Tax Case Digests

TAX LAW REVIEWER SAINT LOUIS UNIVERSITY BAR OPERATIONS

Subject Matter: Criminal Action; Tax Assessment

CIR V PASCOR REALTY & DEV’T CORP et. al.(GR No. 128315, June 29, 1999)

Facts:The CIR authorized certain BIR officers to examine

the books of accounts and other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively.

On March 1, 1995, Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied private respondent’s request for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review. The Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not instead filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to he CTA. The CA sustained the CTA decision and dismissed the petition.

Issues:

1. Whether or not the criminal complaint for tax evasion can be construed as an assessment.

2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.

Held:The filing of the criminal complaint with the DOJ

cannot be construed as a formal assessment. Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment.

An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The revenue officer’s affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment.

An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both.

Subject Matter: Criminal Action

CIR V CAG.R. No. 119322, June 4, 1996

Facts:A task force was created on June 1, 1993 to

investigate tax liabilities of manufacturers engaged in tax evasion schemes. On July 1, 1993, the CIR issued Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands manufactured by private respondent Fortune Tobacco Corp. (Fortune) as foreign brands subject to a higher tax rate. On August 3, 1993, Fortune questioned the validity of said reclassification as being violative of the right to due process and equal protection of laws. The CTA, on September 8, 1993 resolved that said reclassification was of doubtful legality and enjoined its enforcement.

In the meantime, on August 3, 1993, Fortune was assessed deficiency income, ad valorem and VAT for 1992 with payment due within 30 days from receipt. On September 12, 1993, private respondent moved for reconsideration of said assessment. Meanwhile on September 7, 1993, the Commissioner filed a complaint with the DOJ against private respondent Fortune, its corporate officers and 9 other corporations and their respective corporate officers for alleged fraudulent tax evasion for non-payment of the correct income, ad valorem and VAT for 1992. The complaint was referred to the DOJ Task Force on revenue cases which found sufficient basis to further investigate the charges against Fortune.

A subpoena was issued on September 8, 1993 directing private respondent to submit their counter-affidavits. But it filed a verified motion to dismiss or alternatively, a motion to suspend but was denied and thus treated as their counter-affidavit. All motions filed thereafter were denied.

January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction praying the CIR’s complaint and prosecutor’s orders be dismissed/set aside or alternatively, that the preliminary investigation be suspended pending determination by CIR of Fortune’s motion for reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.

The trial court granted the petition for a writ of preliminary injunction to enjoin the preliminary investigation on the complaint for tax evasion pending before the DOJ, ruling that the tax liability of private respondents first be settled before any complaint for fraudulent tax evasion can be initiated.

Issue:Whether the basis of private respondent’s tax liability

first be settled before any complaint for fraudulent tax evasion can be initiated.

Held:Fraud cannot be presumed. If there was fraud on

willful attempt to evade payment of ad valorem taxes by private respondent through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance of cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel’s malfeasance at the very least, there is the presumption that BIR personnel performed their duties in the regular course in ensuring that the correct taxes were paid by Fortune.

Before the tax liabilities of Fortune are finally determined, it cannot be correctly asserted that private respondents have willfully attempted to evade or defeat any tax under Secs. 254 and 256, 1997 NIRC, the fact that a tax is due must first be proved.

Prepared by the TAX LAW SECTION Chief JOCELYN ROSARIO Assistant Chief SOCRATES PADUA Members MONDAE BUENAFE, MYLENE CANAO, MONALISA IBARRA, CESAR LACDAO, GLORIFE LICLICAN, DULCE MARTINEZ, ELILYN NATURA, DONNA MICHELLE PINLAC, CECILYNNE ANDRADE and LOUBELLE ORTIZ. All Rights Reserved by the SAINT LOUIS UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2003.

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Subject Matter: Prescription of Government Rights to assess Taxes

CIR V B.F. GOODRICH PHIL., INC., ET ALGR No. 104171, February 24, 1999

Facts:Private respondent BF Goodrich Philippines Inc. was

an American corporation prior to July 3, 1974. As a condition for approving the manufacture of tires and other rubber products, private respondent was required by the Central Bank to develop a rubber plantation. In compliance therewith, private respondent bought from the government certain parcels of land in Tumajubong Basilan, in 1961 under the Public Land Act and the Parity Amendment to the 1935 constitution, and there developed a rubber plantation.

On August 2, 1973, the Justice Secretary rendered an opinion that ownership rights of Americans over Public agricultural lands, including the right to dispose or sell their real estate, would be lost upon expiration on July 3, 1974 of the Parity Amendment. Thus, private respondent sold its Basilan land holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21, 1974. Under the terms of the sale, Siltown would lease the property to private respondent for 25 years with an extension of 25 years at the option of private respondent.

Private respondent books of accounts were examined by BIR for purposes of determining its tax liability for 1974. This examination resulted in the April 23, 1975 assessment of private respondent for deficiency income tax which it duly paid. Siltown’s books of accounts were also examined, and on the basis thereof, on October 10, 1980, the Collector of Internal Revenue assessed deficiency donor’s tax of P1,020,850 in relation to said sale of the Basilan landholdings.

Private respondent contested this assessment on November 24, 1980. Another assessment dated March 16, 1981, increasing the amount demanded for the alleged deficiency donor’s tax, surcharge, interest and compromise penalty and was received by private respondent on April 9, 1981. On appeal, CTA upheld the assessment. On review, CA reversed the decision of the court finding that the assessment was made beyond the 5-year prescriptive period in Section 331 of the Tax Code.

Issue:Whether or not petitioner’s right to assess has

prescribed.

Held:Applying then Sec. 331, NIRC (now Sec. 203, 1997

NIRC which provides a 3-year prescriptive period for making assessments), it is clean that the October 16, 1980 and March 16, 1981 assessments were issued by the BIR beyond the 5-year statute of limitations. The court thoroughly studied the records of this case and found no basis to disregard the 5-year period of prescription, expressly set under Sec. 331 of the Tax Code, the law then in force.

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law or prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Subject Matter: Tax Assessment

TUPAZ V ULEPGR No. 127777, Oct 1, 1999

Facts:June 8, 1990, an information against accused

Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corp., was field for non-payment of deficiency corporate in come tax for the year 1979 in violation of Sec. 51(b) in relation to Sec. 73 of the 1977 Tax Code. The information was dismissed for the lack of jurisdiction by the MeTC of Q.C.

January 10, 1991, 2 information were filed before the RTC of Q.C. against spouses for the same alleged non-payment of deficiency corporate income tax for the year 1979.

Prior to this, petitioner was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the BIR issued a notice of assessment. Petitioner contends that the July 16, 1984 assessment was made out of time.

Petitioner avers that while Sec. 318 and 319 of the 1977 NIRC provide a 5-year period of limitation for the assessment and collection of internal revenue taxes, BP700, enacted on February 22, 1984, amended the 2 sections and reduced the period to 3 years to assess the tax liability, counted from the last day of filing the return or from the date the return is filed, whichever comes later. Since the tax return was filed in April 1980, the assessment made on July 16, 1984 was beyond the 3-year prescriptive period.

Issue:Whether the government’s right to assess has

prescribed.

Held:The shortened period of 3 years prescribed under

BP700 is not applicable to petitioner. BP700, effective April 5, 1984, specifically states that the shortened period of 3 years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the 5-year period if the taxes assessed cover taxable years prior to January 1, 1984. The deficiency income tax under consideration is for taxable year 1979. Thus, the period of assessment is still 5 years, under the old law. The income tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period of 5 years, from the last day of filing the return, or from the date the return is filed, whichever comes later.

At the outset, it must be stressed that “internal revenue taxes are self-assessing and no further assessment by the government is required to create the tax liability. An assessment, however, is not altogether inconsequential; it is relevant in the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statute of limitations and in the establishment with tax liens.”


CYANAMID PHIL., INC. V CAGR No. 108067, January 20, 2000

Facts:Petitioner, Cyanamid Philippines, Inc., a corporation

organized under Philippine laws, is a wholly owned subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods, and an importer/indenter.

February 7, 1985, the CIR sent an assessment letter to petitioner and demanded the payment of deficiency in come tax of P119,817 for taxable year 1981 which the petitioner on


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March 4, 1985, protested particularly (1) 25% surtax assessment of P3,774,867.50; (2) 1981 deficiency income tax assessment of P119,817; (3) 1981 deficiency percentage assessment of P3,346.72. CIR refused to allow the cancellation of the assessment notices.

During the pendency of the case on appeal to the CTA, both parties agreed to compromise the 1981 deficiency income assessment of P119,817 and reduced to P26,577 as compromise settlement. But the surtax on improperly accumulated profits remained unresolved. Petitioner claimed that the assessment representing the 25% surtax had no legal basis for the following reasons: (a) petitioner accumulated its earnings and profits for reasonable business requirements to meet working capital needs and retirement of indebtedness, (b) petitioner is wholly owned subsidiary of American Cyanamid Co., a corporation organized under the laws of the State of Maine, in the USA, whose shares of stock are listed and traded in New York Stock Exchange. This being the case, no individual shareholder of petitioner could have evaded or prevented the imposition of individual income taxes by petitioner’s accumulation of earnings and profits, instead contribution of the same.

CTA denied said petition.

Issue:Whether petitioner is liable for the accumulated

earnings tax for the year 1981.

Held:The amendatory provision of Sec. 25 of the 1977

NIRC, which was PD1739, enumerated the corporations exempt from the imposition of improperly accumulated tax: (a) banks, (b) non-bank financial intermediaries; (c) insurance companies; and (d) corporations organized primarily and authorized by the Central Bank to hold shares of stocks of banks. Petitioner does not fall among those exempt classes. Besides, the laws granting exemption form tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is, in fact, covered by the exemption so claimed; a burden which petitioner here has failed to discharge.

Unless rebutted, all presumptions generally are indulged in favor of the correctness of the CIR’s assessment against the taxpayer. With petitioner’s failure to prove the CIR incorrect, clearly and conclusively, this court is constrained to uphold the correctness of tax court’s ruling as affirmed by the CA.

Subject Matter: Tax refund, 2-year prescriptive period for overpaid quarterly income tax.

CIR V CAJanuary 21, 1999

Facts:Petitioner Bank of the Philippine Islands (BPI) is a

bank and trust corp. duly organized and existing under Philippine Laws. It acts as the liquidator of Paramount Acceptance Corporation after its dissolution on March 31, 1986.

On April 2, 1986, Paramount Acceptance Corp. (Paramount) filed its Corporate Annual Income Tax Return, for calendar year ending December 31, 1985, declaring a Net Income of P3,324,802.00. The income tax due thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax in the amount of P1,218,940.00

After deducting Paramount’s total quarterly income tax payments of P1,218,940.00 from its income tax of

P1,153,681.00, the return shored a refundable amount of P65,259.00

On April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid income tax for the calendar year 1985. The following day or on April 15, 1988, BPI filed the instant petition with this court in order to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes.

The CTA rendered decision ordering the CIR to give the refund to the petitioner. On appeal, the decision was affirmed by the CA.

Issue:Whether of not the 2-year period of prescription for

filing a claim for refund is to be counted from the actual filing of the income tax return.

Held:The two-year period for prescription should be

counted from the date of payment of the tax, which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return. This is so because at that point, it can already be determined whether there ahs been an overpayment by the taxpayer. Moreover, under Sec. 49 (a) by the NIRC (now Sec. 56(a), 1997 NIRC), payment is made at the time the return is filed.

There is some likelihood that the above rule could apply also to individuals who are self employed (i.e., in business and professional practice) as well as estates and trusts, which are likewise required to file quarterly returns.

Subject Matter: Tax Refund

CIR V TOKYO SHIPPING CO., LTD.May 26, 1995

Facts:Private respondent is a foreign corporation

represented in the Philippines by Soriamont Steamship Agencies, Inc. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. On December 23, 1980 Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and common carrier’s taxes in the sum total of P107,142.75 based on the expected gross receipts of the vessel. Upon 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 without any cargo.

Claiming the pre-payment of income and common carrier’s taxes as erroneous since no receipt was realized from the charter agreement private respondent instituted a claim for tax credit or refund of the sum of P107,142,75 before petitioner commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review before public respondent CTA.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected and the taxpayer’s failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed strictly against tax claimants.


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

Issue:Whether or not tax claimants has the burden of proof

to support its claim of refund.

Held:A claim for refund is in the nature of a claim for

exemption and should be construed in strictissimi juris against the taxpayer. Likewise, there can be no disagreement with petitioner’s stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund.


CITIBANK, N.A. V CAOctober 10, 1997

Facts:Citibank N.A. Philippine Branch (CITIBANK) is a

foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations.

On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31, 1979 showing a net loss of P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year’s operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibank’s corporate income tax returns, filed on April 15, 1981, showed a net loss P77,071,790.00 for income tax purposes. Its available tax credit at the end of 1980 amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not include the amounts withheld by Citibank’s tenants from rental payment sin 1980 but the rental payments for that year were declared as part of its gross income included in its annual income tax returns.

On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829.29, respectively or a total of P568,989.85; and on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund.

On August 30, 1981, the CTA adjudged Citibank’s entitlement to the tax refund sought for, representing the 5% tax withheld and paid on Citibank’s rental income for 1979 and 1980. The Court of Tax Appeals, rejected Respondent CIR’s argument that the claim was not seasonably filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibank’s rental income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the petitioner bank was denied. Hence, this petition.

Issue:Whether or not income taxes remitted partially on a

periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer’s final adjusted returns.

Held:

In several cases, we have already ruled that income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer’s final adjusted returns, not on such periodic or quarterly basis. When applied to taxpayers filing income tax returns on a quarterly basis, the date of payment mentioned in Sec. 230 must be deemed to be qualified by Sec. 68 and 69 of the present. Tax Code. It may be observed that although quarterly taxes due are required to be paid within 60 days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to be corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns.

COMMISSIONER OF INTERNAL REVENUEvs.

COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE

PHILIPPINES, INCG.R. No. 124043 October 14, 1998

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned an income from leasing out a portion of its premises and in addition from parking fees collected from non-members. The commissioner of internal revenue (CIR) issued an assessment to private respondent including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment. In reply, the CIR denied the claims of YMCA. YMCA then filed a petition for review at the Court of Tax Appeals (CTA). The CTA issued this ruling in favor of the YMCA allowing the YMCA to claim tax exemption on the latter's income from the lease of its real property. Said decision was also affirmed by the CA, hence, this recourse.

ISSUE: Whether or not CA departed from the findings of fact

of the CTA and therefore violated the doctrine that findings of fact of the CTA is not reviewable.

DECISION:Indeed, it is a basic rule in taxation that the factual

findings of the CTA, when supported by substantial evidence, will be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. In the present case, the CA did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR.

The distinction between a question of law and a question of fact is clear-cut. It has been held that there is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts.


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COURT OF APPEALS and ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION

G.R. No. 106913 May 10, 1994

FACTS: Petitioner is a mining corporation, organized and

existing under and by virtue of the laws of the Philippines, operates a concession in Toledo City, Cebu. It actually used and/or consumed tax paid extra gasoline and diesel fuel for the mining operation purchased from Mobil Oil Philippines.

Sometime in 1978 petitioner filed with the Commissioner of Internal Revenue a written claim for tax credit. It claimed 25% of the specific taxes paid on said fuel oils pursuant to Sec. 5 of Republic Act No. 1435 in relation to Sec. 142 and 145 of the Tax Code

There being no action taken on its claim for refund, petitioner filed before the CTA a judicial claim for refund. The CTA granted the claim for refund and ordered the CIR to refund and/or credit amount

The CIR then appealed to the CA. Petitioner that Atlas is not entitled to the tax refund because no additional tax was imposed on it under any city or municipal ordinance as provided under Section 4 of R.A. No. 1435. The CA affirmed the decision of the CTA. Its Motion for reconsideration having failed hence, this recourse.

ISSUE: Whether or not in the instant case, the petitioner may

raise a new issue for the first time on appeal.

DECISION:The Supreme Court may review such matters as may

be necessary to serve the interest of justice. It has ample authority to review and resolve matters not specifically raised or assigned as error by the parties if it finds that the consideration and determination of the same is necessary in arriving at a just resolution of a case. Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the Court has the authority to include them in its discussion of the controversy as well as to pass upon them. Wherefore, the petition is GRANTED.

COMMISSIONER OF INTERNAL REVENUE, vs.PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX APPEALS

G.R. No. L-66838 December 2, 1991

FACTS:Procter and Gamble Philippine Manufacturing

Corporation declared dividends payable to its parent company and sole stockholder, Procter and Gamble Co., Inc. (USA) from which dividends the thirty-five percent (35%) withholding tax at source was deducted.

In 1977, private respondent filed with petitioner Commissioner of Internal Revenue a claim for refund or tax credit.There being no responsive action on the part of the Commissioner, it filed a petition for review with CTA. In 1984,

the CTA rendered a decision ordering petitioner Commissioner to refund or grant the tax credit.

On appeal by the Commissioner, the Court reversed the decision of the CTA. Thus, this petition

ISSUE:Whether or not the issue on whether a withholding

agent in the Philippines is legally entitled to refund may be raised for the first time on appeal by the Government.

HELD:The BIR should not be allowed to defeat an otherwise

valid claim for refund by raising this question of alleged incapacity for the first time on appeal before this Court. This is clearly a matter of procedure. Petitioner does not pretend that P&G-Phil., should it succeed in the claim for refund, is likely to run away, as it were, with the refund instead of transmitting such refund or tax credit to its parent and sole stockholder. It is commonplace that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular No. 1-88 of this Court in exactly the same way that private litigants are held to such compliance, save only in respect of the matter of filing fees from which the Republic of the Philippines is exempt by the Rules of Court.


UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS

G.R. No. L-66160 May 21, 1990

FACTS:In a letter dated December 27, 1974 petitioner

assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation for deficiency income taxes due for the years 1971 and 1972. Private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy. In a letter, private respondent reiterated its request for reinvestigation. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit against private respondent.

In 1979, private respondent filed with respondent court a Petition for Review. The CTA ruled in favor of private respondent. Hence, this is a petition for review on certiorari

ISSUE:Whether or not the issuance of a warrant of distraint

and levy is proof of the finality of an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment.

HELD: The Supreme Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.

There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine


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when his right to appeal accrues and the resulting confusion would have been avoided.


SAN CARLOS MILLING CO., INC. V CIRNovember 23, 1993

Facts:Petitioner domestic corp. had for the taxable year

1982 a total income tax overpayment of P781,393,00 reflected on a creditable income tax in its annual final adjustment return. The application of the amount for the 1983 tax liabilities remained unutilized in view of petitioner’s net loss for the year and still yet had a credible income tax of P4,470.00 representing the 3% of 15% withholding tax on the storage credits. Accordingly the final adjustment income tax return for the taxable year 1983 reflected the amount of P781,393.00 carried over as tax credit and P4,470.00 creditable income tax.

In May 17, 1984 letter to the respondent, petitioner signified its intention to apply the total creditable amount of 785,869.00 against its 1984 tax dues consistent with the provision of Sec. 86 coupled with a comforting alternative request for a refund or tax credit of the same.

Respondent disallowed the proffered automatic credit scheme but treated the request as an ordinary claim for refund/tax credit under Sec. 292 in relation to Sec. 295 of the Tax Code and accordingly subjected the same for verification/investigation.

No sooner than the respondent could act on the claim petitioner filed a petition for review on July 18, 1984 and before this Court could formally hear the case, petitioner filed a supplemental petition on March 11, 1986, after having unilaterally effected a set-off of its creditable income tax vis-à-vis income tax liabilities, earlier denied by the respondent.

On February 28, 1990, the CTA dismissed the petition and held that prior investigation by and authority from the CIR were necessary before a taxpayer could avail of the provisions of Sec. 69 of the Tax Code. A motion for reconsideration was then filed but was denied thereafter, petitioner appealed the adverse decision of the CTA to the CA. On December 23, 1991, respondent court dismissed the appeal. Hence, this recourse.

Issue:Whether or not the option for either a refund or

automatic tax credit scheme does not ipso facto confer on the taxpayer the right to avail the same.

Held:As for corporations and partnerships taxable as

corporations, no automatic crediting of the overpaid income tax against taxes due in the succeeding quarters of the following year is allowed.

Once a taxpayer opts for either a refund or the automatic tax credit scheme, and signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same immediately . An investigation as a matter of procedure, is necessary to enable the Commissioner to determine the correctness of the petitioner’s returns, and the tax amount to be credited.

It seems however that automatic crediting of excess tax payment against the quarterly income taxes due for the succeeding year of individuals, estates and trusts is allowed. As regards automatic crediting, Revenue Reg. No. 7-93 provides that should there still be payment after crediting is made against the quarterly income taxes due for the entire succeeding taxable year, then such excess payment may be claimed as a refund.

Subject Matter: Legal capacity of withholding agents to claim tax refund

CIR V CAJanuary 20, 1999

Facts:Sometime in the 1930’s, Don Andres Soriano, a

citizen and resident of the United States, formed the corporation “A. Soriano Y Cia”, predecessor of ANSCOR with a 1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued.

On September 12, 1945, ANSCOR’s authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value. Of the additional 15,000 shares, only 10,000 was issued which were all subscribed by Don Andres, after the other stockholders waived in favor of the former their pre-emptive rights to subscribe to the new issues. This increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and Andres Jr., as their initial investments in ANSCOR. Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares. 50,495 of which are original issues and the balance of 134,659 shares as stock dividend declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The offer half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.

On December 28, 1967, Doña Carmen requested a ruling from the United States Internal Revenue Service (IRS), inquiring if an exchange of common with preferred shares may be considered as a tax avoidance scheme. By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares into 150,000 common and 150,000 preferred shares.

In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization scheme and not tax avoidance. Consequently, on March 31, 1968 Doña Carmen exchanged her whole 138,864 common shares for 138,860 of the preferred shares. The estate of Don Andres in turn exchanged 11,140 of its common shares for the remaining 11,140 preferred shares.

In 1973, after examining ANSCOR’s books of account and record Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, for the year 1968 and the 2nd quarter of 1969 based on the transaction of exchange and redemption of stocks. BIR made the corresponding assessments. ANSCOR’s subsequent protest on the assessments was denied in 1983 by petitioner. ANSCOR filed a petition for review with the CTA, the Tax Court reversed petitioners ruling. CA affirmed the ruling of the CTA. Hence this position.

Issue:Whether or not a person assessed for deficiency

withholding tax under Sec. 53 and 54 of the Tax Code is being held liable in its capacity as a withholding agent.

Held:


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An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner for deficiency withholding tax, as such, it is being held liable in its capacity as a withholding agent and not in its personality as taxpayer. A withholding agent, A. Soriano Corp. in this case, cannot be deemed a taxpayer for it to avail of a tax amnesty under a Presidential decree that condones “the collection of all internal revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal, or administrative liabilities arising from or incident to voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or abroad by any taxpayer, natural or juridical.” The Court explains: “The withholding agent is not a taxpayer, he is a mere tax collector. Under the withholding system, however, the agent-payer becomes a payee by fiction of law. His liability is direct and independent from the taxpayer, because the income tax is still imposed and due from the latter. The agent is not liable for the tax as no wealth flowed into him, he earned no income.”

Subject Matter: Distinction between tax refund and tax credit

PHIL. BANK OF COMMUNICATIONS V CIRJanuary 28, 1999

Facts:Petitioner Philippine Bank of Communications

(PBCom), a commercial banking corp. duly organized under Philippine Laws, filed its quarterly income tax returns for the 1 st

and 2nd quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom’s tax credit memos and accordingly, the BIR issued tax Debit Memo.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending December 31, 1986, it likewise declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes in 1985 and 1986.

On August 7, 1987, petitioner requested the CIR, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the 1st and 2nd quarters of 1985.

Thereafter on July 25, 1988, petitioner filed on claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for 234,077.69.

Pending the investigation of the respondent CIR, petitioner instituted a Petition for Review on November 18, 1988 before the CTA.

On May 20, 1993, the CTA denied the request of petitioner for a tax refund or credit in the sum of P5,299,849.95 on the ground that it was field beyond the 2-year reglementary period provided for by law. The petitioners claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.

Issue:Whether or not the need to signify whether a taxpayer

intends to avail of a tax refund or a tax should be made on its annual corporate adjustment return.

Held:Sec. 69 of 1977 NIRC (now Sec. 76 of 1997 NIRC)

provides that any excess of the total quarterly payments over

the actual income tax computed in the adjustment or final corporate income tax return, shall either:

a.) be refunded to the corporation, orb.) may be credited against the estimated quarterly

income tax liabilities or the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

Subject Matter: Necessity of proof for refund claims

CIR V SC JOHNSON INC.June 25, 1999

Facts:Respondent is a domestic corporation organized and

operating under the Philippine Laws, entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA pursuant to which the respondent was granted the right to use the trademark, patents and technology owned by the later including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son USA.

For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which respondent paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.

On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending respondents case fall squarely within the same circumstances under which said MacGeorge and Gillette rulings were issued. Since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May 1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax credit certificate in the amount of P163,266.00 representing overpaid withholding tax on royalty payments beginning July 1992 to May 1993.

The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.

Issue:Whether or not tax refunds are considered as tax

exemptions.

Held:It bears stress that tax refunds are in the nature of tax

exemptions. As such they are registered as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof


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is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

Subject Matter: Legal capacity of withholding agents to claim tax refund

FILIPINAS SYNTHETIC FIBER CORP. V CA

Facts:Filipinas Synthetic Fiber Corp., a domestic corporation

received on December 27, 1979 a letter of demand from the Commissioner of Internal Revenue assessing it for deficiency withholding tax at source in the total amount of P829,748.77 inclusive of interest and compromise penalties, for the period from the fourth quarter of 1974 to the fourth quarter of 1975. The assessment was seasonably protested by petitioner through its auditor, SGV and Company. Respondent denied the protest on May 14, 1985 on the following ground: “For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof.”

On June 28, 1985, petitioner brought a petition for review before the Court of Tax Appeals, the said court came out with its decision on June 15, 1993, which is against the petitioner.

With the denial of its motion for reconsideration, petitioner appealed the CTA disposition to the Count of Appeals, which affirmed in toto the appealed decision. So, petitioner found its way to this count via petition for review on certiorari.

Issue:Whether the liability to withhold tax at source on

income payments to non-resident foreign corporation arises upon remittance of the amounts due to the foreign creditors, or upon accrual thereof

Held:The Supreme Court held that since Sec. 53, NIRC

(now, Sec. 57 of 1997 NIRC) in relation to Sec. 54 (now Sec. 58) is silent as to when the duty to withhold arises, it is necessary to look into the nature of the accrual method of accounting, which was used by therein petitioner corporation. Inasmuch as under the accrual basis, income is reportable when all the events have occurred to fix taxpayer’s right to receive the income and the amounts can be determined with reasonable accuracy, hence, it is the right to receive income, and not the actual receipt thereof, that determines when the amount is includible in gross income. Thus, the duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual. The withholding agent/corporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government. If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax, an assessment for said deficiency withholding tax would, therefore, be legal and proper.

Subject Matter: Effect of taxpayer’s failure to file an admin protest or to appeal BIR’s decision to the CTA.

MARCOS II V CA

Facts:On September 29, 1989, former President Ferdinand

Marcos died in Honolulu, Hawaii, USA.On June 27, 1990, a Special Tax Audit Team was

created to conduct investigations and examinations of the tax liabilities and obligations of the late President, as well as that of his family, associates and “cronies”. Said audit team conducted its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an estate tax returns, as well as several income tax returns covering the years 1982 to 1986, all in violation of the NIRC.

Subsequently criminal charges were field against Mrs. Imelda Marcos for violations of Sections 82, 83 and 84 of the NIRC.

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the late president, for the years 1985 and 1986, and the income tax returns of petitioner Ferdinand “Bongbong” Marcos II for the years 1982 to 1985. The CIR avers that copies of the deficiency estate and income tax assessments were all personally and constructively served upon Imelda Marcos and Ferdinand “Bongbong” Marcos II (through their caretakers) at their last known address.

The deficiency tax assessments were not protested administratively by Mrs. Marcos and the other heirs of the late President within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued 22 notices of levy on real property against certain parcels of land owned by the Marcoses – to satisfy the alleged estate tax and deficiency income taxes on spouses Marcos.

On June 25, 1993, petitioner Ferdinand “Bongbong” Marcos II field the instant petition for certiorari and prohibition under Rule 65 of the Rules of Court.

Issues:Whether or not in case of failure to contest or appeal

the assessment made by the BIR is fatal.

Held:The omission to file an estate tax return and the

subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioners cause, as under Sec. 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within 10 years after the omission, and any tax so assessed may be collected by levy upon real property within 3 years following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner’s default as regards protesting the validity of said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes (now Sec. 228, 1997 NIRC)

DAVAO GULF LUMBER CORPORATION V CIRJuly 23, 1998

Facts:Davao Gulf Lumber Corp. is a licensed forest

concessionaire possessing a Timber License Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed under 153 and 156


8


of the NIRC, on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the user, the petitioner in this case.

On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a claimed for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the abovementioned fuels and oils that were used by petitioner in its operations as forest concessionaire.

Petitioner complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils in its forest concession as required by the above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the affidavits of its general manager, the president of the Philippine Wood Products Association, and 3 disinterested persons, all attesting that the manufactured diesel and fuel oils were actually used in the exploitation and operation of its forest.

On January 20, 1983, petitioner filed at the CTA a petition for review. On June 21, 1994, the CTA rendered decision finding petitioner entitled to a partial refund of specific taxes the latter had paid in the reduced amount of P2,923.15.

Insisting that the basis for computing the refund should be the increased rates prescribed by Secs. 153 and 156 of the NIRC, petitioner elevated the matter to the CA. CA affirmed the decision of the CTA. Hence, this petition.

Issue:Whether or not the petitioner is entitled to the tax

refund under the increased rates prescribed by Secs. 153 and 156 of the NIRC.

Held:At the outset, it must be stressed that the petitioner is

entitled to a partial refund under Sec. 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund. The gasoline and fuel purchased by mining and lumber concessionaires are used within their compounds and roads, and their vehicles seldom used the National Highways, they do not directly benefit from the Fund and its use. The Highway Special Fund was abolished in 1985, but since petitioner purchased the subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982, it is entitled to claim the refund under Sec. 5 of RA 1435.

A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, “a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.” Since the partial refund authorized under Sec. 5 RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.

COMMISSIONER OF INTERNAL REVENUE V CAFebruary 1, 1999

Facts:The Court motu proprio consolidates two (2) cases as

the issues raised are similar.1.) During the period from July 1, 1980 to June

30, 1982, private respondent CDCP Mining Corp. purchased from Mobil Oil Philippines, Inc. and Caltex Philippines Inc. quantities of manufactured mineral oil, motor fuel, diesel and fuel oil, which private respondents used exclusively in the exploitation and operation of its mining concession.

On September 6, 1982, private respondent filed with the CIR, a claim for refund in the amount of P9,962,299.71, representing 25% of the specific taxes collected on refined and manufactured mineral oil, motor fuel, and diesel fuel that private respondent utilized in its operations as mining concessionaire, totaling P39,849,198.47.

As there was no immediate action on the claim, to toll the prescriptive period, on October 9, 1982, private respondent filed with the CTA, a petition for review of the presumed decision of the Commissioner denying such claim. CTA rendered a decision granting private respondent’s claim for refund only in the amount of P38,461.86, without interest. Private respondent filed a petition for review before the CA, which on November 9, 1994, rendered a decision modifying that of the CTA, ordering the CIR to refund to petitioner CDCP the amount of P1,598,675.25, without interest, equivalent to 25% refund of specific taxes paid on its purchases during the period September 23, 1980 to June 30, 1982 of manufactured oil and other diesel oils.

Both parties field their respective motions for reconsideration when the CA denied both motions, petitioner filed a petition for review on certiorari.

2.) During the period beginning July 1, 1980 to May 31, 1981, petitioner Sirawai Plywood and Lumber Co. Inc., purchased from various oil companies refined and manufactured mineral oils, motor fuels and diesel fuel oils which petitioner actually and exclusively used in connection with the exploitation and operation of its forest concession; that the said oil companies paid and passed on to the petitioner the specific taxes imposed under sections 153 and 156 of the NIRC on refined and manufactured oils, motor and diesel fuel oils that said company sold to the petitioner.

Petitioner filed with the CIR on November 8, 1982 a claim for refund in the amount of P99,226.17 representing 35% of the specific taxes collected on the refined and manufactured oils. On December 13, 1982, the petitioner filed with the CTA a petition for review of the decision dated December 1, 1982 to prevent the lapse of the 2-year prescriptive period.

On August 2, 1994, the CTA rendered a decision ordering CIR to refund the sum of P1,101.15 in favor of Sirawai Plywood. On appeal, the CA denied the same for lack of merit. Hence, this petition for review on certiorari.

Issue:Whether or not the mining concessionaires are

entitled for refund which is equivalent to 25% partial refund of specific taxes in pursuant to Sec. 5 of Ra 1435.

Held:A partial refund under Sec. 5 of RA 1435 is in the

nature of tax exemption, and therefore, must be construed in strictissimi juris against the grantee. There is nothing in Sec. 5 RA 1435 which authorizes a tax refund based on higher rates under Sec. 153 and 156 of NIRC.

“When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were non-existent at the time of its enactment, this court cannot presume otherwise. A legislative lacuna cannot be filled by judicial fiat.”

The grant of refund to the mining concessionaires is proper.

Subject Matter: Tax Liens, Preferential Liens

CIR V NLRCGR No. 74965, November 3, 1994

Facts:


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On January 12, 1984, the CIR demanded payment from private respondent Maritime Company of the Philippines of deficiency common carrier’s tax, fixed tax, 6% commercial broker’s tax, documentary stamp tax, income tax and withholding tax totaling P17,284,882.45. The assessment became final and executory, and with private respondent’s failure to pay the tax liabilities, the CIR issued warrants of distraint of personal property and levy of real property which were duly served on January 23, 1985. On April 16, 1985, a “receipt of goods, articles and things” was executed covering, among others, 6 barges as proof of constructive distraint of property but the same was not signed by any representative of private respondent because of the refusal of the persons actually in possession of the barges.

It appeared that 4 of the barges constructively distrained were also levied upon by a deputy sheriff of Manila on July 20, 1985 and sold at public auction to satisfy a judgment for unpaid wages and other benefits of employees of private respondent.

Issue:Who has a preferential lien over the barges, the

Government or the company’s employees?

Held:The court held that it is the government which has

preferential lien over the barges under Articles 2241 and 2247 of the Civil Code. Accordingly, the preferential lien of employees for unpaid wages under Article 110 of the Labor Code applies only to bankruptcy cases where the employer is under liquidation due to bankruptcy.

The NIRC provides for the collection of delinquent taxes by any of the following remedies: a) distraint of personal property or levy of real property of the delinquent taxpayer; b) civil or criminal action.

The court upheld the validity of distraint of the barges against the levy on execution and the claim of the Government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the CIR, a long before the writ of execution was issued by RTC-Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgment extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in auction sale requires only such rights as the judgment debtor had tat the time of the sale. It is also well settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.

Subject Matter: Collection in cases where the assessment is final and unappealable

MARCOS II V CAGR No. 120880, June 5, 1997

Facts:Following the death of former President Marcos in

1989, a Special Tax Audit Team was created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written

notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC.

The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. Copies of deficiency estate and income tax assessments were served personally and constructively on August 26, 1991 and September 12, 1991 upon Mrs. Marcos. Likewise, copies of the deficiency income tax assessments against petitioner Marcos were personally and constructively served. Formal assessment notices were served upon Mrs. Marcos on October 20, 1992.

The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses.

Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.

Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul and set aside the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed the petition ruling that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property.

Issues:Whether or not the proper avenue of assessment and

collection was taken by respondent bureau.

Held:Apart from failing to file the required estate tax return

within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos.

The Notice of Levy upon real property were issued within the prescriptive period and in accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy pursuant to Sec. 205 of the Tax Code.

Subject Matter: Civil Actions

REP V HIZON320 SCRA

Facts:On July 18, 1986, the BIR issued to respondent Salud

V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties.

More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11,


10


1994, denied the request. On January 1, 1997, it filed a case with the RTC Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau’s Regional Driector in Pampanga.

Issues:1.) Whether or not the institution of the civil action case

for collection of taxes was without the approval of the Commissioner in violation of Section 221 of the NIRC.

2.) Whether or not the action for collection of taxes filed against respondent had already been barred by the statute of limitations.

Held:1.) Revenue Adm. Order No. 10-95 specifically authorizes

the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR’s Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.

Sec. 7 of NIRC, authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher.

2.) Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and demandable. The notice of assessment for respondent’s tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner’s agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223 of NIRC.

The timely service of warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency.

Subject Matter: Collection thru application of a disputed tax against a refundable tax

CIR V CEBU PORTLAND CEMENT CO., ET.AL.L-29059, December 15, 1987

Facts:By virtue of a decision of the CTA rendered on June

21, 1961, as modified on appeal by the SC on February 27, 1965, the CIR was ordered to refund to the Cebu Portland Cement Co. the amount of P359,408.92, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957.

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private

respondent, the latter moved for writ of execution to enforce the said judgment.

The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P4,789,278.85 plus 28% surcharge.

On April 22, 1968, CTA granted the motion, holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund.

In his petition to review the said resolution, the CIR claims that the refund should be charged against the deficiency of the private respondent on the sales of cement under Sec. 186 of the Tax Code, which is a manufactured and not a mineral product and therefore not exempt from sales ax. The petitioner also denies that the sale tax assessments have already prescribed because the prescriptive period should be counted from the filing of the sales tax returns, which had not yet been done by the private respondent.

Issue:Whether or not the claims for refund could be set-off

against the deficiency sales tax of private respondent.

Held:It has been ruled that even if a tax being collected by

the CIR is being contested by the taxpayer, the same can be enforced by the set-off or by applying it against the refundable tax that may be due the taxpayer. Of course, it is assumed here that both the collection and the right to the refund of taxes has not yet prescribed and that the refund claim has already been approved.

The set-off is justified because taxes must be collected inasmuch as they are the lifeblood of the government and that it is a settled principle that the government is not duty bound to resolve a pending tax protest before it can collect the unpaid tax liability. Besides, if payment of taxes could be postponed by simply questioning their validity, government functions would be paralyzed.

Subject Matter: Importation

CARRARA MARBLE PHILIPPINES, INC. V COMMISSIONER OF CUSTOMS

September 1, 1999

Facts:During a public auction sale of various abandoned

articles conducted by the collector of customs, a marble processing and grinding machine was awarded to Engr. Policarpio, the highest bidder. After delivery to him of said machines, he noticed that some parts of the machines were missing and immediately informed the collector of customs. The missing machines were found installed in the compound of petitioner Carrara Marble Phil. Inc.

Said machineries were seized pursuant to a warrant of seizure and detention for the non-payment of duties and taxes and illegal removal of articles from the customs warehouse in violation of the tariff and customs code.

It sustained the CTA’s decision, relying on the contract of sale between the BoC and Engr. Policarpio, which allows refund in case of loss or short-delivery. In case of refund, it is as if the duties, taxes and charges are unpaid, the importation is deemed terminated and the collector of customs would still be authorized to seize the articles.


11


Issue:Whether or not the importation has terminated.

Held:Importation is deemed terminated upon payment of

duties, taxes and other charges due to secured to be paid upon the articles at a point of entry, and upon the grant of a legal permit for withdrawal; or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.

The forfeiture of the subject machineries, is not dependent on whether or not the importation was terminated; rather, it is premised on the illegal withdrawal of goods from customs custody.

Thus, regardless of the termination of importation, customs authorities may validly seize goods which, for all intents and purposes, still belong to the government.

Subject Matter: Valuation of Goods

CALTEX, INC. V CAJuly 10, 1998

Facts:Petitioner imported light/medium mix special oil and

heavy crude oil on various dates and was accordingly assessed ad valorem duties. The assessment was based on a memorandum issued by the acting commissioner of customs which provided that duties and taxes in the importation of crude oil shall be based on the gross actual receipt without deducting the basic sediment and water (BSW) content.

The assessment was timely protested by Caltex on the ground that BSW content should have been deducting before imposing assessable ad valorem taxes.

Issue:What is the basis of the taxes imposed?

Held:The axiomatic null is that the dutiable value of an

imported article subject to ad valorem is based on its home consumption value or price freely offered for sale in wholesale quantities in the ordinary course of business or trade in the principal market of the country from where exported on the date of exportation to the Philippines. The home consumption value is the price declared in the consular, commercial, trade on sales invoice.

Subject Matter: Seizure and forfeiture of goods

TRANSGLOBE INTERNATIONAL, INC. V CAJanuary 25, 1999

Facts:A shipment from Hong Kong arrived at the port of

Manila, aboard the S/S Seadragon. Its inward foreign manifest indicated that it contained various hand tools. Acting on an information that the shipment violated provisions of tariff and customs code, the Economic Intelligence and Investigation Bureau (EIIB) agents seized the shipment while in transit to the container yard. The EIIB recommended seizure of the shipment, and for which a warrant of seizure and distraint was issued by the District Collector.

For failure of petitioner, to appear during the hearing despite due notice, collector decreed the forfeiture of the shipment in favor of the government.

Issue:Whether or not Transglobe is allowed to redeem the

forfeited shipments.

Held:As a means of settlement under Sec. 2307, TCC,

redemption of forfeited property is unavailing in 3 instances:1. Where there is fraud;2. Where the importation is absolutely

prohibited;3. Where the release of the property is

contrary to law.

The fraud contemplated by law must be actual and not constructive. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up same right.

Subject Matter: Seizure and forfeiture of goods

UY, ET AL V BIROctober 20, 2000

Facts:Rodrigo Abas, claiming to be a former employee of

Unifish stated in his affidavit that he has personal knowledge of the activities of petitioner in violation of the tax code. On the basis thereof, the BIR Special Investigation branch applied for search warrants.

Search warrants were issued in connection with the crime of attempt to evade or defeat the tax, both enumerated the items to be searched.

Petitioners filed motion to quash the subject search warrants which was denied with their subsequent motion for reconsideration. Hence, this petition for certiorari.

Issue:Whether or not the search warrants are valid.

Held:A search warrant must conform strictly with the strictly

with the requirements of the constitution. The absence of such requirements will cause the downright nullification of the search warrants. The proceedings upon search warrants must be absolutely legal, “for there is not a description of process known to the law; the execution of which is more distressing to the citizen. Perhaps there is none which excites such intense feeling in consequence of its humiliating and degrading effect.” The warrants will always be construed strictly without, however, going the full length of requiring technical accuracy. No presumptions of regularity are to be invoked in aid of the process when an officer undertakes to justify under it.

Subject Matter: Primary jurisdiction of the Bureau of customs

JAO V CAOctober 6, 1995

Facts:The Bureau of Customs received information

regarding the presence of allegedly untaxed vehicles and parts in the premises owned by a certain Pat Hao in Parañaque and Makati. After conducting surveillance, a recommendation of the issuance of warrants of seizure and detention articles was made.


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On the strength of the amended warrants; customs personnel started hauling the articles and this prompted petitioners to file a case of injunction before the Makati RTC, which issued the TRO.

Upon review, CA set aside orders of the trial court and dismissed the civil case. Hence, this petition.

Issue:Whether or not the trial court has jurisdiction over the

case.

Held:There is no question that RTC’s are devoid of any

competence to pass upon the validity/regularity of seizure and forfeiture proceedings conducted by the Bureau of customs and to enjoin an otherwise interfere with these proceedings.

The collector of customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The regional trial courts are precluded from assuming cognizance over such matters even through petitioners for certiorari, prohibition and mandamus.

Subject Matter: Prescription of Government’s right to collect tax

CIR V CA303 SCRA 614 (February 25, 1999)

Facts:Carnation Philippines field its annual income and

percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982 and November 20, 1981, respectively. Later, the corporation thru its vice president executed waivers of the statute of limitation, waiving the running of the prescriptive period provided for in Sections 318 and 319 of the NIRC. On July 29, 1987, the BIR assessed the corporation for deficiency taxes. The company seasonably protested but the BIR denied. On appeal, the CTA ruled against the BIR declaring that the assessment is null and void for having been issued beyond the five-year prescriptive period provided by law. It noted that the company’s 1981 income and sales taxes should have been validly assessed only until January 14, 1987 and November 19, 1986, respectively. However, Carnation’s income and sales taxes were assessed on July 29, 1987, which is beyond the five-year prescriptive period.

The CIR claims that the waivers signed by Carnation were valid although not signed by the Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate the tax returns, the BIR gave it implied consent to such waivers; (b) the signature of the commissioner is a mere formality and the lack of it does not vitiate the binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing one’s right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver. In effect, the assessment is valid.

Held:CIR is wrong. Sec. 319 of the Tax Code clearly and

explicitly provides that waiver of the five-year prescriptive period must be in writing and signed by both the CIR and the taxpayer . Subject waivers signed by Carnation do not bear the written consent of the BIR commissioner as required by law, therefore it is invalid. Indeed, the questioned assessments are null and void for having been issued beyond the five-year prescriptive period.

Subject Matter: Interruption of prescriptive period.

CIR V WYETH SUACO LABORATORIES, INC.202 SCRA 125 (September 30, 1991)

Facts:On December 19, 1974, Wyeth Suaco received notice

of assessment from the BIR for its failure to remit withholding tax at source for the 4th quarter of 1973 on accrued royalties, remuneration for technical services paid abroad and cash dividends, including the deduction of non-deductible raw materials from its reports. The company, thru its tax consultant, SVG & co., sent BIR two letters dated January 17, 1975 and February 8, 1975 protesting the assessment and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. Also, there were letters from the company to the BIR to such effect. On September 12, 1975, the CIR offered to compromise but only resulted to a slight reduction of the tax as per the acting Commissioner’s decision on December 10, 1979. On January 18, 1980, Wyeth Suaco filed petition for review with the CTA, praying that CIR be enjoined from enforcing the assessments by reason of prescription and that assessments be declared null and void for lack of legal and factual basis. The CTA decided against the CIR holding that while the assessments for the deficiency taxes were made within the five-year period of limitation, the right of CIR to collect the same has already prescribed, in accordance with Sec. 319(c) of the NIRC.

Held:CTA is wrong. The letters of Wyeth Suaco interrupted

the running of the five-year perspective period to collect the deficiency taxes. Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown in a letter of its president and General Manager. Further, although the protest letters prepared by SGV & Co. did not categorically state or use the words “reinvestigation” and “reconsideration”, the same are to be treated as letters of reinvestigation and reconsideration.

As to Wyeth Suaco’s argument that withholding tax at source should only be remitted to the BIR once the incomes subject to withholding tax at source have actually been paid, the SC cited the lifeblood doctrine, the express provision of the law which requires the filing of monthly return and payment of taxes withheld at source within 10 days after the end of each month. Further, the company uses accrual method of accounting and therefore the effect of transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate rather than only when cash is received or paid.

Subject Matter: Interruption of prescriptive period

AFISCO INSURANCE CORP. V CA302 SCRA 1 (January 25, 1999)

Facts:AFISCO and 40 other non-life insurance companies

entered into a Quota Share Reinsurance Treaties with Munich, a non-resident foreign insurance corporation, to cover for All Risk Insurance Policies over machinery erection, breakdown and boiler explosion. The treaties required petitioners to form a pool, to which AFISCO and the others complied. On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for the year ending 1975, on the basis of which, it


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was assessed by the commissioner of Internal Revenue deficiency corporate taxes. A protest was filed but denied by the CIR.

Petitioners contend that they cannot be taxed as a corporation, because (a) the reinsurance policies were written by them individually and separately, (b) their liability was limited to the extent of their allocated share in the original risks insured and not solidary, (c) there was no common fund, (d) the executive board of the pool did not exercise control and management of its funds, unlike the board of a corporation, (e) the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. They further contend that remittances to Munich are not dividends and to subject it to tax would be tantamount to an illegal double taxation, as it would result to taxing the same premium income twice in the hands of the same taxpayer. Finally, petitioners argue that the government’s right to assess and collect the subject Information Return was filed by the pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981 to give them notice of its letter of assessment dated March 27, 1981. Thus, the petitioners contend that the five-year prescriptive period then provided in the NIRC had already lapsed, and that the internal revenue commissioner was already barred by prescription from making an assessment.

Held:A pool is considered a corporation for taxation

purposes. Citing the case of Evangelista v. CIR, the court held that Sec. 24 of the NIRC covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from individual members. Further, the pool is a partnership as evidence by a common fund, the existence of executive board and the fact that while the pool is not in itself, a reinsurer and does not issue any insurance policy, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums.

As to the claim of double taxation, the pool is a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is obviously different from the tax on the dividends received by the said companies. Clearly, there is no double taxation.

As to the argument on prescription, the prescriptive period was totaled under the Section 333 of the NIRC, because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. Further, the law clearly states that the prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.


PHILEX MINING CORP V CIR306 SCRA 126 (April 21, 1999)

Facts:From July 1, 1980 to December 31, 1981, Philex

Mining Corp. purchased from several oil companies, refined and manufactured minerals, motor fuels, and diesel fuel oils. Specific taxes of P2,492,677.22 were paid. On October 22, 1982, the company availed of the provisions of RA 1435 granting refund of 25% of the tax paid and provided proof of the use of the oils, as required. Pending such claim for refund (P623,169.30 representing the 25%) with the CIR, the company filed another claim for refund with the same amount plus 20% interest thereon with the CTA on November 16, 1982. The CTA granted the refund but only P16,747.36 which was based on the amount deemed paid under Sections 1 & 2 of RA 1435. Philex contends

the refund should be based on the actual specific taxes paid as per the increased rates provided in Sections 142 and 145 (which became Sections 153 and 156) of the NIRC.

Held:CTA is incorrect. In 1977, PD 1158 codified all existing

laws. Sections 142 and 145 of the Tax Code, as amended by Sections 1 and 2 of RA 1435 were re-numbered to Sections 153 and 156. Later, these sections were amended by PD 1672 and subsequently by EO 672 increasing the tax rates for certain oil and fuel products. In effect, the reason for the refund ceased to exist. (The purpose of the tax was for Highway Special Fund which was abolished in 1985). SC affirmed therefore the decision of the CA & CTA that the basis of tax refund under RA 1435 is computed on the basis of the specific tax deemed paid under Sections 1 & 2 and not the increased rates actually paid under the 1977 NIRC, citing several cases in support thereof.

Further, although Philex paid the taxes on their oil and fuel purchases based on the increased rates, the latter law did not specifically provide for a refund based on the increased rates. Since the grant of refund privileges must be strictly construed against the taxpayer, the basis for the refund remains to be the amounts deemed paid under Sections 1 and 2 of RA 1435. Also, there is no merit to petitioner’s assertion – that equity and justice demands that the computation for tax refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC, there being no tax exemption solely on the ground of equity.

SC finally held: “The rule is that no interest on refund of tax can be awarded unless authorized by law of the collection of the tax was attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration where there is room for two opinions, however much of it may be believed that an erroneous conclusion was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. None of the exceptions are presents in this case. Respondent’s decision was based on an honest interpretation of the law. We see no reason why there should be payment of interest.”


CIR V PHILAMLIFE244 SCRA 446 (May 29, 1995)

Facts:On May 30, 1983, Philamlife paid its 1983 1st Quarter

income tax of P3,246,141. On August 29, 1983, it paid P396,874 for the 2nd Quarter and also paid P708,464 for the3rd Quarter. In the 4th Quarter however, it suffered loss and thereby had no income tax liability. It therefore declared refund of the 1 st

and 2nd Quarter payments. In 198r, Philamlife suffered loss again and applied for tax credit of its overpaid taxes in 1983 and 1982. ON December 16, 1985, it filed another claim for refund with the CIR’s appellate division for an amended and increased amount. On January 2, 1986, it filed petition for review with the CTA.

The issue is the reckoning date of the two-year prescriptive period provided in Section 230 of the NIRC for the recovery of tax erroneously or illegally collected. CIR claims that the running of the prescriptive period commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the Final Adjustment Return. In such a case, Philamlife is not entitled for refund.

Held:CIR is wrong. The prescriptive period of two years

should commence to run only from the time that the refund is ascertained, which can only be determined after a final


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adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 19, 1986. The record shows that the claim for refund was field on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Even if the two-year prescriptive period had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances.


DAYRIT, ET. AL. V CRUZ, ETC., ET. AL.L-39910, September 26, 1998

Facts:After separate estate and inheritance tax returns for

the estate of the late spouses Marta T. Teodoro and Don Toribio Teodoro were filed, deficiency estate and inheritance tax assessments were issued in the sums of P1,662,072.34, P1,542,293.01, P1,747,790.94, and P1,578,458.72. Subsequently, petitioners, heirs of the late spouses, asked for a reconsideration of the assessments alleging that the same were contrary to law and not supported by sufficient evidence. At the same time, petitioners requested a period of 30 days within which to submit their position paper in support of their claim.

However, after this, the CIR filed a motion for allowance of claim against the estate of the CFI of Rizal, for a payment of said sums after which the petitioners filed separate appositions alleging that the estate and inheritance taxes sought to be collected have already been settled in accordance of P.O. 23 as amended, or the Tax Amnesty Decree; and that, at any rate, the assessments have not become final and executory.

The lower court having approved said claim, petitioners appealed contending that respondent judge acted with grave abuse of discretion in granting said claim.

Issue:Whether or not said assessments have become final

and executory.

Held:Petitioners contend that due to the pendency of their

motion for reconsideration of the deficiency assessments, the tax assessments in question have not yet become final and executory. They further contend that their availment of tax amnesty under P.D. 23, as amended, is a bar to tax collection.

As regards the tax assessments, the act of the CIR in filing a motion for allowance of the claim of the estate and inheritance taxes may be considered as an outright denial of petitioner’s request for reconsideration. From the date of receipt of the copy of the CIR’s letter for collection of estate and inheritance taxes against the estates of the late spouses, petitioners must contest or dispute the same and upon denial thereof, the petitioners have a period of 30 days within which to appeal to the CTA. This they failed to avail of. Failure of the petitioner to appeal to the CTA in due time made the assessments in question final, executory and demandable. The assessment having become final and executory, the CFI properly acquired jurisdiction.

Subject Matter: CTA

MAGSAYSAY LINES, INC., ET. AL. V CAG.R. No. 111184, August 12, 1996

Facts:Petitioners, consisting of investors/shipping

companies field on April 10, 1989 a petition for refund of the CTA for reversal of certain VAT rulings and for the refund of P15,120,000 representing erroneously paid 10% VAT on the sale thru public bidding of 5 vessels by the National Development Corp. to said group of investors. On April 27, 1992, the CTA ordered the CIR to refund the amount to petitioners.

The resolution of the CTA dated December 9, 1992, delaying its motion for reconsideration was received by respondent CIR on January 6, 1993. Upon receipt thereof, CIR, thru the office of the SOL-GEN, filed on the same date with the CA a motion for reconsideration of 30 days or until February 6, 1993, within which to file a petition for review. However, on February 5, 1993, the OSG filed on behalf of respondent CIR a second motion for extension of 30 days, or until March 8, 1993, within which to file said petition.

On February 11, 1993, the OSG received the resolution dated February 3, 1993 of respondent appellate court granting respondent CIR’S first motion for extension “with a warning that so further extension shall be entertained.” Manifestation and motion, on March 8, 1993, or within the period requested in the second motion for extension, the petition for review was filed thru registered mail.

In a resolution of May 3, 1993, respondent CA dismissed the petition for being filed out of time. Later, however, the CA reconsidered its ruling and directed herein petitioner to file its comment on the reinstated petition. Hence, petitioners filed the instant petition.

Issue:Whether or not the motion for extension to file a

petition for review of CA my be permitted.

Held:The petition is devoid of merit. The petition for review

pending before respondent appellate court was file din accordance with circular no. 1-91, dated January 27, 1991. While circular no. 1-91 is silent as to whether a motion for extension of time to file a petition for review with the CA may be permitted, nevertheless, the court already ruled in Liboro vs. CA, that such motion is allowed and should be granted. Parenthetically, it should be mentioned that Adm. Circular no. 1-95 which took effect on February 15, 1995 allows motion for extension of time to file petitions for review.

The resort to the filing of the first motion for extension dated January 6, 1993 was proper, and said motion validly and timely filed, pursuant to the then prevailing rules of procedure. The first motion having been granted on February 3, 1993 or well within the period of extension asked for, was no less valid and effective. Therefore, petitioner has until February 6, 1993 to file the subject petition for review.

With respect to the 2nd motion for extension filed on February 5, 1993, the court took cognizance of the fact that the intermittent and extended power failures assuming almost daily throughout 1993 rendered substantial work delays inevitable. Hence the 2nd motion for extension was justified and the grant thereof was proper under the circumstances.

While generally speaking, a review on appeal is not a matter of right but of sound judicial discretion, and may be granted only when there are special and important reasons therefore, in this instance, substantial justice would be better by allowing the appeal.


BPI FAMILY SAVINGS BANK, INC., V CAG.R. No. 122480, April 12, 2000


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Facts:Petitioner bank’s annual corporate income tax return

for 1989 showed that it suffered a loss of P8,286,960, and that it had a total refundable amount of P297,492 inclusive of P112,491 being claimed as tax refund in the present case. However, petitioner declared in its 1989 income tax return as a tax credit in the succeeding taxable year.

On October 11, 1991, petitioner bank filed a written claim for refund of P112,491 with the BIR alleging that it did not apply the 1989 refundable amount of P297,492 as tax credit to its 1990 annual corporate income tax return or either tax liabilities due to business losses it incurred for the same year. Without waiting for respondent CIR’s action in its claim for refund, petitioner filed a petition for review with the CTA.

CTA dismissed the petition on the ground that petitioner bank failed to present as evidence its 1990 annual income tax return to prove that it had not yet credited the amount of P297,422, inclusive of P112,491 which is the subject of the present controversy to its 1990 tax liability. Since petitioner declared in its 1989 income tax return that it would apply the excess withholding tax as tax credit for the following year, the tax court presumed that it did so. Petitioner failed to overcome this presumption because it did not present its 1990 tax return which would have shown that the amount was not applied as a tax credit. Hence, it was concluded that petition was not entitled to a tax refund. The CA affirmed said decision of the CTA.

Issue:Whether or not petitioner is entitled to a tax refund of

P112,491 representing creditable withholding tax paid for 1989.

Held:The petition is meritorious. As a rule, the factual

findings on the appellate court are binding on the SC. This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. This case is one such exception.

Strict procedural rules generally frown up the submission of the return the trial. R.A. 1125, the law creating the CTA, however, specifically provides the proceedings before it “shall not be governed strictly by the technical rules of evidence”. The paramount considerations remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy.

While tax refunds are in the nature of the exceptions and are to the construct strictissimi juris against the claimant, under the facts of this case, petitioner has established its claim.

Substantial justice equity, and fair play are on the side of petitioner. Technicalities and legalisms, however, exalted, should not be misused by the government to keep money not belonging to it and thereby enrich would be better by allowing to appeal.


PROTECTOR’S SERVICES, INC., V CA ET. AL.G.R. No 118176, April 12, 2000

Facts:Petition Protector’s Services, Inc., (PSI) is a contractor

engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985,

respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for 1985.

Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employer’s share of SSS, SIF and Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSI’s capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled tax to P2,851,805.16.

On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of security guards are part of taxable gross receipts for determination of contractor’s tax.

PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employer’s share of SSS, SIF and medicare contributions should not form part of taxable gross receipts.

The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTA’s decision was affirmed.

Issues: Whether or not the CTA has jurisdiction to act on the

petition for review filed before it. Whether or not the assessments against PSI for

deficiency percentage tax for 1983 and 1984 were made within the prescriptive period.

Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed.

Whether or not the assessments are correct.

Held:An assessment maybe administratively protested within

30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction.

Petitioner’s contention that the Government’s right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still covered by the 5-year statutory prescriptive period.

The 3-year prescriptive period for assessment of contractor’s tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the


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taxpayer still has an unpaid tax, and not from the tentative quarterly payments.

As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the government’s right to collect the tax has prescribed, the court ruled that “the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter.” In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case to the SC, hoping for a review in the favor. The actions taken by petitioner before the CTA and the SC suspended the running of the statute of limitation.

As to the correctness of the assessment, it was held that contractor’s tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term “gross receipts” means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under the subcontract arrangement. Hence, gross receipts could not be diminished by employer’s SSS, SIF and medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts subject to tax.

Subject Matter: CTA, Jurisdiction

CIR V VILLA, ET. AL.L-23988, January 2, 1968

Facts:Leonardo S. Villa, a doctor of medicine and his wife

filed joint income tax returns for 1951 to 1956. Subsequently, the BIR determined the income of the spouses by the use of the net worth method and issued on February 23, 1961 assessments for deficiency income tax for 1951 to 1956 and residence tax for 1951 to 1957. Dr. Villa received the assessment on April 7, 1961.

Without contesting said assessment in the BIR, he filed on May 4, 1961 a petition for review in the CTA.

Issue:Did the CTA acquire jurisdiction over the case?

Held:The CTA did not acquire jurisdiction over the case.

The word “decision” in par. 1, sec. 7 of RA 1125 (law creating the Court of Tax Appeals) has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself.

Jurisdiction over the subject matter is fundamental for the count to act on a given controversy. It is conferred by law, not by the consent of the parties. It can be challenged at any stage of the proceedings and for lack of jurisdictions a court can dismiss a case motu proprio.

Subject Matter: CTA

LIBORO V CA, ET. AL.G.R. No. 101132, January 29, 1993

Facts:Petitioner Liboro, a practicing lawyer field his income

tax return for 1980. However, on September 30 and November 30, 1985 he was notified of his tax deficiency. He responded with a letter – protest dated December 19, 1985, but this was denied by the CIR on May 11, 1988 for lack of legal basis. Petitioner filed a petition for review with the CTA which dismissed his petition on March 29, 1991. Petitioner received the decision on May 29, 1991 and, therefore, had until June 13, 1991 to file a petition for review with the CA.

However, instead of filing a petition for review, petitioner, on June 11, 1991, filed a notice of appeal with the CTA, and on June 13, 1991 field a motion for extension of 30 days to file a petition for review before the CA. The CA denied his motion on June 20, 1991 the ground that SC circular No. 1-91 then in force did not authorize and extension of the period for filing a petition for review and regarded the proceedings closed and terminated. On July 18, 1991, petitioner’s motion for reconsideration and for admission of his petition were denied.

Issue:Whether Circular No. 1-91 then in force allows the CA

to grant a motion for extension to file a petition for review from the final order or decision of the CTA and other quasi-judicial agencies.

Held:The prohibition against granting an extension of time

applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The reason is that only the filing of the notice of appeal is required to perfect an appeal and nothing more. However, it is different in a petition for review where pleading is required to be verified. A petition for review, unlike an ordinary appeal, requires careful preparation and research in order to put up a persuasive and formidable position.

Since Circular No. 1-91 provides that an appeal from the CTA other quasi-judicial agencies to the CA is by a petition for review, and no longer by mere notice of appeal, a corresponding motion for extension of time to file a petition for review should likewise be granted.

But the extension nonetheless should be limited only to 15 days, save exceptionally meritorious cases where the CA may grant it a longer period.

Subject Matter: Prescriptive Period

AZNAR CASE (August 23, 1974)

Facts:Matias Aznar died on May 15, 1958. His income tax

returns from 1945 to 1951 were examined by the BIR. Doubting the truth of the income that he had reported, the Commissioner ordered the investigation of the case on the basis of the net worth method. Substantial under-declarations of income were discovered. On November 28, 1952, the BIR notified AZNAR of a tax delinquency of P723,032.66 which was later reduced to P381,096.07 upon reinvestigation.

On February 20, 1953, AZNAR’s properties were placed under distraint and levy. On April 1, 1955, AZNAR appealed to the CTA. The CTA found that AZNAR made substantial under-declarations of his income as follows: he under-declared his income for 1946 by 227%; 564% for 1947; 95% for 1948; 486% for 1949; 946% 1950; 490% 1951.

Issues:


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Whether or not the right of the Commissioner to assess AZNAR’s deficiency income taxes for 1946, 1947 and 1948 had prescribed at the time the assessment was made.

Held:On the issue of prescription the count applied the 10-

year prescriptive period and ruled that prescription had not set in. the court opined that AZNAR’s returns were false because the under-declaration of income constituted a deviation from the truth. The court stated that the ordinary prescriptive period of 5 years (now 3 years) would apply under normal circumstances but whenever the government is placed at a disadvantage as to prevent its lawful agent from making a proper assessment of tax liabilities due to false or fraudulent returns intended to evade payment of taxes or failure to the returns, the period of 10 years provided for in the law from the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.


REPUBLIC V RETMarch 31, 1962

Facts:Damian Ret filed 2 false and fraudulent returns for

1948 and 1949 for which he was assessed by the BIR the sums of P34,907.33 and P68,338.40 including 50% surcharge for found. Demand was made on January 3, 1951 for payment.

Ret refused to pay. On June 20, 1951, an assessment notice was issued but he still refused. Subsequently, Ret was prosecuted in 2 criminal cases for filing false or fraudulent returns. He pleaded guilty thereto and was sentenced to pay a fined of P300 in each case.

After his conviction, on September 21, 1957, the Government filed a complaint for the collection of Ret’s income taxes but the lower court dismissed the case on the ground that the government’s right to collect by judicial action had prescribed as more than five (now three) years had elapsed from the date of the assessment of Ret’s taxes.

The government however contended that prescription did not take place because the prescriptive period for collection was suspended when the 2 informations were filed on May 29, 1952 and began to run again from the receipt of the court’s decision on April 20, 1955.

Issue:Whether or not the prescriptive period was suspended

when the 2 informations were filed.

Held:According to the SC, however, the prescriptive period

for the civil action is suspended during the pendency of the criminal nation only when the civil liability arises from the offense committed. However, such rule does not apply here because the criminal actions for the violations are entirely separate and distinct from the civil suit.

The court further stated that there is nothing in the law which would have stopped the plaintiff-appellant from filing the civil suit simultaneously with or during the pendency of the criminal case.


REPUBLIC V LIM TIAN TENG SONS & CO. INC.March 31, 1968

Facts:Lim Tian Teng Sons & Co., a domestic corporation

with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. The copra was weighted before shipment in the port of departure and upon arrival in the port of destination. The weight before shipment was called copra outturn. To allow for loss in weight due to shrinkage said exporter collected only 95% of the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final liquidation and adjustment.

On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P55, 109.98. It took up as part of the beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as part of its outstanding stock as of December 31, 1951.

In the audit and examination of taxpayer’s 1952 income tax return, the CIR eliminated the P95,500.00 outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. This increased taxpayer’s 1952 net taxable income. Accordingly, in a letter dated January 16, 1957 received by Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of P10,074.00 and 50% surcharge them amounting to 5,037.00 and demanded payment thereof not later than February 15, 1954.

On January 31, 1957 Lim Tian requested for reinvestigation of its 1952 income tax liability. The CIR did not reply; instead he referred the case to the solicitor general for collection by judicial action.

On September 20, 1957 the solicitor general demanded from Lim Tian the payment of P15,111.50 within five days, stating that otherwise judicial action would be instituted without further notice.

Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waive of the statute of limitations. As him Tian failed to file a waiver of the statute of limitations, the collector of I.R. instituted 8 months after, or on September 2, 1958 an action in the CFI for the collection of deficiency income tax. The CFI rendered decision ordering the defendant to pay the plaintiff as the assessment is valid.

Both parties appealed, raising only question of law.

Issue:Whether or not the Commissioner is required to rule

first on the taxpayer’s request for reinvestigation before he can go to count for collecting the tax assessed.

Held:Nowhere in the Tax Code is the Commissioner

required to rule first on the taxpayer’s request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. According to the court, the legislative policy is to give the Commissioner much latitude in the speedy and prompt collection of taxes because it is on taxation that the government depends to obtain the means to carry in its operations.

When the commissioner did not reply to the tax payer’s request for reinvestigation/reconsideration and instead referred the case to the solicitor general for judicial collection, this was indicative of his decision against reinvestigation.


DAYRIT, ET. AL. V CRUZ, ETC., ET. AL.L-39910, September 26, 1998


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Facts:After separate estate and inheritance tax returns for

the estate of the late spouses Marta T. Teodoro and Don Toribio Teodoro were filed, deficiency estate and inheritance tax assessments were issued in the sums of P1,662,072.34, P1,542,293.01, P1,747,790.94, and P1,578,458.72. Subsequently, petitioners, heirs of the late spouses, asked for a reconsideration of the assessments alleging that the same were contrary to law and not supported by sufficient evidence. At the same time, petitioners requested a period of 30 days within which to submit their position paper in support of their claim.

However, after this, the CIR filed a motion for allowance of claim against the estate of the CFI of Rizal, for a payment of said sums after which the petitioners filed separate appositions alleging that the estate and inheritance taxes sought to be collected have already been settled in accordance of P.O. 23 as amended, or the Tax Amnesty Decree; and that, at any rate, the assessments have not become final and executory.

The lower court having approved said claim, petitioners appealed contending that respondent judge acted with grave abuse of discretion in granting said claim.

Issue:Whether or not said assessments have become final

and executory.

Held:Petitioners contend that due to the pendency of their

motion for reconsideration of the deficiency assessments, the tax assessments in question have not yet become final and executory. They further contend that their availment of tax amnesty under P.D. 23, as amended, is a bar to tax collection.

As regards the tax assessments, the act of the CIR in filing a motion for allowance of the claim of the estate and inheritance taxes may be considered as an outright denial of petitioner’s request for reconsideration. From the date of receipt of the copy of the CIR’s letter for collection of estate and inheritance taxes against the estates of the late spouses, petitioners must contest or dispute the same and upon denial thereof, the petitioners have a period of 30 days within which to appeal to the CTA. This they failed to avail of. Failure of the petitioner to appeal to the CTA in due time made the assessments in question final, executory and demandable. The assessment having become final and executory, the CFI properly acquired jurisdiction.Subject Matter: CTA

MAGSAYSAY LINES, INC., ET. AL. V CAG.R. No. 111184, August 12, 1996

Facts:Petitioners, consisting of investors/shipping

companies field on April 10, 1989 a petition for refund of the CTA for reversal of certain VAT rulings and for the refund of P15,120,000 representing erroneously paid 10% VAT on the sale thru public bidding of 5 vessels by the National Development Corp. to said group of investors. On April 27, 1992, the CTA ordered the CIR to refund the amount to petitioners.

The resolution of the CTA dated December 9, 1992, delaying its motion for reconsideration was received by respondent CIR on January 6, 1993. Upon receipt thereof, CIR, thru the office of the SOL-GEN, filed on the same date with the CA a motion for reconsideration of 30 days or until February 6, 1993, within which to file a petition for review. However, on February 5, 1993, the OSG filed on behalf of respondent CIR a second motion for extension of 30 days, or until March 8, 1993, within which to file said petition.

On February 11, 1993, the OSG received the resolution dated February 3, 1993 of respondent appellate court granting respondent CIR’S first motion for extension “with a

warning that so further extension shall be entertained.” Manifestation and motion, on March 8, 1993, or within the period requested in the second motion for extension, the petition for review was filed thru registered mail.

In a resolution of May 3, 1993, respondent CA dismissed the petition for being filed out of time. Later, however, the CA reconsidered its ruling and directed herein petitioner to file its comment on the reinstated petition. Hence, petitioners filed the instant petition.

Issue:Whether or not the motion for extension to file a

petition for review of CA my be permitted.

Held:The petition is devoid of merit. The petition for review

pending before respondent appellate court was file din accordance with circular no. 1-91, dated January 27, 1991. While circular no. 1-91 is silent as to whether a motion for extension of time to file a petition for review with the CA may be permitted, nevertheless, the court already ruled in Liboro vs. CA, that such motion is allowed and should be granted. Parenthetically, it should be mentioned that Adm. Circular no. 1-95 which took effect on February 15, 1995 allows motion for extension of time to file petitions for review.

The resort to the filing of the first motion for extension dated January 6, 1993 was proper, and said motion validly and timely filed, pursuant to the then prevailing rules of procedure. The first motion having been granted on February 3, 1993 or well within the period of extension asked for, was no less valid and effective. Therefore, petitioner has until February 6, 1993 to file the subject petition for review.

With respect to the 2nd motion for extension filed on February 5, 1993, the court took cognizance of the fact that the intermittent and extended power failures assuming almost daily throughout 1993 rendered substantial work delays inevitable. Hence the 2nd motion for extension was justified and the grant thereof was proper under the circumstances.

While generally speaking, a review on appeal is not a matter of right but of sound judicial discretion, and may be granted only when there are special and important reasons therefore, in this instance, substantial justice would be better by allowing the appeal.


BPI FAMILY SAVINGS BANK, INC., V CAG.R. No. 122480, April 12, 2000

Facts:Petitioner bank’s annual corporate income tax return

for 1989 showed that it suffered a loss of P8,286,960, and that it had a total refundable amount of P297,492 inclusive of P112,491 being claimed as tax refund in the present case. However, petitioner declared in its 1989 income tax return as a tax credit in the succeeding taxable year.

On October 11, 1991, petitioner bank filed a written claim for refund of P112,491 with the BIR alleging that it did not apply the 1989 refundable amount of P297,492 as tax credit to its 1990 annual corporate income tax return or either tax liabilities due to business losses it incurred for the same year. Without waiting for respondent CIR’s action in its claim for refund, petitioner filed a petition for review with the CTA.

CTA dismissed the petition on the ground that petitioner bank failed to present as evidence its 1990 annual income tax return to prove that it had not yet credited the amount of P297,422, inclusive of P112,491 which is the subject of the present controversy to its 1990 tax liability. Since petitioner declared in its 1989 income tax return that it would


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apply the excess withholding tax as tax credit for the following year, the tax court presumed that it did so. Petitioner failed to overcome this presumption because it did not present its 1990 tax return which would have shown that the amount was not applied as a tax credit. Hence, it was concluded that petition was not entitled to a tax refund. The CA affirmed said decision of the CTA.

Issue:Whether or not petitioner is entitled to a tax refund of

P112,491 representing creditable withholding tax paid for 1989.

Held:The petition is meritorious. As a rule, the factual

findings on the appellate court are binding on the SC. This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion. This case is one such exception.

Strict procedural rules generally frown up the submission of the return the trial. R.A. 1125, the law creating the CTA, however, specifically provides the proceedings before it “shall not be governed strictly by the technical rules of evidence”. The paramount considerations remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy.

While tax refunds are in the nature of the exceptions and are to the construct strictissimi juris against the claimant, under the facts of this case, petitioner has established its claim.

Substantial justice equity, and fair play are on the side of petitioner. Technicalities and legalisms, however, exalted, should not be misused by the government to keep money not belonging to it and thereby enrich would be better by allowing to appeal.


PROTECTOR’S SERVICES, INC., V CA ET. AL.G.R. No 118176, April 12, 2000

Facts:Petition Protector’s Services, Inc., (PSI) is a contractor

engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for 1985.

Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employer’s share of SSS, SIF and Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSI’s capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled tax to P2,851,805.16.

On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of

security guards are part of taxable gross receipts for determination of contractor’s tax.

PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employer’s share of SSS, SIF and medicare contributions should not form part of taxable gross receipts.

The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTA’s decision was affirmed.

Issues: Whether or not the CTA has jurisdiction to act on the

petition for review filed before it. Whether or not the assessments against PSI for

deficiency percentage tax for 1983 and 1984 were made within the prescriptive period.

Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed.

Whether or not the assessments are correct.

Held:An assessment maybe administratively protested

within 30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction.

Petitioner’s contention that the Government’s right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still covered by the 5-year statutory prescriptive period.

The 3-year prescriptive period for assessment of contractor’s tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments.

As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the government’s right to collect the tax has prescribed, the court ruled that “the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter.” In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case to the SC, hoping for a review in the favor. The actions taken by


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petitioner before the CTA and the SC suspended the running of the statute of limitation.

As to the correctness of the assessment, it was held that contractor’s tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term “gross receipts” means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under the subcontract arrangement. Hence, gross receipts could not be diminished by employer’s SSS, SIF and medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts subject to tax.

Subject Matter: CTA, Jurisdiction

CIR V VILLA, ET. AL.L-23988, January 2, 1968

Facts:Leonardo S. Villa, a doctor of medicine and his wife

filed joint income tax returns for 1951 to 1956. Subsequently, the BIR determined the income of the spouses by the use of the net worth method and issued on February 23, 1961 assessments for deficiency income tax for 1951 to 1956 and residence tax for 1951 to 1957. Dr. Villa received the assessment on April 7, 1961.

Without contesting said assessment in the BIR, he filed on May 4, 1961 a petition for review in the CTA.

Issue:Did the CTA acquire jurisdiction over the case?

Held:The CTA did not acquire jurisdiction over the case.

The word “decision” in par. 1, sec. 7 of RA 1125 (law creating the Court of Tax Appeals) has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself.

Jurisdiction over the subject matter is fundamental for the count to act on a given controversy. It is conferred by law, not by the consent of the parties. It can be challenged at any stage of the proceedings and for lack of jurisdictions a court can dismiss a case motu proprio.

Subject Matter: CTA

LIBORO V CA, ET. AL.G.R. No. 101132, January 29, 1993

Facts:Petitioner Liboro, a practicing lawyer field his income

tax return for 1980. However, on September 30 and November 30, 1985 he was notified of his tax deficiency. He responded with a letter – protest dated December 19, 1985, but this was denied by the CIR on May 11, 1988 for lack of legal basis. Petitioner filed a petition for review with the CTA which dismissed his petition on March 29, 1991. Petitioner received the decision on May 29, 1991 and, therefore, had until June 13, 1991 to file a petition for review with the CA.

However, instead of filing a petition for review, petitioner, on June 11, 1991, filed a notice of appeal with the CTA, and on June 13, 1991 field a motion for extension of 30 days to file a petition for review before the CA. The CA denied his motion on June 20, 1991 the ground that SC circular No. 1-91 then in force did not authorize and extension of the period for filing a petition for review and regarded the proceedings closed and terminated. On July 18, 1991, petitioner’s motion for reconsideration and for admission of his petition were denied.

Issue:Whether Circular No. 1-91 then in force allows the CA

to grant a motion for extension to file a petition for review from the final order or decision of the CTA and other quasi-judicial agencies.

Held:The prohibition against granting an extension of time

applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The reason is that only the filing of the notice of appeal is required to perfect an appeal and nothing more. However, it is different in a petition for review where pleading is required to be verified. A petition for review, unlike an ordinary appeal, requires careful preparation and research in order to put up a persuasive and formidable position.

Since Circular No. 1-91 provides that an appeal from the CTA other quasi-judicial agencies to the CA is by a petition for review, and no longer by mere notice of appeal, a corresponding motion for extension of time to file a petition for review should likewise be granted.

But the extension nonetheless should be limited only to 15 days, save exceptionally meritorious cases where the CA may grant it a longer period.


AZNAR CASE (August 23, 1974)

Facts:Matias Aznar died on May 15, 1958. His income tax

returns from 1945 to 1951 were examined by the BIR. Doubting the truth of the income that he had reported, the Commissioner ordered the investigation of the case on the basis of the net worth method. Substantial under-declarations of income were discovered. On November 28, 1952, the BIR notified AZNAR of a tax delinquency of P723,032.66 which was later reduced to P381,096.07 upon reinvestigation.

On February 20, 1953, AZNAR’s properties were placed under distraint and levy. On April 1, 1955, AZNAR appealed to the CTA. The CTA found that AZNAR made substantial under-declarations of his income as follows: he under-declared his income for 1946 by 227%; 564% for 1947; 95% for 1948; 486% for 1949; 946% 1950; 490% 1951.

Issues:Whether or not the right of the Commissioner to

assess AZNAR’s deficiency income taxes for 1946, 1947 and 1948 had prescribed at the time the assessment was made.

Held:On the issue of prescription the count applied the 10-

year prescriptive period and ruled that prescription had not set in. the court opined that AZNAR’s returns were false because the under-declaration of income constituted a deviation from the truth. The court stated that the ordinary prescriptive period of 5 years (now 3 years) would apply under normal circumstances but whenever the government is placed at a disadvantage as to prevent its lawful agent from making a proper assessment of tax


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liabilities due to false or fraudulent returns intended to evade payment of taxes or failure to the returns, the period of 10 years provided for in the law from the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.


REPUBLIC V RETMarch 31, 1962

Facts:Damian Ret filed 2 false and fraudulent returns for

1948 and 1949 for which he was assessed by the BIR the sums of P34,907.33 and P68,338.40 including 50% surcharge for found. Demand was made on January 3, 1951 for payment.

Ret refused to pay. On June 20, 1951, an assessment notice was issued but he still refused. Subsequently, Ret was prosecuted in 2 criminal cases for filing false or fraudulent returns. He pleaded guilty thereto and was sentenced to pay a fined of P300 in each case.

After his conviction, on September 21, 1957, the Government filed a complaint for the collection of Ret’s income taxes but the lower court dismissed the case on the ground that the government’s right to collect by judicial action had prescribed as more than five (now three) years had elapsed from the date of the assessment of Ret’s taxes.

The government however contended that prescription did not take place because the prescriptive period for collection was suspended when the 2 informations were filed on May 29, 1952 and began to run again from the receipt of the court’s decision on April 20, 1955.

Issue:Whether or not the prescriptive period was suspended

when the 2 informations were filed.

Held:According to the SC, however, the prescriptive period

for the civil action is suspended during the pendency of the criminal nation only when the civil liability arises from the offense committed. However, such rule does not apply here because the criminal actions for the violations are entirely separate and distinct from the civil suit.

The court further stated that there is nothing in the law which would have stopped the plaintiff-appellant from filing the civil suit simultaneously with or during the pendency of the criminal case.


REPUBLIC V LIM TIAN TENG SONS & CO. INC.March 31, 1968

Facts:Lim Tian Teng Sons & Co., a domestic corporation

with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. The copra was weighted before shipment in the port of departure and upon arrival in the port of destination. The weight before shipment was called copra outturn. To allow for loss in weight due to shrinkage said exporter collected only 95% of the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final liquidation and adjustment.

On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P55, 109.98. It took up as part of the beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as part of its outstanding stock as of December 31, 1951.

In the audit and examination of taxpayer’s 1952 income tax return, the CIR eliminated the P95,500.00 outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. This increased taxpayer’s 1952 net taxable income. Accordingly, in a letter dated January 16, 1957 received by Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of P10,074.00 and 50% surcharge them amounting to 5,037.00 and demanded payment thereof not later than February 15, 1954.

On January 31, 1957 Lim Tian requested for reinvestigation of its 1952 income tax liability. The CIR did not reply; instead he referred the case to the solicitor general for collection by judicial action.

On September 20, 1957 the solicitor general demanded from Lim Tian the payment of P15,111.50 within five days, stating that otherwise judicial action would be instituted without further notice.

Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waive of the statute of limitations. As him Tian failed to file a waiver of the statute of limitations, the collector of I.R. instituted 8 months after, or on September 2, 1958 an action in the CFI for the collection of deficiency income tax. The CFI rendered decision ordering the defendant to pay the plaintiff as the assessment is valid.

Both parties appealed, raising only question of law.

Issue:Whether or not the Commissioner is required to rule

first on the taxpayer’s request for reinvestigation before he can go to count for collecting the tax assessed.

Held:Nowhere in the Tax Code is the Commissioner

required to rule first on the taxpayer’s request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. According to the court, the legislative policy is to give the Commissioner much latitude in the speedy and prompt collection of taxes because it is on taxation that the government depends to obtain the means to carry in its operations.

When the commissioner did not reply to the tax payer’s request for reinvestigation/reconsideration and instead referred the case to the solicitor general for judicial collection, this was indicative of his decision against reinvestigation.


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