioner of Internal Revenue, which ordered the withdrawal of the April 22,1998 collection letter of respondent and enjoined him from collecting said deficiency excise taxes.

The Facts

Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of theinternational petroleum giant Shell, and is engaged in the importation, refining and sale of petroleumproducts in the country.

From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs)which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Creditand Duty Drawback Center (Center) from other Board of Investment (BOI)-registeredcompanies. The Center is a composite body run by four government agencies, namely: the DOF,Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), and BOI.
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Through the Center, PSPC acquired for value various Center-issued TCCs which werecorrespondingly transferred to it by other BOI-registered companies through Center-approved Deedsof Assignments. Subsequently, when PSPC signified its intent to use the TCCs to pay part of itsexcise tax liabilities, said payments were duly approved by the Center through the issuance of TaxDebit Memoranda (TDM), and the BIR likewise accepted as payments the TCCs by issuing its ownTDM covering said TCCs, and the corresponding Authorities to Accept Payment for Excise Taxes

(ATAPETs).

However, on April 22, 1998, the BIR sent a collection letter[4]to PSPC for alleged deficiency excisetax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997, inclusive ofdelinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC isnot a qualified transferee of the TCCs it acquired from other BOI-registered companies. Thesealleged excise tax deficiencies covered by the collection letter were already paid by PSPC withTCCs acquired through, and issued and duly authorized by the Center, and duly covered by TDMs ofboth the Center and BIR, with the latter also issuing the corresponding ATAPETs.

PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR throughthe Regional Director of Revenue Region No. 8. PSPC filed its motion for reconsideration. However,due to respondents inaction on the motion, onFebruary 2, 1999, PSPC filed a petition for reviewbefore the CTA, docketed as CTA Case No. 5728.

On July 23, 1999, the CTA rendered a Decision [5]in CTA Case No. 5728 ruling, inter alia, that theuse by PSPC of the TCCs was legal and valid, and that respondents attempt to collect allegeddelinquent taxes and penalties from PSPC without an assessment constitutes denial of dueprocess. The dispositive portion of the July 23, 1999 CTA Decision reads:

[T]he instant petition for review is GRANTED. The collection letter issued by the Respondentdated April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to collect from

petitioner the specific tax, surcharge and interest subject of this petition.[6]

Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court ofAppeals (CA) through a petition for review[7]docketed as CA-G.R. SP No. 55329. This case wassubsequently consolidated with the similarly situated case of Petron Corporation under CA-G.R. SPNo. 55330. To date, these consolidated cases are still pending resolution before the CA.

Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center sentseveral letters to PSPC dated August 31, 1999,[8]September 1, 1999,[9]andOctober 18,1999.[10] The first required PSPC to submit copies of pertinent sales invoices and delivery receiptscovering sale transactions of PSPC products to the TCC assignors/transferors purportedly inconnection with an ongoing post audit. The second letter similarly required submission of the same

documents covering PSPC Industrial Fuel Oil (IFO) deliveries to Spintex International, Inc. The thirdletter is in reply to the September 29, 1999 letter sent by PSPC requesting a list of the serialnumbers of the TCCs assigned or transferred to it by various BOI-registered companies, eitherassignors or transferors.

In its letter dated October 29, 1999 and received by the Center on November 3, 1999, PSPCemphasized that the required submission of these documents had no legal basis, for the applicablerules and regulations on the matter only require that both the assignor and assignee of TCCs beBOI-registered entities.[11] On November 3, 1999, the Center informed PSPC of the cancellation of
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the first batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs aswell as the corresponding TCC assignments. PSPCs motion for reconsideration was not actedupon.

On November 22, 1999, PSPC received the November 15, 1999 assessment letter[12]fromrespondent for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled

TCCs and TDM covering PSPCs use of the TCCs. All these cancelled TDM and TCCs were alsopart of the subject matter in CTA Case No. 5728, now pending before the CA in CA-G.R. SP No.55329.

PSPC protested[13]the assessment letter, but the protest was denied by the BIR, constraining it tofile another petition for review[14]before the CTA, docketed as CTA Case No. 6003.

Parenthetically, on March 30, 2004, Republic Act No. (RA) 9282 [15]was promulgated amending RA1125,[16]expanding the jurisdiction of the CTA and enlarging its membership. It became effectiveon April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was heard and dec

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