Cases For Review

CASE LIST IN TAX 1
Lorenzo v. Posadas
Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that:
o
Any money left be given to nephew Matthew
o
All real estate shall not be sold or disposed of 10 years after his
death. It shall be managed by the executors. The proceeds shall
be given to nephew Matthew in Ireland to be used only for the
education of Hanleys brother's children and their descendants.
o
10 years after Thomas death, his property be given to Matthew
to be disposed of in the way he thinks most advantageous
In 1924, the CFI appointed an administrator, Moore, eventually replaced by

Lorenzo (after Moore resigned).
CIR assessed the estate inheritance taxes from the time of Thomas death
including penalties for deliquency in payment (P2k+).
CIR filed a motion before the CFI praying that the Lorenzo be ordered to
pay the said amount. The motion was granted. Lorenzo paid under protest
and asked for a refund. CIR refused to refund.
I: (a) When does the inheritance tax accrue and when must it be
satisfied? UPON DEATH
Lorenzo asserts that article 657 of the Civil Code (the rights to the
succession of a person are transmitted from the moment of his death)

operates only in so far as forced heirs are concerned.
HOWEVER, there is no distinction between different classes of heirs. The

Administrative Code imposes the tax upon the transmission of property of a
decedent, made effective by his death. An excise or privilege tax imposed
on the right to succeed to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to become operative at or after
death. The property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to
them a deed for the same before his death.
Since Thomas Hanley died on May 27, 1922, the inheritance tax accrued as
of the date.
However, it does not follow that the obligation to pay the tax arose as of
the date. The time for the payment on inheritance tax is fixed by the
Revised Administrative Code w/c provides that the payment must be made
before entrance into possession of the property of the fideicommissary or
cestui que trust. Thus, the tax should have been paid before the delivery of
the properties to Moore as trustee in 1924.
(b) Should the inheritance tax be computed on the basis of the
value of the estate at the time of the testator's death, or on its
value ten years later? AT THE TIME OF DEATH
TAX 2 MONTERO | Y. Sanchez A2012
Plaintiff contends that the estate of Thomas Hanley could not legally pass to Matthew
until after the expiration of 10 years from the death of the testator in 1922 and the
inheritance tax should be based on the value of the estate in 1932.
Upon the death of the decedent, succession takes place and the right of the estate to
tax vests instantly. The tax should be measured by the value of the estate as it stood
at the time of the decedent's death, regardless of any subsequent contingency value
of any subsequent increase or decrease in value, or the postponement of the actual
possession or enjoyment of the estate by the beneficiary.
(c) In determining the net value of the estate subject to tax, is it proper to
deduct the compensation due to trustees? NO
A trustee, no doubt, is entitled to receive a fair compensation for his services.
However, it does not follow that the compensation due him may lawfully be deducted
in arriving at the net value of the estate subject to tax. First, There is no statute
requiring trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax. Second, though a testamentary trust has been
created, the testator intended that the duties of his executors and trustees should be
separated.
(d) What law governs the case at bar? Should the provisions of Act No.
3606 favorable to the tax-payer be given retroactive effect? NO
The law at the time was section 1544 of the Revised Administrative Code, as
amended by Act No. 3031, which took effect on March 9, 1922. Inheritance taxation
is governed by the statute in force at the time of the death of the decedent . A
statute should be considered as prospective in its operation, whether it enacts,
amends, or repeals an inheritance tax, unless the language of the statute clearly
demands or expresses that it shall have a retroactive effect.
CIR v Fisher
Walter G. Stevenson was born in the Philippines of British parents, married

in Manila to another British subject, Beatrice. He died in 1951 in California
where he and his wife moved to.
In his will, he instituted Beatrice as his sole heiress to certain real and
personal properties, among which are 210,000 shares of stocks in Mindanao
Mother Lode Mines (Mines).
Ian Murray Statt (Statt), the appointed ancillary administrator of his estate
filed an estate and inheritance tax return. He made a preliminary return to
secure the waiver of the CIR on the inheritance of the Mines shares of
stock.
In 1952, Beatrice assigned all her rights and interests in the estate to the
spouses Fisher.
Statt filed an amended estate and inheritance tax return claiming

ADDITIOANL EXEMPTIONS, one of which is the estate and inheritance tax
on the Mines shares of stock pursuant to a reciprocity proviso in the
NIRC, hence, warranting a refund from what he initially paid. The collector
denied the claim. He then filed in the CFI of Manila for the said amount.
CFI ruled that (a) the share of Beatrice should be deducted from the net
estate of Walter, (b) the intangible personal property belonging to the
estate of Walter is exempt from inheritance tax pursuant to the reciprocity
proviso in NIRC.
I: W/N the estate can avail itself of the reciprocity proviso in the NIRC
granting exemption from the payment of taxes for the Mines shares of stock
R: No.
Reciprocity must be total. If any of the two states collects or imposes or
does not exempt any transfer, death, legacy or succession tax of any
character, the reciprocity does not work.
In the Philippines, upon the death of any citizen or resident, or non-resident
with properties, there are imposed upon his estate, both an estate and an
inheritance tax.
But, under the laws of California, only inheritance tax is imposed. Also,
although the Federal Internal Revenue Code imposes an estate tax, it does
not grant exemption on the basis of reciprocity. Thus, a Filipino citizen shall
always be at a disadvantage. This is not what the legislators intended.
SPECIFICALLY:
Section122 of the NIRC provides that No tax shall be collected under this
Title in respect of intangible personal property
o
(a) if the decedent at the time of his death was a resident of a
foreign country which at the time of his death did not impose a
transfer of tax or death tax of any character in respect of
intangible personal property of citizens of the Philippines not
residing in that foreign country, or
o
(b) if the laws of the foreign country of which the decedent was a
resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of
intangible personal property owned by citizens of the Philippines
not residing in that foreign country."
On the other hand, Section 13851 of the California

Inheritance Tax Law provides that intangible personal
property is exempt from tax if the decedent at the time of
his death was a resident of a territory or another State of
the United States or of a foreign state or country which then
imposed a legacy, succession, or death tax in respect to
intangible personal property of its own residents, but either:.
(a) Did not impose a legacy, succession, or death tax of
any character in respect to intangible personal
property of residents of this State, or
(b) Had in its laws a reciprocal provision under which
intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of
every character if the Territory or other State of the

United States or foreign state or country in which
the nonresident resided allowed a similar exemption
in respect to intangible personal property of
residents of the Territory or State of the United
States or foreign state or country of residence of
the decedent."
CIR v Campos Rueda
Maria Cerdeira was a Spanish national by reason of her marriage to a Spanish

national.
She resided in Tangier, Morocco until she died. She left some intangible
properties in the Philippines.
The Commissioner of Internal Revenue (CIR) then held the administrator of her
estate, Campos Rueda, to be liable for deficiency estate and inheritance taxes
after the transfer of Marias intangible properties in the Philippines.
Campos Rueda countered this by saying that Section 122 (now sec 104) of the
NIRC provided for reciprocity and that in the laws of Tangier, Morocco, "the
transfers by reason of death of movable properties, corporeal or incorporeal,

including furniture and personal effects as well as of securities, bonds, shares,
..., were not subject, on that date and in said zone, to the payment of any death
tax, whatever might have been the nationality of the deceased or his heirs and
legatees."
Thus, Campos Rueda claimed an exemption in the amount that the CIR was
claiming as a deficiency.
The CIR on the other hand claimed that the reciprocity clause could not apply
since Tangier Morocco is not a foreign country as required in sec 122.
I: W/N Tangier, Morocco is a Foreign country within the meaning of section
122 (now sec 104) of the NIRC
R: YES, Tangier is a foreign country
The expression "foreign country", used in the last proviso of Section 122 of the
National Internal Revenue Code, refers to a government of that foreign power
which, although not an international person in the sense of international law,
does not impose transfer or death taxes upon intangible personal properties.
It is, therefore, not necessary that Tangier should have been recognized by our
Government order to entitle the petitioner to the exemption benefits of the
proviso of Section 122 of our Tax. Code.
Court also cited previous cases:
o
CIR v. De Lara: State of California was considered a Foreign
country within the meaning of sec 122.
o
Kiene v. CIR: Liechtenstein was considered a foreign country
within the meaning of sec 122.
In this case, it was stated that while US decisions held that intangible
personal property in the Philippines belonging to a non-resident foreigner,
who died outside of this country is subject to the estate tax, the congress,
in including sec 122 in the NIRC clearly provided for an exemption
(reciprocity) and this exemption must be honored.
Zapanta v Posadas
Father Braulio Pineda died without any ascendants or descendants leaving a will
in which he instituted his sister Irene Pineda as his sole heiress.
During his lifetime Father Braulio donated some of his property to the six
plaintifffs, his relatives, severally, with the condition that some of them would
pay him a certain amount of rice, and others of money every year, and with the
express provision that failure to fulfill this condition would revoke the donations
ipso facto.
The donations contained another clause that they would take effect upon
acceptance. They were accepted during Father Braulio's lifetime by every one of
the donees.
CIR then imposed upon the 6 plaintiffs separate inheritance taxes on the
property donated to them in accordance with Section 1536 of the Administrative
Code, as amended, which states that Every transmission by virtue of
inheritance, devise, bequest, gift mortis causa or advance in anticipation of
inheritance, devise, or bequest of real property located in the Philippine Islands
and real rights in such property
The 6 plaintiffs paid the inheritance tax under protest and subsequently filed a
separate civil action against the CIR. The trial court in deciding these six cases,
held that the donations to the six plaintiffs made by the deceased Father Braulio
Pineda are donations inter vivos, and therefore, not subject to the inheritance
tax, and ordered the CIR to return to each of the plaintiffs the sums paid by the
latter.
I: W/n the donation made by Father Braulio was in fact a donation mortis causa,
and thus taxable.
R: NO, the donation was inter vivos. It was thus not taxable.
Donations were inter vivos considering that not only was it stated as such in the
instruments in which they appeared, but they were also made in the nature of a
donation inter vivos.
In donations mortis causa, it is the donors death that determines the acquisition
of, or the right to, the property, and that it is revocable at the will of the donor.
In donations inter vivos, as in the present case, the donees acquired the right to
the property while the donor was still alive, subject only to their acceptance and
the condition that they pay the donor rice and/or money. The nature of these
donations is not affected by the fact that they were subject to the condition of
payment since it was imposed as a resolutory condition, and in this sense, it is
necessarily implies that the right came into existence first, otherwise there would
be nothing to resolve upon the nonfulfillment of the condition imposed.
If the donor's life is mentioned in connection with this condition, it is only fix the
donor's death as the end of the term within which the condition must be fulfilled,
and NOT because such death of the donor is the cause which determines the
birth of the right to the donation. The property donated passed to the ownership
of the donees from the acceptance of the donations, and these could not be
revoked except upon the nonfulfillment of the condition imposed, or for other
causes prescribed by the law, but not by mere will of the donor.
(However, considering that these donations had onerous conditions, they are not
donations to the full extent. Rather, they are partly contractual and partly
donations. They are donations inter vivos only insofar as they exceed to the
incumbrance imposed.)
Neither can these donations be considered as an advance on inheritance or

legacy, since they were not heirs or legatees of their predecessor in interest
upon his death (Sec. 1540 of the Administrative Code). Neither can it be said
that they obtained this inheritance or legacy by virtue of a document which does
not contain the requisites of a will (Sec. 618 of the Code of Civil Pocedure).
Besides, if the donations made by the plaintiffs are, as the appellants contended,
mortis causa, then they must be governed by the law on testate succession (art.
620 of the Civil Code). In such a case, the documents in which these donations
appear, being instruments which do not contain the requisites of a will, are not
valid to transmit the property to the donees (Sec. 618, Code of Civil Procedure.)
Then the defendants are not justified in collecting from the donees the
inheritance tax, on property which has not been legally transferred to them, and
in which they acquired no right.
Dissenting Opinion by Justice Street: Justice Street strongly believed that the
present case involved advances in anticipation of inheritance considering that
the donees were entitled to receive an inheritance if no will had been made by
the decedent. He believed that what transpired in the present case is an attempt
by the donor to evade the payment of taxes by disposing of the bulk of his
property before his death.
Tuason v Posadas
In 1922, Esperanza Tuason Chuajap made a donation inter vivos of certain

property to Mariano Tuason.
In 1923, she made another donation inter vivos, this time to Alfredo
Tuason.
She died 3 years after leaving a will bequeathing P5,025 to Mariano Tuason
after the judicial administratix paid the prescribed inheritance tax on these
two bequests.
Consequently, Posadas collected the sums of P3, 809.76 and P6, 653.64
from both the petitioners as inheritance tax upon the gifts inter vivos made
to them against their opposition and protest.
They filed their protest and the judgment was that the defendant must
return the amount claimed by the plaintiff. Posadas appealed and argued
that the collection of these amounts as inheritance tax is authorized by the
law.
I: W/n Posadas was correct in collecting inheritance tax
R: YES.
Section 1536 of the Administrative Code provides that every transmission by
virtue of inheritance, devise, bequest, gift mortis causa, or advance in
anticipation of inheritance, devise, or bequest shall be subject to tax.
Section 1540 then provides that after deductions have been made, there
shall be added to the resulting amount the value of all gifts or advances
made by the predecessor to any of those who, after his death, shall
prove to be his heirs, devisees, legatees, or donees mortis causa.
When the law say all gifts, it doubtless refers to gifts inter vivos, and not
mortis causa. Both the letter and the spirit of the law leave no room for any
other interpretation.
The language refers to donation that took effect before the donor's death,
and not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's death.
In this case, it appears that the Tuazons, after the death of Espereanza,
were found to be legatees under her will. Thus, the donation inter vivos she
had made to them in 1922 and 1923, must be added to the net amount
that is to be taxed.
If the donee inter vivos was found to be legatees, heirs, devisees
OR donees mortis causa of the decedent, then they would have to
pay the inheritance tax.
The reason for this is because the donation inter vivos is deemed
to be a transfer in anticipation of inheritance/death, meaning that
it is a scheme to evade payment of taxes.
Dizon v Posadas
Dizon was assessed to pay P2k+ as inheritance tax from the properties he
received from his father prior to his fathers death through a deed of gift
inter vivos.
Dizon alleged that the tax was illegally collected because he received the
property prior to the death of his father, through a deed of gift inter vivos
which was duly accepted and registered before the death of his father
making the property not an inheritance.
He further states that he was not trying to evade the inheritance tax that is
imposed on heirs when his father donated all his properties to him. Thus,
no inheritance tax under Act No. 2601 (Chapter 40 of the Administrative

Code), being the inheritance tax statute, should be imposed upon the said
properties.
The Court, however, ruled in favor of Posadas, hence, this appeal.
I:W/N the inheritance tax was correctly imposed upon the properties
transferred through donation inter vivos
R: YES.
Section 1540 of the Administrative Code states that after deductions have
been made, there shall be added to the resulting amount the value of all
gifts or advances made by the predecessor to any of those who, after his
death, shall prove to be his heirs, devises, legatees, or donees mortis causa
In this case facts conveyance was made by the donor five days before his
death and accepted by the donee one day before the donor's death.
Obviously, this was fraudulently made for the purpose of evading the
inheritance tax.
As to Dizons contention that the he is not an heir because there is no
property to inherit anymore because he already received the properties of
the father through a donation inter vivos, SC said that even if they dont
know w/n the father left a will, Dizon should NOT be deprived of his share
of the inheritance because the Civil Code confers upon him the status of a
forced heir.
Thus, an advance made by the decedent to Dizon is subject to tax.
As to Dizons contention that Section 1540 is unconstitutional in taxing gifts
or donations because the act would then embrace two subjects, the Court
states that: When the law says all gifts, it doubtless refers to gifts inter
vivos, and not mortis causa. Both the letter and the spirit of the law leave
no room for any other interpretation. Such, clearly, is the tenor of the
language which refers to donations that took effect before the donor's
death, and not to mortis causa donations, which can only be made with the
formalities of a will, and can only take effect after the donor's death.
The law presumes that such gifts have been made in ancitipation
of inheritance in order to EVADE tax. Thus, to prevent this, they
are added to the resulting amount."
Vidal de Roces v Posadas
Esperanza Tuazon by public document donated parcels of land situated in Manila

to plaintiffs Vidal de Roces, etc. with their respective husbands, accepted them in
the same public documents, which were duly recorded in the registry of deeds.
The plaintiffs took possession of the said lands, received the fruits and obtained
TCTs.
The donor then died w/o any forced heir and in her will, she bequeathed to each
of the donees the sum of P5,000.
After the estate had been distributed among the instituted legatees and before
delivery of their respective shares, the CIR ruled that the donees should pay
inheritance tax.
They thus paid under protest, contending that Art 1540 of the Revised
Administrative Code (after deductions have been made, there shall be added to
the resulting amount the value of all gifts / advances made by the predecessor to
any of those who after his death prove to be heirs, devisees, legatees or donees
mortis causa) does NOT include donations inter vivos. If it does, it is null and
void as it violates uniformity of taxation.
I: W/n donations inter vivos is included in Sec. 1540 of the Administrative Code
R: No.
The gifts referred to in section 1540 of the Revised Administration Code are,
obviously, those donations inter vivos that take effect immediately or during the
lifetime of the donor but are made in consideration or in contemplation of death.
Gifts inter vivos, the transmission of which is NOT MADE IN CONTEMPLATION OF
THE DONOR'S DEATH should not be understood as included within the said legal
provision for the reason that it would amount to imposing a direct tax on
property and not on the transmission.
This act does not come within the scope of the provisions contained in Article XI
of Chapter 40 of the Administrative Code which deals expressly with the tax on
inheritances, legacies and other acquisitions mortis causa.
CIR v CA and Pajonar
Pedro Pajonar, a member of the Philippine Scout during WWII was a part of
the infamous Death March by reason of which he suffered shock and
became insane.
His sister Josefina became the guardian over his person, while his property
was placed under the guardianship of the PNB by the RTC of Dumaguete.
After his death, PNB filed an accounting of his property under guardianship
valued at 3M in Special Proceedings.
However, PNB did NOT file and estate tax return, instead it advised his heirs
to execute an extrajudicial settlement and to pay taxes on the estate.
Pursuant to BIRs assessment, the estate of Pedro paid taxes in the amount
of 2k.
Josefina then filed a petition w/ RTC of Dumaguete for the issuance in her
favor of letters of administration of the estate of her brother.
RTC appointed Josefina as regular administratrix of Pedros estate.
The BIR then made a 2nd amendment for deficiency estate tax, w/c Josefina
paid under protest.
Without waiting for her protest to be resolved by the BIR, Josefina then
filed a petition for review w/ the CTA praying for the refund of 1.5M OR the
alternative 840k as erroneously paid estate tax.
CTA ordered CIR to refund Josefina the amount of 252k, representing

erroneously paid estate tax. Among the deductions from the gross estate
allowed by CTA were the amounts of 60K representing notarial fee
for Extrajudicial Settlement plus attys fees for guardianship
proceedings.
I: W/N the notarial fee and attys fees paid for the EJ Settlement may be
allowed as deductions fro the gross estate of decedent in order to arrive at
the value of the net estate.
R: YES, they are allowed deductions.
ATTYs FEES:
Under American Jurisprudence, expenses incurred in the EJ Settlement of
the estate should be allowed as deduction from the gross estate. There is
not requirement of formal administration. It is sufficient that the expense be
a NECESSARY contribution toward the settlement to the case.
Attys fees in order to be deductible from the gross estate must be essential
and related to the settlement of estate. In this case, the attys fees paid for
guardianship proceeding was necessary for the distribution of the property
of the late Pedro Pajonar to his rightful heirs. Thus, it was deductible.
Necessary expenses of administration are such expenses as are entailed for
the preservation and productivity of the estate and for its management for
the purposes of liquidation, payment of debts and distribution of the residue
among the persons entitled.
NOTARIAL FEES:
Although tax code specifies judicial expenses of the testamentary or
intestate proceedings, there is no reason why expenses incurred in the
administration and settlement of an estate in EJ proceedings should not be
allowed. However, deduction is limited to such administration expenses as
are actually and necessarily incurred in the collection of the assets of the
estate, payment of debts, and distribution of the remainder among those
entitled thereto. Such expenses may include executors or administrators
fees, attys fees, court fees and charges, appraisers fees, clerk hire, costs
of preserving and distributing the estate and storing or maintaining it,
brokerage fees or commissions for selling or disposing of the estate.
It is clear that the EJ settlement was for the purpose of payment of taxes
and the distribution of the estate to the heirs. The execution of EJ
settlement necessitated the notarization of the same. Thus the 60k for
notarial fee for the EJ Settlement should be allowed as a deduction from the
gross estate.
Judicial expenses are expenses for administration. Administration expenses

are deductible from the gross estate. Expenses must be essential to the
proper settlement of the estate.
Testate Estate of the late Felix de Guzman v de Guzman-Carillo
Felix Guzman died and was survived by eight children.

One of the properties he left was a residential house located in the
poblacion.
In conformity with his last will, that house and the lot on which it stands
were adjudicated to his eight children, each being given a one-eighth
proindiviso.
The administrator submitted four accounting reports for the period from
June 16, 1964 to September, 1967.
Three of the heirs Crispina de Guzmans-Carillo Honorata de GuzmanMendiola and Arsenio de Guzman interposed objections to the
administrator's disbursements in the total sum of P13,610.48.
I: W/n expenses incurred by the administrator are deductible
R: YES.
(Deductible) 1. Expenses for the renovation and improvement of
the family residence P10,399.59. These expenses consisted of
disbursements for the repair of the terrace and interior of the family home,
the renovation of the bathroom, and the construction of a fence. The
probate court allowed those expenses because an administrator has the
duty to "maintain in tenantable repair the houses and other structures and
fences belonging to the estate, and deliver the same in such repair to the
heirs or devises" when directed to do so by the court (Sec. 2, Rule 84, Rules
of Court).
(Non-deductible) 2. Expenses incurred by Librada de Guzman as
occupant of the family residence without paying rent These were
PERSONAL expenses of Librada de Guzman, inuring to her benefit. Those
expenses, not being reasonable administration expenses incurred by the
administrator, should not be charged against the income of the estate.
Librada de Guzman, as an heir, is entitled to share in the net income of the
estate. She occupied the house without paying rent. She should use her
income for her living expenses while occupying the family residence.
The STENOGRAPHIC NOTES, REPRESENTATION EXPENSES and
EXPENSES DURING THE CELEBRATION OF THE 1ST DEATH
ANNIVERSARY OF THE DECEASED should be disallowed. They have
no connection with the care, management and settlement of the
decedent's estate (Nicolas vs. Nicolas 63 Phil 332).
The other expenses, namely, P19.30 for the lawyer's subsistence
and P144 as the cost of the gift to the physician who attended to
the testator during his last s are allowable expenses.
(Deductible) 4. Irrigation fee was properly allowed as a legitimate
expense of administration.
Dizon in his capacity as Administrator of the deceased Fernandez v CIR
Justice Arsenio Dizon and petitioner Atty. Dizon were appointed as Special
and Assistant Special Administrator, respectively, of the Estate of Jose
Fernandez.
Justice Dizon authorized Atty. Gonzales to sign and file the required estate
tax return.
Atty. Gonzales filed the estate tax return with the BIR Regional Office of
San Pablo City, showing a NIL estate tax liability (no tax liability- in this
case, because the deductions exceed the gross estate).
Ten days after, the BIR Regional Director issued Certifications stating that
the taxes due on the transfer of real and personal properties of Jose had
been fully paid and said properties may be transferred to his heirs.
Justice Dizon died thus the probate court appointed petitioner as the
administrator of the Estate.
Atty. Dizon requested the probate courts authority to sell several properties
of the Estate to pay its creditors. HOWEVER, BIR issued a notice demanding
the payment of P66k+ deficiency estate tax.
Atty. Gonzales moved for a reconsideration of the Assessment but the CIR
denied the request and reiterated the Estates liability. A petition for Review
was filed with the CTA.
I: W/n deficiency estate tax must be imposed against the Estate
R: No.
Claims existing at time of death should be allowed as deductions to the
gross estate.
Even in the United States, there is some dispute as to whether the
deductible amount for a claim against the estate is fixed as of the
decedent's death which is the general rule, or the same should be adjusted
to reflect post-death developments, such as where a settlement between
the parties results in the reduction of the amount actually paid. On one
hand, the U.S. court ruled that the appropriate deduction is the "value" that
the claim had at the date of the decedent's death.
On the other hand, the Internal Revenue Service (IRS) opines that postdeath settlement should be taken into consideration and the claim should
be allowed as a deduction only to the extent of the amount actually paid.
SC agreed w/ date-of-death valuation rule.
First, there is no law, nor any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides
that post-death developments must be considered in determining
the net value of the estate. It bears emphasis that tax burdens are not
to be imposed, nor presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being construed strictissimi juris
against the government. Any doubt on whether a person, article or activity
is taxable is generally resolved against taxation.
Second. Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be presented
against a decedent's estate is generally construed to mean debts or

demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his
death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of
allowable deductions.
Gov of the Phils v Pamintuan
Florentino Pamintuan filed an income tax return for the year 1919 and paid
an amount on the basis of said return.
When Florentino died in 1925, intestate proceedings were instituted where

the court appointed commissioners for the appraisal of the value of the
property left by Florentino.
The court then ordered the delivery to the heirs of their respective shares of
the inheritance after paying the corresponding inheritance taxes which were
duly paid.
During the pendency of the intestate proceedings, the administrator Jose

Ramirez filed income tax returns for the estate of the deceased
corresponding to the years 1925 and 1926. The intestate proceedings were
then closed in 1926.
In 1927, subsequent to the distribution of Florentinos estate, the

government discovered that Florentino had not paid P462 as
additional income for 1919 on account of the sale of his house,
from which he realized an income of P11,000 which was not included in his
income tax return filed in 1919.
The government demanded payment of the income tax but the heirs
refused to pay. The lower court ruled that the government was barred from
collecting the income tax due to its failure to file its claim with the
committee on claims and appraisals.
I: W/n the gov can still collect the income tax despite its failure to file its
claim with the committee on claims and appraisals
R: Yes. A claim for taxes and assessments whether assessed before or after
the death of the decedent, are not required to be presented to the
committee.
Heirs are liable for the deficiency income taxes, in proportion to

their share in the inheritance.
The administration proceedings of the late Florentino having been closed,

and his estate distributed among his heirs, the heirs are responsible for the
payment of the income tax here in question.
The claims for income taxes need not be filed with the committee on claims
and appraisals appointed in the course of testate proceedings and may be
collected even after the distribution of the decedents estate among his
heirs, who shall be liable therefor in proportion to their share in the

inheritance.
CIR v Pineda
Atanasio Pineda died and was survived by his wife Felicisima (the appointed
administratrix) and 15 children.
Estate proceedings were instituted in the CFI of Manila. The estate was
divided among and awarded to the heirs and the proceedings terminated on
June 8, 1948.
After the estate proceedings, the BIR investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed.
The CIR found the estate liable for Deficiency Income Tax (DIT),
Additional residence tax for 1945 (ART 45), and Real Estate dealer's tax
for the 4th qtr of 1946 and the whole year of 1947 (REDT 46-47) .
Manuel, the eldest child, contested the assessment. Subsequently, he

appealed to the CTA alleging that he was appealing "only that proportionate
part or portion pertaining to him as one of the heirs."
CTA held that Manuel was liable for payment corresponding to his share of
such taxes.
On the other hand, CIR insisted that Manuel should be liable for the
payment of ALL the taxes found by the Tax Court to be due from the estate
instead of only for the amount of taxes corresponding to his share in the
estate.
Manuel opposed the proposition on the ground that as an heir he is liable

for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received, relying on on Government of the
Philippine Islands v. Pamintuan.
I: W/n Manuel can be required to pay the FULL amount of the tax assessed
by the BIR.
R: YES, he can be required to pay the full amount.
Pineda is liable for the assessment as (1) AN HEIR and as (2) A HOLDERTRANSFEREE of property belonging to the estate/taxpayer.
o
As an HEIR: As an heir he is individually answerable for the part
of the tax proportionate to the share he received from
the
inheritance. His liability, however, cannot exceed the amount of
his share.
o
As a HOLDER OF PROPERTY belonging to the estate: Pineda is
liable for the tax up to the amount of the property in
his
possession. The reason is that the Government has a lien on
the P2,500.00 received by him from the estate as his share in the
The SC held that "after the partition of an estate, heirs and distributees are liable individually for the payment of
all lawful outstanding claims against the estate in proportion to the amount or value of the property they have
respectively received from the estate."
inheritance, for unpaid income taxes for which said estate is

liable, pursuant to the last paragraph
of Section 315 of the Tax
Code.2
Therefore, the Government has TWO WAYS of collecting the tax in
question:
o
One, by going after ALL the heirs and collecting from each one
of them the amount of the tax proportionate to the inheritance
received. This remedy was adopted in Government of the
Philippine Islands v. Pamintuan. In said case, the Government
filed an action against all the heirs for the collection of the tax.
This action rests on the concept that hereditary property consists
only of that part which remains after the settlement of all lawful
claims against the estate, for the settlement of which the entire
estate is first liable. The reason for filing a suit is to achieve
thereby two results: first, payment of the tax; and
second, adjustment of the shares of each heir in the
distributed estate as lessened by the tax.
o
Another remedy is by subjecting said property of the estate
which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the
very avenue the Government took in this case to collect the tax.
The BIR should be given the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the 315,
because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.
And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due
to the heirs from the inheritance, as lessened by the tax, is left to await the
suit for contribution by the heir from whom the Government recovered said
tax.
CIR v Gonzales
Matias Yusay died leaving his two children as his heirs, Jose & Lilia.
Jose was appointed administrator who filed with BIR an estate and
inheritance tax return declaring personal & real properties of their father
but the return did not mention any heir.
If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance

company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a
lien in favor of the Government of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging to the taxpayer: . . .
On January 25, 1955, BIR demanded payment of assessed estate and

inheritance taxes (approx P30k in total).
Jose requested for an extension of time within which to pay the tax, which
the CIR denied.
During the pendency of the said proceedings in Iloilo and after
reinvestigation, BIR reassessed the estate and inheritance tax liability and
issued a reassessment of taxes in a total of P69k.
Lilia disputed the legality of the 1958 assessment alleging that the right to
make the same has prescribed since more than 5 years had elapsed since
the filing of estate and inheritance tax return on May 11, 1949.
CTA ruled in favor of Lilia.
CIR appealed to the SC alleging that the right to assess the taxes in
question has not been lost by prescription since the return which did not
name the heirs cannot be considered true and complete return to start the
running of the period of limitations of 5 years under Sec 331 of Tax Code
and pursuant to Sec 332 he has 10 years within which to make the
assessment counted from the discovery on September 24, 1953 of the
identity of the heirs.
I: W/n the right of the CIR to assess the estate and inheritance taxes in
question has prescribed - NO
W/n the return filed by Jose sufficient to commence the running of the
prescriptive period to assess said taxes NO
R: When tax return is considered sufficient
A return need not be complete in all particulars. It is sufficient if it complies
substantially with law. There is substantial compliance
(1) when the return is made in good faith & is not false or
fraudulent;
(2) when it covers the entire period involved;
(3) when it contains information as to the various items of

income, deductions and credits with such definiteness as to
permit the computation and assessment of the tax.
In this case, the estate and inheritance tax filed by Jose was
substantially defective:
It was incomplete. It declared only 93 parcels of land and

leaving out 92 others. This was a huge underdeclaration.
Moreover, the return mentioned no heir. Thus, no inheritance tax

could be assessed. As a matter of law, on the basis of return,
there would be no occasion for the imposition of estate and
inheritance taxes, When there is no heir, the estate is escheated
to the State. The state does not tax itself.
The deficient return did not start the running of the period of
limitations BECAUSE the return was made on the wrong form. The
taxpayer failed to observe the law (Sec 332) w/c grants the CIR 10 years
(starting from date the fraud was discovered) within which to bring action
for tax collection, applies. He is obligated to make a return or amend one

already filed based on his own knowledge & information obtained through
testimony or otherwise, & subsequently to assess taxes due.
On MR filed by Lilia: Lilia insists that since she administers only 1/3 of the estate of
her father, she should not be liable for the whole tax. And she suggests that the
intestate estate of Matias Yusay should be liable for the said taxes, 1/3 to be paid by
Lilia and 2/3 to be paid by Florencia (wife of deceased Jose).
Ruling of the Court: Estate and inheritance taxes are satisfied from the estate and are
to be paid by the executor or administrator. Where there are 2 or more executors, all
of them are severally liable for the payment of the estate tax. The inheritance tax,
although charged against the account of each beneficiary, should be paid by the
executor or administrator.
Failure to pay the estate and the inheritance taxes before distribution of the estate
would subject the executor or administrator to criminal liability. It is immaterial that
Lilia administers only 1/3 of the estate & will receive as her share only said portion,
for her right to the estate comes after taxes. As an administratrix, she is liable for the
entire estate tax. As an heir, she is liable for the entire inheritance tax although her
liability would not exceed the amount of her share in the estate.
DONORS TAX
Tang Ho v. CIR
Li Seng Giap, his wife Tang Ho and their 13 children were stockholders of two
close family corporations.
BIR examiners made an examination of the books of the two corporations and
found that each of Li Seng Giaps children had a total investment there of
approximately P63k+ in shares issued to them by their father (who was the
manager and controlling stockholder of the two corporations)
CIR regarded these transfers as undeclared gifts made in the respective years,
and assessed against Li Seng Giap and his children donor's and donee's taxes
due to delayed payment (P76k+).
They thus paid the sum of P53k+ representing the amount of the basic taxes,
and put up a surety bond to guarantee payment of the balance demanded.
Sometime later, they requested the CIR for a revision of their tax assessments,
and submitted donor's and donee's gift tax returns showing that the children
received gifts inter vivos and proper nuptias.
o
each child received by way of gift inter vivos, every year from
o
1939 to 1950 (except in 1947 and 1948) P4,000 in cash;

each of the eight children who married during the period
aforesaid, were given an additional P20,000 as dowry or gift
propter nuptias;
unmarried children received roughly an equivalent amount in
1949, also by way of gifts inter vivos, so that the total donations
made to each and every child, as of 1950, stood at P63,190.
They contended that since the cash donated came from the conjugal
funds, they are be considered as donations by BOTH spouses, for which
two separate TAX exemptions may be claimed in each instance, one for
each spouse.
I: W/n the donations made by Li Seng Giap to his children from the conjugal
property should be taxed against husband and wife
R: No. A donation of property belonging to the conjugal partnership, made
during its existence, by the husband alone in favor of the common children, is
taxable to him exclusively as sole donor.
To be a donation by both spouses, taxable to both, the wife must expressly join
the husband in making the gift. Her participation cannot be implied.
THUS, in this case, ONLY ONE exemption or deduction can be claimed for every
such gift, and not two, as claimed by petitioners.
Speculation on the Tang Ho case: Why were they insisting that the dowry was
made in cash? Does the law say that for a dowry to be considered as
exemption, it has to be in cash? No. The reason why they were insisting that it
was made in cash and then this cash was used to buy stock so that it can fall
within the time period that the dowry should be given before celebration or
within 1 year thereafter.
Gibbs v. CIR
Allison and Esther Gibbs executed documents entitled Deed of Sale and
Declaration of Trust whereby they transferred 53, 000 Lepanto Consolidated
Mines shares of stock to their 5 children, in consideration of the sum of P26,
227.70 to be paid on or before December 1950.
The instituted trustee was Allisons brother, Finley Gibb.
Spouses Gibb sent a letter to the CIR asking for a ruling on whether or not gift
taxes should be paid.
CIR initially assessed the spouses a donee gift tax of P75 on each of the
beneficiaries or a total of about P750. These assessments were based upon the
DIFFERENCE between said market value of the shares of stock and the stipulated
consideration for transfer thereof.
Subsequently, CIR revised the assessment by INCREASING them.
The spouses paid within the period fixed by law but SOUGHT a refund.
Their demand was denied.
Trustee Finley Gibb appealed to the Secretary of Finance and instituted a civil
suit in the CFI for recovery of the amount.
Spouses Gibb again executed 10 additional and separate trusts containing the
same stipulations and conditions.
These additional deeds of trust impelled CIR to assess donor gift taxes. CIR held
that the gift taxes are available on the FULL MARKET VALUE of all the shares of
stock thus placed in trust instead of upon the difference between said market
value and the stipulated considerations. CTA agreed.
I: W/n CTA was correct in ruling that the gift taxes on the transfer of the shares
of stock should be based on the full market value of shares of stock (NOT diff
between market value and stipulated consideration)
R: YES, CTA was correct, tax should be based on full MV.
CTA was correct in finding that the agreements made by the parties were mere
devises to avoid and evade the payment of the corresponding gift taxes:
o
If the trustors were earnestly concerned in providing ample funds
to assure the support, maintenance, care, health, higher
education and travel of their children and the launching of their
career after they had become of age, the trustors would not have
really meant to require them to pay the consideration stipulated
in the trust agreements.
o
If the intent was really that the stipulated interest be paid, the
trustee could have authorized the trustors to sell, mortgage,
hypothecate or otherwise dispose of the stocks to raise the
necessary funds.
o
The compromise agreements were made with knowledge of the
fact that the CIR was already investigating whether the stipulated
consideration was real or fictitious.
There being no real consideration for the transfer, gift taxes should be
based on the full market value of the shares of stock at the time of the
respective transfer, and not merely on the difference between the said
market value and the consideration stipulated in the trust agreements.
PIROVANO vs. CIR
Enrico Pirovano was the father Carla Pirovano.
De la Rama Steamship Co. insured the life of said Enrico Pirovano (then its
President and General Manager) with various Philippine and American insurance
companies for 1M, designating itself as the beneficiary.
Enrico Pirovano died during the World War II.
The BOD of De la Rama Steamship Co. adopted a resolution granting the
proceeds expected to be collected on Enricos life insurance policies w/c was
P400k for equal division among his 4 minor children, to be convertible into 4k
shares of stock (1k shares / child0.
The Company received the total sum of P643K as proceeds of the said life
insurance policies obtained from American insurers.
The BOD modified their resolution by renouncing all its rights title, and interest
to the said amount of P643k in favor of the minor children of the deceased,
subject to the express condition that said amount should be retained by the
Company in the nature of a loan to it, drawing interest at the rate of 5% per
annum, and payable to the Pirovano children after the Company shall have first
settled its bonded indebtedness of 5M.
This resolution was allowed by the childrens guardian.
BOD again modified their resolution by providing that the Company shall pay the
proceeds of said life insurance policies to the heirs after the Company shall have
settled in full the balance of its present remaining bonded indebtedness, but the
annual interests accruing on the principal shall be paid to the heirs of Pirovano
whenever the Company is in a position to meet said obligation.
The mother of the children ACCEPTED this resolution with a PUBLIC DOCUMENT.
The SH of the Company ratified the resolutions with certain clarifying
modifications that the payment of the donation shall not be effected until such
time as the Company shall have first duly liquidated its present bonded
indebtedness (P3.2M) with the Natl Devt Company and that any and all taxes,
legal fees, and expenses in any way connected with the above transaction shall
be chargeable and deducted from the proceeds of the life insurance policies.
HOWEVER, the majority stockholders of the Company voted to revoke the
donation.
As a consequence of this revocation and refusal of the Company to pay the
balance of the donation amounting to P564K despite demands, the PIROVANOS
brought an action for the recovery of said amount.
The RTC ordered that the donation was valid. Thus, the CIR assessed the
amount of P60K as donees' gift tax against each of the heir, and a donor's gift
tax in the total amount of P34K assessed against De la Rama Steamship Co.,
which the latter paid.
The PIROVANOS contested CIRs assessment and imposition of the donees' gift
taxes and donor's gift tax and also made a claim for refund of the donor's gift tax
so collected.
I: W/n the PRIVANOS are obliged to pay donees' gift taxes as well as the
imposition of surcharge and interest on the amount of donees' gift taxes
R: YES.
A donation made by the corporation to the heirs of a deceased officer out of

gratitude for the officer's past services is considered a donation and is subject
to donee's gift tax.
Art. 726 of the CivCode states that When a person gives to another a thing ...
on account of the latter's merits or of the services rendered by him to the donor,
provided they do not constitute a demandable debt, ..., there is also a donation.
The fact that his services contributed in a large measure to the success
of the company did not give rise to a recoverable debt, and the
conveyances made by the company to his heirs remain a gift or
donation.
ALSO, the value of such services which do not constitute a recoverable debt is
NOT deductible from the donation.
The actual consideration for the cession of the policies was the
Company's gratitude to Pirovano. Gratitude has no economic value and is
not "consideration" in the sense that the word is used under the Tax Code.
OTHERS:
Sec111 [where property is transferred for less than adequate consideration, amt
exceeding consideration deemed a gift] is NOT applicable).
Whether remuneratory or simple, the conveyance remained a gift.
The definition of CONSIDERATION is anything that is bargained for by the
promisor and given by the promisee in exchange for the promise
Pirovano's successful activities as officer of the De la Rama Steamship Co. cannot
be deemed such consideration for the gift to his heirs, since the services were
rendered long before the Company ceded the value of the life policies to said
heirs; cession and services were not the result of one bargain or of a mutual
exchange of promises.
A subsequent promise to pay for past services is a nudum pactum i.e., one that
is unenforceable in view of the common law rule that consideration must consist
in a legal benefit to the promisee or some legal detriment to the promisor.
SPS. Gestopa vs. CA ad Mercedes Danlag
Diego and Catalina Danlag were owners of 6 parcels of unregistered lands.
They executed 3 deeds of donation mortis causa in favor of Mercedes

Danlag-Pilapil covering 4 parcels. All deeds contained the reservation of rights of
donors to amend / revoke the donation during their lifetime AND to sell,
mortgage / encumber the properties if necessary.
Diego w/ the consent of Catalina then executed a deed of donation inter

vivos covering the aforementioned lots plus 2 other parcels again in favor of
respondent Mercedes.
This contained two conditions

o
(1) that Danlag spouses shall continue to enjoy the fruits of land
during their lifetime
o
(2) the donee cannot sell or dispose of the land during the
lifetime of the said spouses w/o their consent.
The Danlags sold parcels 3 and 4 to petitioners Gestopa and executed a deed of
revocation recovering 6 parcels of land subject to deed of donation inter vivos.
Mecedes filed with RTC against the Gestopas and the Danlags for quieting of title
over the parcels of land.
She alleged that she was an illegitimate daughter of Diego Danlag that she lived
and rendered incalculable beneficial services to Diego and his mother Maura,
when she was still alive.
In recognition of her services, Diego executed Deed of Donation conveying to
her 6 parcels of land.
She accepted the donation in the same instrument, openly and publicly exercised
rights of ownership over the donated properties, and caused the transfer of the
tax declarations in her name.
Through the machination, intimidation and undue influence, Diego persuaded the
husband of Mercedes, Eulalio Pilapil to buy 2 of the 6 parcels covered by the
deed of donation. The inter vivos donation was coupled with conditions she
complied with. She alleges she had not been guilty of any act of ingratitude and
that the revocation had no legal basis.
Gestopas and Danlags opposed by saying that the deed of donation was null and
void because it was obtained by Mercedes through machination and undue
influence. Even assuming it was validly executed, the intention was for the
donation to take effect upon death of donor. Further, the donation was void for it
left the donor Diego w/o any property at all.
I: W/n the donation was inter vivos or mortis causa inter vivos
W/n the revocation was valid NO, it was not.
R: The donation is INTER VIVOS. Revocation was not proper. (ruling in favor of
Mercedes)
Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer ownership over the
properties upon the execution of the deed.
In ascertaining the intention of the donor, all the deeds provisions must be read
together:
o
IRST, the granting clause shows that Diego donated the
properties out of love and affection for Mercedes. This is a mark
of a donation inter vivos.
o
SECOND, the reservation of lifetime usufruct indicates that the
donor intended to transfer the naked ownership of the properties.
As correctly posed by the CA, what was the need for such
reservation if the donor and his spouse remained the owners of
the properties?
o
THIRD, the donor reserved sufficient properties for his
maintenance w/ his standing in society, indicating that the donor
intended to part w/ 6 parcels.
o
Lastly the donee accepted the donation.
Alejandro vs. Geraldez: An acceptance clause is a mark that the donation

is inter vivos. Acceptance is a requirement for donations inter vivos.
Donations mortis causa, being in a form of a will, are not required to be
accepted by the donees during the donors lifetime.
THUS, the right to dispose the properties belonged to Mercedes. Diegos
right to give consent was merely intended to protect his usufructuary
interests.
The limitation on the right to sell during the donors lifetime implied that
ownership had passed to the donees and donation was effective during the
donors lifetime.
Circumstances show that the intention of the donor was to transfer
ownership to Mercedes. Prior to the donation inter vivos, the Danlag
spouses already executed 3 donations mortis causa.
The Danlag spouses were aware of the difference between the two
donations. If they did not intend to donate inter vivos, they would not again
donate the four lots already donated mortis causa.
Was the revocation valid? A valid donation, once accepted, becomes
irrevocable, EXCEPT on account of inofficiousness, failure by donee to
comply with charges imposed in donation, or ingratitude.
The Danlag spouses did NOT invoke any of these. Finally, the records do
not show that the donor-spouses instituted any action to revoke the
donation in accordance w/ Art. 769. The revocation has no legal effect.
ACCRA v. CIR
During the 1987 national elections, petitioners, who are partners ACCRA law
firm contributed about P882k+ each to the campaign funds of Senator
Angara, then running for the Senate.
BIR assessed each of the petitioners donors tax for their contributions.
Petitioners questioned the assessment through a letter to the BIR. They

claimed that political or electoral contributions are NOT considered gifts
under the NIRC and that, therefore, they are not liable for donors tax.
The claim for exemption was denied by the Commissioner.
I: W/n political contributions can be considered a donation and w/n

petitioners are liable for Donors tax
R: YES, political contributions ARE donations and petitioners ARE liable for
donors tax.
A donation has the following elements:

o
(a) the reduction of the patrimony of the donor;
o
(b) the increase in the patrimony of the donee; and,
o
(c) the intent to do an act of liberality / animus donandi
The present case falls squarely within the definition of a donation.
Petitioners, each contributed to the campaign funds of Senator Edgardo

Angara, without any material consideration.
All three elements of a donation are present. The patrimony of the four
petitioners were reduced by P882k+, while Senator Edgardo Angaras
patrimony correspondingly increased.
There was intent to do an act of liberality / animus donandi was
present since each of the petitioners gave their contributions
without any consideration.
2) Petitioners attempt is strained. The fact that petitioners will
somehow in the future benefit from the election of the candidate
to whom they contribute, in no way amounts to a valuable
material consideration so as to remove political contributions from
the purview of a donation.
Senator Angara was under no obligation to benefit the petitioners. The
proper performance of his duties as a legislator is his obligation as an
elected public servant of the Filipino people and not a consideration for the
political contributions he received.
In fact, as a public servant, he may even be called to enact laws that are
contrary to the interests of his benefactors, for the benefit of the greater
good.
In fine, the purpose for which the sums of money were given,
which was to fund the campaign of Senator Angara in his bid for a
senatorial seat, cannot be considered as a material consideration
so as to negate a donation.
Finally, this Court takes note of the fact that subsequent to the donations
involved in this case, Congress approved Republic Act No. 7166 on
November 25, 1991, providing in Section 13 thereof that political/electoral
contributions, duly reported to the Commission on Elections, are NOT
subject to the payment of any gift tax. This all the more shows that the
political contributions herein made are subject to the payment of gift taxes,
since the same were made PRIOR to the exempting legislation, and
Republic Act No. 7166 provides no retroactive effect on this point.
VAT
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation
Mitsubishi MPC NPC
MPC, formerly Southern Energy Quezon, Inc., is a domestic firm engaged in the
generation of power which it sells to the National Power Corporation (NPC).
For the construction of the electrical and mechanical equipment portion of its
Pagbilao, Quezon plant, MPC secured the services of Mitsubishi Corporation
(Mitsubishi) of Japan.
Under R.A. 6395, NPC is exempt from all taxes (which covers both direct and
indirect taxes).
In the light of the NPC's tax exempt status, MPC, on the belief that its sale of
power generation services to NPC is zero-rated for VAT purposes, filed an
Application for Effective Zero Rating.
CIR issued a ruling stating that the supply of electricity by MPC to the NPC shall
be subject to zero percent (0%) VAT.
Consistent with its belief to be zero-rated, MPC opted not to pay the VAT
component of the progress billings from Mitsubishi for the period covering April
1993 to September 1996 - for the E & M Equipment Erection Portion of MPC's
contract with Mitsubishi.
This prompted Mitsubishi to advance the VAT component as this serves as its
output VAT which is essential for the determination of its VAT payment.
MPC, while awaiting approval of its application, filed its quarterly VAT return for
the second quarter of 1998 where it reflected an input VAT of P148M+, as
supported by an OR.
MPC filed an administrative claim for refund of unutilized input VAT.
BIR failed to act on its claim for refund.
MPC went to the CTA via a petition for review to forestall the running of the twoyear prescriptive period.
BIR asserted that MPC's claim for refund CANNOT be granted since MPC's sale
of electricity to NPC is NOT zero-rated for its failure to secure an approved
application for zero-rating.
The CTA granted MPC's claim for input VAT refund or credit for PhP
10,766,939.48. The CA rendered its assailed decision modifying that of the CTA
decision by granting most of MPC's claims for tax refund or credit for
P146,760,509.48.
I: W/n MPC is entitled to the refund of its input VAT payments made from 1993
to 1996
R: Yes, but only to the extent of P10M+, given that claim has prescribed.
Prescription. MP's claim for refund / tax credit for the creditable input VAT was
filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC
provides that any VAT-registered person, whose sales are zero-rated may apply
for the issuance of tax credit WITHIN 2 YEARS after the close of the taxable
quarter when the sales were made. MPC filed a refund in Dec 1999 when it
should have filed in Sept 1998 (since the close of the quarter was Sept 1996).
Creditable input VAT is an indirect tax which can be shifted or passed on to
the buyer, transferee, or lessee of the goods, properties, or services of the
taxpayer.
The fact that the subsequent sale or transaction involves a wholly-tax exempt
client, resulting in a zero-rated or effectively zero-rated transaction, does NOT,
standing alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle
does not enter the equation.
History of VAT. The law that originally imposed the VAT in the country, as well
as the subsequent amendments of that law, has been drawn from the tax credit
method (practiced in Europe).
If at the end of a taxable quarter the output taxes charged by a seller are EQUAL
to the input taxes passed on by the suppliers, no payment is required.
HOWEVER, when output taxes EXCEED input taxes, the excess has to be paid.
On the other hand, if the input taxes EXCEED the output taxes, the excess shall
be CARRIED OVER TO THE succeeding quarter/s.
Should the input taxes result from zero-rated or effectively zero-rated
transactions or from the acquisition of capital goods, any EXCESS over the output
taxes shall be refunded to the taxpayer / credited against other internal revenue
taxes.
Zero-rated transactions generally refer to the export sale of goods and supply
of services. The tax rate is set at zero. When applied to the tax base, such rate
obviously results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
OTHERS:
BIR and other tax agencies have a duty to treat claims for refunds and tax
credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR
proper acted, instead of sitting, on MPC's underlying application for effective zero
rating, the matter of addressing MPC's right, or lack of it, to tax credit or refund
could have plausibly been addressed at their level and perchance freed the
taxpayer and the government from the rigors of a tedious litigation.
The official receipt proves payment by MPC of its creditable input VAT relative to
its purchases from Mitsubishi. BIR is precluded from requiring additional evidence
to prove that input tax had indeed paid or, in fine, that the taxpayer is indeed
entitled to a tax refund or credit for input VAT, we agree with the CA's above
disposition. As the Court distinctly notes, the law considers a duly-executed VAT
invoice or OR referred to in the above provision as sufficient evidence to support
a claim for input tax credit.
CIR v. Phil Health Care Providers, Inc.
The Philippine Health Care Providers (PHCPI), a health care organization for sick
and disabled persons enrolled in a health care plan, wrote BIR inquiring whether
the services it provides are exempt from the payment of the VAT.
BIR issued a ruling, confirmed by the BIR Regional Director, stating that PHCPI
was exempt from the VAT coverage.

BIR then sent PHCPI 2 notices for deficiency in its payment of the VAT and
documentary stamp taxes (DST) f P224M+ for taxable years 1996 and 1997.
PHCPI protested, but BIR did not take any action, so PHCPI filed with the CTA a
petition for review.
CTA ordered PHCPI to pay a reduced deficiency VAT and declared the BIR ruling
void, saying that PHCPI is a service contractor subject to VAT since it does
not actually render medical service but merely acts as a conduit between the
members and petitioner's accredited and recognized hospitals and clinics.
However, after a careful review of the facts of the case, the CTA resolved to
grant petitioner's "Motion for Partial Reconsideration relying on Sec.246 of the
1977 Tax code which provides that in the absence of showing of bad faith, the
retroactive revocation of the BIR Ruling will be prejudicial to PHCPI. Accordingly,
the VAT assessment issued against PHCPI for the taxable years 1996 and 1997
was WITHDRAWN and SET ASIDE.
I: 1. W/n PHCPI's services are subject to VAT
R: YES. HOWEVER, because of the VAT ruling exempting PHCPI from VAT, it
cannot be retroactively revoked and therefore, PHCPI is still exempt.
1) Section 102 of the NIRC as amended provides that there shall be levied a VAT
equivalent to 12% of gross receipts derived from the sale or exchange of
services The phrase "sale or exchange of service" means the performance of
all kinds of services in the Philippines for consideration.
Section 103 of the same Code specifies the exempt transactions from the
provision, which includes medical, dental, hospital and veterinary services except
those rendered by professionals.
It can be seen from PHCPIs letter to BIR that its services that it is not actually
rendering medical service but merely acting as a conduit between the
members and their accredited and recognized hospitals and clinics.
Thus, it does NOT fall under VAT-exempt transactions.
2) Section 246 of the 1997 Tax Code, as amended, provides that rulings,
circulars, rules and regulations promulgated by the CIR have no retroactive
application if to apply them would prejudice the taxpayer.
The exceptions to this rule are:
o
(1) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
BIR
o
(2) where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is based, or
o
(3) where the taxpayer acted in bad faith.
PHCPI did not fall under any of these exceptions.
PHCPI's failure to refer to itself as a health maintenance organization is not an
indication of bad faith or a deliberate attempt to make false representations.
The term "health maintenance organization" was first recorded in the Philippine
statute books only upon the passage of "The National Health Insurance Act of
1995" which defines a "health maintenance org" as one of the classes of a

"health care provider."
Thus, the VAT Ruling was issued in PHCPI's favor, and the term "health
maintenance organization" was yet unknown or had no significance for taxation
purposes. PHCPI therefore, believed in good faith that it was VAT exempt for the
taxable years 1996 and 1997 on the basis of the VAT Ruling.
CIR is precluded from adopting a position contrary to one previously taken where
injustice would result to the taxpayer.
CIR v Acesite (Philippines) Hotel Corporation
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It
leases a portion of the hotels premises to the PAGCOR for casino operations. It
also caters food and beverages to PAGCORs casino patrons through the hotels
restaurant outlets.
From 1996 to 1997, Acesite incurred VAT amounting to P30M+ from its rental
income and sale of food and beverages to PAGCOR during said period.
Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR but the latter refused to pay the taxes on account of its tax
exempt status.
Thus, PAGCOR paid the amount due to Acesite minus the P30M+ VAT while
Acesite paid the VAT to the CIR.
However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. In
1998, Acesite filed an administrative claim for refund with the CIR but CIR failed
to resolve the same, so the case was elevated to the CTA.
I: W/n the 0% VAT rate (under then Sec 108 (B)(3) of the NIRC) applies to
Acesite
R: Yes.
PD 1869 w/c created PAGCOR granted it an exemption from paying taxes.
A close scrutiny of the provisions of the said law gives PAGCOR a blanket
exemption to taxes with no distinction on whether the taxes are direct or
indirect.
The law even grants tax exempt status to persons dealing with PAGCOR in
casino operations. The unmistakable conclusion is that PAGCOR is not liable for
the P30M+ VAT and neither is Acesite as Acesite is effectively subject to zero
percent rate under the NIRC.
By extending the exemption to entities or individuals dealing with PAGCOR, the

legislature clearly granted exemption also from indirect taxes. It must be noted
that the indirect tax of VAT, as in the instant case, can be shifted or passed to
the buyer, transferee, or lessee of the goods, properties, or services subject to
VAT. Thus, by extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to
indirect taxes.
The NIRC provides that transactions subject to 0% VAT include services

rendered to persons whose exemption under special laws or international
agreements subjects the supply of such services to 0% rate.
OTHERS:
It is true that VAT can either be incorporated in the value of the goods,
properties, or services sold or leased, in which case it is computed as 1/11 of
such value, or charged as an additional 10% to the value. Verily, the seller or
lessor has the option to follow either way in charging its clients and customer.
In the instant case, Acesite followed the latter method, that is, charging an
additional 10% of the gross sales and rentals. Be that as it may, the use of either
method, and in particular, the first method, does not denigrate the fact that
PAGCOR is exempt from an indirect tax, like VAT.
CIR v. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO,

INC.
A foreign consortium composed of BWSC-Denmark, Mitsui Engineering and

Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with
NAPOCOR for the operation and maintenance of 2 power barges.
BWSC-Denmark, the coordination manager, established BWSC-Mindanao

(domestic corp doing business in Davao) which subcontracted the actual
operation and maintenance of NAPOCORs two power barges.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of

currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is
deposited directly to the Consortiums bank accounts in Denmark and Japan,

while the Peso-denominated component is deposited in a separate and special
designated bank account in the Philippines.
On the other hand, the Consortium paid BWSC-Mindanao in foreign currency

inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, BWSCMindanao sought a ruling from the BIR, w/c responded with a Ruling declaring
that if BWSC-Min chose to register as a VAT person and the consideration for its
services is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, the aforesaid services shall
be subject to VAT at zero-rate.
BSWC-Mindanao chose to register as a VAT taxpayer.
In conformity with RR 5-96 allowing zero-rated VAT for services other than
processing, manufacturing and repacking of goods, it subjected its sale of
services to the Consortium to the 10% VAT and paid the amount of P6M+ as its
output tax liability for the year 1996.
It then filed a claim for the issuance of a tax credit certificate with the BIR,
believing that it erroneously paid the output VAT for 1996 due to its availment of
the Voluntary Assessment Program (VAP) of the BIR.
CTA ordered BIR to issue a tax credit certificate for the P6M+ in favor of BSCWMindanao. This was affirmed by the CA.
I: W/n BWSC-Mindanao is entitled to the refund of P6,994,659.67 as erroneously

paid output VAT for the year 1996
R: Yes, they are entitled to refund. Their services ARE actually still subject to
10% VAT BUT they are not liable for such given their reliance on BIR Rulings.
An essential condition for qualification to zero-rating under Section 102(b)(2) of
RR 5-96 is that services other than processing, manufacturing, or repacking of
goods must be performed for persons doing business OUTSIDE the Philippines.
In this case, the payer-recipient of BWSC-Mindanaos services is the Consortium
which is a joint-venture doing business in the Philippines.
While the Consortiums principal members are non-resident foreign corporations,
the Consortium itself is doing business in the Philippines. This is shown clearly in
BIR Ruling No. 023-95 which states that the contract between the Consortium
and NAPOCOR is for a 15-year term. Considering this length of time, the
Consortiums operation and maintenance of NAPOCORs power barges cannot be
classified as a single or isolated transaction.
The Consortium does not fall under Section 102(b)(2) which requires that the
recipient of the services must be a person doing business outside the Philippines.
Therefore, BWSC-Mins services to the Consortium, not being supplied to a
person doing business outside the Philippines, cannot legally qualify for 0% VAT.
The Court recognizes the rule that the VAT system generally follows the
"destination principle" (exports are zero-rated whereas imports are taxed).
However, as the Court stated in American Express, there is an exception to this
rule, which is the 0% VAT on services enumerated in Section 102 and performed
in the Philippines. To be exempt from the destination principle under Section
102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for
a person doing business outside the Philippines; and (c) paid in acceptable
foreign currency accounted for in accordance with BSP rules.
In contrast, this case involves a recipient of services the Consortium which is
doing business in the Philippines.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on
VAT Rulings insofar as they held that the services being rendered by BWSCMI is
subject to VAT at zero percent (0%). BWSCs reliance on these BIR rulings binds
BIR.
BIRs revocation CANNOT be given retroactive effect since it will prejudice the
taxpayer, w/c is prohibited by Sec 246 of the NIRC. Changing respondents
status will deprive respondent of a refund of a substantial amount representing
excess output tax.
CIR v. Magsaysay Lines
NDC decided to sell its National Marine Corporation (NMC) shares and 5 of its
ships, w/c were offered for public bidding.
Among the stipulated terms and conditions for the public auction was that the
winning bidder was to pay "a VAT of 10% on the value of the vessels.
Magsaysay Lines offered to buy the shares and the vessels for P168M. The bid
was made by Magsaysay Lines, purportedly for a new company still to be formed
composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden
Group based in Hongkong (collectively, private respondents)
The bid was approved by the Committee on Privatization, and a Notice of Award
was issued to Magsaysay Lines.
Private respondents through counsel then received a VAT Ruling from the BIR,
holding that the sale of the vessels was subject to the 10% VAT. They filed a
motion for reconsideration but their motion was denied so they elevated the case
to the CTA.
The NDC drew on the Letter of Credit to pay for the VAT, and the amount of
P15,120,000.00 in taxes was paid on 16 March 1989.
CTA ruled that the sale of a vessel was an "isolated transaction," not done in the
ordinary course of NDCs business, and was thus not subject to VAT, which
under Section 99 of the Tax Code, was applied only to sales in the course of
trade or business.
I: W/N the sale is subject to VAT
R: No, sale is NOT subject to VAT.
Any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
mperial v. CIR: The term "carrying on business" does not mean the
performance of a single disconnected act, but means conducting, prosecuting
and continuing business by performing progressively all the acts normally
incident thereof.
Thus, it connotes REGULARITY of activity.
In the instant case, the sale was an isolated transaction. The sale which was
involuntary and made pursuant to the declared policy of Government for
privatization could no longer be repeated or carried on with regularity.
It should be emphasized that the normal VAT-registered activity of NDC is
leasing personal property.
This finding is confirmed by the Revised Charter of the NDC which bears no
indication that the NDC was created for the primary purpose of selling real
property.
Thus, the sale of the vessels was not in the ordinary course of trade or business
of NDC so it should not be subject to VAT.
CIR v. SEKISUI
SEKISUI JUSHI is a domestic corporation with principal office located in the

Special Export Processing Zone in Laguna.
It is principally engaged in the business of manufacturing, importing, exporting,

buying, selling wholesale such goods as strapping bands and other packaging
materials.
Having registered with the BIR as a VAT taxpayer, Sekisui filed its quarterly
returns with the BIR, in the amount of P4M paid by it in connection with its
domestic purchase of capital goods and services.
Said input taxes remained unutilized since Sekisui has not engaged in any
business activity or transaction for which it may be liable for output tax and for
which said input taxes may be credited.
Sekisui then filed with the One-Stop-Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance (CENTER-DOF) two separate
applications for tax credit/refund of VAT input taxes paid.
CIR denied this, but CTA ruled that Sekisui was entitled to refund.
I: W/n SEKISUI is entitled to the refund/tax credit certificate as alleged unutilized
input taxes paid on domestic purchase of capital goods and services
R: Yes, it is entitled to refund
Business enterprises registered with the Philippine Export Zone Authority (PEZA)
may choose between two fiscal incentive schemes:
o
(1) to pay a 5% preferential tax rate on its gross income and thus
be exempt from all other taxes; or
o
(b) to enjoy an income tax holiday, in which case it is not exempt
from applicable national revenue taxes including the value-added
tax (VAT).
If the entity avails itself of the 5% preferential tax rate under the first scheme, it
is exempt from all taxes, including the VAT;
Under the second, it is exempt from income taxes for a number of years, but not
from other national internal revenue taxes like the VAT.
A perusal of the pleadings and supporting documents indicates that Sekisui
availed itself of the income tax holiday (second). By doing so, it became subject
to VAT. It correctly registered as a VAT taxpayer, because its transactions were
not VAT-exempt.
Notwithstanding the fact that its purchases should have been zero-rated, Sekisui
was able to prove that it had paid input taxes in the amount of P4M, as
substantially supported by invoices and ORs.
While an ecozone is within the Philippines, it is deemed a separate customs
territory. Sales by suppliers from outside the borders of the ecozone to this
separate customs territory are deemed as exports and treated as export sales.
Since 100% of Sekisui's products are exported, all its transactions are deemed
export sales and are thus VAT zero-rated. Sekisui has no output tax with which it
could offset its paid input tax. Since the subject input tax it paid for its domestic
purchases of capital goods and services remained unutilized, it can claim a
refund for the input VAT previously charged by its suppliers.
ABAKADA vs Ermita (Sept 1, 2005)
Several actions were filed by different petitioners assailing the validity of R.A. No.
9337 (increasing VAT to 12%) for being unconstitutional, as it violates Art 6,
Section 28, w/c provides that The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation.

In particular, SHELL, etc. assailed Section 8, amending Section 110 (B) of the
NIRC, imposing a 70% limit on the amount of input tax to be credited

against the output tax, making it REGRESSIVE and unconstitutional.
Specific provision: If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the
VAT-registered person. If the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or
quarters: PROVIDED that the input tax inclusive of input VAT
carried over from the previous quarter that may be
credited in every quarter shall not exceed 70% of the
output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other internal revenue
taxes. . .
I: W/n RA 9337 is unconstitutional for violating uniformity, equitability
and progressiveness of taxation No, it is VALID.
TAX IS UNIFORM.
Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate.
The rule of uniform taxation does not deprive Congress of the power
to classify subjects of taxation, and only demands uniformity within the
particular class.
In this case, the tax law is uniform because:
o
1) it provides a standard rate of 0% or 10% (or 12%)
on all goods and services;
o
) it does not make any distinction as to the type of
industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input
tax paid on purchase of capital goods or the 5% final
withholding tax by the government.
TAX IS EQUITABLE. (Taxes should equally burden all individuals or
entities in similar economic circumstances.)
The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or
receipts not exceeding P1.5M.
Also, basic marine and agricultural food products in their original state are still
NOT subject to the tax, thus ensuring that prices at the grassroots level will
remain accessible.
Although the law outs a premium on businesses with low profit margins, and
unduly favors those with high profit margins, Congress equalized the burden the
law by likewise imposing a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million.
This acts as an equalizer because in effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided under mitigating measures to ease, as well as
spread out, the burden of taxation, which would otherwise rest largely on the
consumers:
o
Excise taxes on petroleum products and natural gas were reduced.
Percentage tax on domestic carriers was removed. Power producers are
now exempt from paying franchise tax.
o
Income tax rates of corporations, in order to distribute the burden of
taxation, were increased
o
Domestic, foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%.
o
Intercorporate dividends of non-resident foreign corporations are still
subject to 15% final withholding tax but the tax credit allowed on the
corporations domicile was increased to 20%.
o
PAGCOR is not exempt from income taxes anymore.
o
Even the sale by an artist of his works or services performed for the
production of such works was not spared.
On the INPUT TAX LIMIT* (ITO ata yung impt)
Petitioner (Shell) assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the
extent that the input tax is less than 70% of the output tax, then 100% of such
input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books
of accounts and remains creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that if the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or
quarters.
In addition, Section 112(B) allows a VAT-registered person to apply for the
issuance of a tax credit certificate or refund for any unused input taxes, to the
extent that such input taxes have not been applied against the output taxes.
Such unused input tax may be used in payment of his other internal revenue
taxes.
The non-application of the unutilized input tax in a given quarter is not ad
infinitum, as petitioners exaggeratedly contend.
On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and
expenditures.
As earlier stated, the input tax is the tax paid by a person, passed on to
him by the seller, when he buys goods. Output tax meanwhile is the
tax due to the person when he sells goods. In computing the VAT payable,
three possible scenarios may arise:
o
If output tax = input tax = no payment
o
If output tax > input tax = person liable for excess, to be paid to
BIR
o
If input tax > output tax = excess shall be carried over to the
succeeding quarter or quarters.
o
IF input tax results from zero-rated or effectively zero-rated
transactions, any excess over the output taxes shall be
REFUNDED to the taxpayer / credited against other internal
revenue taxes, at the taxpayers option.
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
Thus, a person can credit his input tax only up to the extent of 70% of the
output tax.
There is no retention of any tax collection because the taxpayer has
already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR. The party directly liable for
the payment of the tax is the seller. What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts,
against his output taxes.
TAX IS REGRESSIVE, BUT IT IS NOT INVALID.
Taxation is PROGRESSIVE when its rate goes up depending on the resources of
the person affected. The Constitution does not really prohibit the
imposition of indirect taxes, like the VAT. What it simply provides is
that Congress shall "evolve a progressive system of taxation."
*NOTE the distinction made by the court:

VAT - A tax on spending or consumption. It is levied on the sale, barter, exchange or
lease of goods or properties and services. Being an indirect tax on expenditure, the
seller of goods or services may pass on the amount of tax paid to the buyer, with the
seller acting merely as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.
Direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else. Examples
are individual and corporate income taxes, transfer taxes, and residence taxes.
ABAKADA v. Ermita (Oct 18, 2005)
This case is about the Resolution of the Motion for Reconsideration filed by
herein petitioners based on the decision rendered by the court on Sept. 1, 2005,
upholding the constitutionality of RA 9337 or the VAT Reform Act.
Relevant issues are as follows:

1. MR of Escudero, et al.: W/N there was grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the Bicameral Committee
when the No Pass-On Provisions for the sale of petroleum products and
power generation services were deleted.
2. MR of Bataan Governor Garcia, Jr.: W/N the VAT law is unconstitutional for
being arbitrary, oppressive and inequitable because it burdens the
consumers because of the price increase.
3. MR of Association of Pilipinas Shell Dealers: W/N the Court erred in
upholding the constitutionality of Section 110(A)(2) and Section
110(B) of the NIRC as amended by the EVAT Law imposing
limitations on the amount of input VAT that may be claimed as a
credit against the output VAT; Section 114(C) of the NIRC as
amended by the EVAT Law, requiring the government or any of its
instrumentalities to withhold a 5% final withholding tax on their
gross payments on purchases of goods and services; for finding that
the EVAT Law is not arbitrary, oppressive and confiscatory as to amount a
deprivation of property without due process of law; that it did not violate
the equal protection clause.
R: MRs are DENIED. TRO is lifted.
Escudero, et al. argues that the bicameral committee should not have touched
on the No Pass-On Provisions since both the Senate and the House of
Representatives were in agreement that such provision should be passed where
no VAT Burden shall be passed to the end-consumer and instead will be
shouldered by the sellers.
HOWEVER, the deletion of the No Pass-On Provision made the
present VAT law more in consonance with the very nature of VAT which
is a tax on spending or consumption, thus, the burden thereof is
ultimately borne by the end-consumer.
As to the contention that the right to credit input tax has already evolved into a
vested right, the Court finds that the right to credit the same is a mere
creation of law. Prior to the enactment of multi-stage sales taxation, the sales
taxes paid at every level of distribution are not recoverable from the taxes
payable. With the advent of EO 273 imposing a 10% multi-stage tax on all sales,
it was only then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output
tax was established. This continued with the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input
tax as against the output tax is clearly a privilege created by law, a
privilege that also the law can limit. It should be stressed that a person
has no vested right in statutory privileges.
The impact of the 70% limitation on the creditable input tax will ultimately
depend on how one manages and operates its business. Market forces, strategy
and acumen will dictate their moves. With or without these VAT provisions, an
entrepreneur who does not have the ken to adapt to economic variables will
surely perish in the competition. The arguments posed are within the realm of
business, and the solution lies also in business.
CIR v. Toshiba Information Equipment (Phils.), Inc.
Toshiba is a domestic corporation with the primary purpose of engaging in the

business of manufacturing and exporting of electrical and mechanical machinery
and goods relating to information technology, computer hardware and software.
In 1995, Toshiba registered w/ Philippine Economic Zone Authority (PEZA) as an

Ecozone Export Enterprise. Toshiba also registered with the BIR as a VAT
taxpayer.
Toshiba filed its VAT returns for the year 1996 reporting its input VAT and
alleging that its input VAT was from its purchases of capital goods and services
which remained unutilized since it had not yet engaged in any business activity
for which it may be liable for output VAT.
Consequently, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and
Duty Drawback center of the Department of Finance applications for tax
credit/refund of its unutilized input VAT.
Toshiba also filed a petition for review with the CTA to toll the running of the
two-year prescriptive period for judicially claiming a tax credit/refund.
CTA ordered the CIR to refund or to issue a tax credit certificate to Toshiba.
CIR opposed on the ground that since Toshiba is registered with PEZA as an
Ecozone Export Enterprise, its business is not subject to VAT pursuant to Section
109 of the Tax Code. Since Toshibas business is not subject to VAT, the capital
goods and services it purchased are considered not used in VAT taxable business
and therefore, it is not entitled to refund of input taxes on such capital goods.
I: W/n Toshiba is entitled to the tax credit/refund of its input VAT on its
purchases of capital goods and services
R: Yes, Toshiba is entitled to tax credit/refund of its input VAT on its purchases
of capital goods and services.
An Ecozone enterprise is a VAT-exempt entity. Sales of goods, properties, and

services by persons from the Customs Territory to Ecozone enterprise shall be
subject to VAT at zero percent (0%).
PEZA-registered enterprises, which would necessarily be located within Ecozones,

are VAT-exempt entities because of Section 8 of RA 7916 which establishes the
fiction that Ecozones are foreign territory. The national territory of the Philippines
outside of the proclaimed borders of the Ecozone are referred to as Customs
Territory. The provision provides that PEZA shall manage and operate the
Ecozones as a separate customs territory, thus creating the fiction that the
Ecozone is a foreign territory.
The Philippine VAT system adheres to the Cross Border Doctrine, according to
which, no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial board of the taxing authority.
Sales of goods, properties, and services by a VAT-registered supplier from the

Customs Territory to an Ecozone enterprise shall be treated as export sales.
If such sales are made by a VAT-registered supplier, they shall be subject to VAT
at 0%. In zero-rated transactions, the VAT-registered supplier shall not pass on
any output VAT to the Ecozone enterprise, and at the same time, shall be
entitled to claim tax credit/refund of its input VAT attributable to such sales.
Zero-rating of export sales primarily intends to benefit the export (i.e., the
supplier from Customs territory), who is directly and legally liable for VAT.
Meanwhile, sales to an Ecozone enterprise made a by a non-VAT or unregistered
supplier would only be exempt from VAT and the supplier shall not be able to
claim credit/refund of its input VAT.
Even conceding, however, that Toshiba as a PEZA-registered enterprise, is a
VAT-exempt entity that could not have engaged in a VAT-taxable business, given
the particular circumstances, Toshiba is entitled to a credit/refund of its
input vat.
The sales made to Toshiba, for which it is claiming a refund or credit of its
unutilized input vat, were made in 1996 under the old rule that the tax-status of
Ecozone enterprises would depend upon the tax incentives it chooses to avail of,
either the 5% preferential tax or the income tax holiday under the Omnibus
Investments Code where the entity will only be exempt from income tax but not
from VAT.
Since Toshiba chose to avail of the income tax holiday, it was therefore subject
to the 10% VAT. Therefore Toshibas transactions in 1996 being subject to VAT,
is entitled to a credit/refund of the unutilized input VAT it incurred which it
wasnt able to apply against its output taxes.
The transaction from a supplier in a customs territory to Toshiba, being a

PEZA-registered enterprise, was considered an effectively VAT zero-rated
transaction. However, the sales made by Toshiba to a foreign country were
considered export sales. Thus, they were considered to be automatically
VAT zero-rated transactions.
Given that in the case of Toshiba, Toshiba was Buyer 1 and not the Seller,
then it should not have claimed for an input tax credit since theoretically,
there was no input VAT on Toshibas part.
However, the Toshiba case happened prior to RMC 74-99 where PEZAregistered enterprises availed of income tax holidays and so Toshiba was
subject to VAT. Thus, there was an assumption that the seller passed on
VAT to Toshiba and so, Toshiba should be allowed to claim for an input tax
credit.
As regards the fact that Toshiba was asking for an input tax credit on
capital goods, the ruling in that case is no longer applicable as input tax
credit for capital goods under RA 9337 are governed by new rules.
In this case, the Court also made a pronouncement that a VAT-registered
supplier from the customs territory to an Ecozone enterprise shall be
treated as export sales, while sales to an ECOZONE enterprise made by a

NON-VAT or unregistered supplier would only be exempt from VAT and the
supplier shall not be able to claim credit/refund for his input VAT.
CIR v Seagate
Seagate is a resident foreign corporation duly registered with the SEC to do

business in the Philippines, with principal office address at the Special Economic
Zone in Cebu.
It is also registered with the Philippine Export Zone Authority (PEZA) to engage
in the manufacture of recording components primarily used in computers for
export. Furthermore, it is a VAT-registered entity w/c filed VAT returns for the
period of April 1998 to 30 June 1999.
Subsequently, an administrative claim for refund of VAT input taxes in the
amount of P28,369,226.38 with supporting documents (inclusive of the
P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed.
CIR did not act upon this so Seagate elevated the case to CTA.
CTA granted the claim for refund but the CA modified it in the reduced amount
of P12M, w/c represented the unutilized but substantiated input VAT paid on
capital goods purchased for the period covering April 1, 1998 to June 30, 1999.
This was because Seagate had availed itself only of the fiscal incentives under
EO 226 and NOT of those under both PD 66 and Section 24 of RA 7916.
Respondent was, therefore, considered exempt only from the payment of income
tax when it opted for the income tax holiday in lieu of the 5% preferential tax
on gross income earned. As a VAT-registered entity, though, it was still subject
to the payment of other national internal revenue taxes, like the VAT.
I: W/n Seagate is entitled to the refund or issuance of Tax Credit Certificate in

the amount of P12,122,922.66 representing alleged unutilized input VAT paid on
capital goods purchased for the period April 1, 1998 to June 30, 1999
R: YES, Seagate is entitled to refund.
THERE IS Preferential Tax Treatment Under the following Special

Laws:
o
PD 66- law creating PEZA
o
EO 226- Omnibus Investments Code" of 1987
o
RA 7227- Bases Conversion and Development Act of 1992
o
RA 7916- VAT Law
o
RA 7844- Export Development Act of 1994;
o
PD 1853- law requiring deposits of duties upon the opening of
letters of credit to cover imports
Seagate is one of the business entities registered in and operating from the SEZ
in Cebu. These entities are exempt from all internal revenue taxes and the
implementing rules relevant thereto, including the VAT.
Although export sales are not deemed exempt transactions, they are nonetheless
zero-rated, because the ecozone within which it is registered is managed and
operated by the PEZA as a separate customs territory.
This means that in such zone is created the legal fiction of foreign territory.
Under the cross-border principle of the VAT system being enforced by the
BIR, no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. If exports of
goods and services from the Philippines to a foreign country are free of the VAT,
then the same rule holds for such exports from the national territory -- except
specifically declared areas -- to an ecozone.
THUS, sales made by a VAT-registered person in the customs territory to a PEZAregistered entity are considered exports to a foreign country
Conversely, sales by a PEZA-registered entity to a VAT-registered person in the
customs territory are deemed imports from a foreign country.
An ecozone, even though a geographical territory of the Philippines, is however
regarded in law as foreign soil. This legal fiction is necessary to give meaningful
effect to the policies of the special law creating the zone.
There is a difference between ZERO-RATED TRANSACTIONS and EXEMPT /
EFFECTIVE ZERO-RATED TRANSACTIONS
Zero-rated
It is automatic zero-rating.
Refers to the export sale of goods
and supply of services.
Exempt
It is effective zero rating.
Refers to the sale of goods or supply
of services to persons or entities
whose exemption under special laws
or Intl agreements to which the
Philippines is a signatory effectively
subjects such transactions to a zero
rate.
Intended to be enjoyed by the seller

who is directly and legally liable for
the
VAT,
making
such
seller
internationally competitive by allowing
the refund or credit of input taxes that
are attributable to export sales.
There is total relief for the purchaser
from the burden of the tax since he
does not have input VAT and in effect,
because VAT is at 0%, it does not
have output VAT.
Intended to benefit the purchaser

who, not being directly and legally
liable for the payment of the VAT,
will ultimately bear the burden of the
tax shifted by the suppliers.
There is partial relief because the
purchaser is not allowed any tax
refund of or credit for input taxes
paid.
Differentiate zero-rated from effectively zero-rated transactions according
the country where these are consumed. Thus, exports are zero-rated, but imports are
taxed).
effectively zero-rated transactions is that with automatic zero-rated transactions,

you only have to look at the Tax Code provisions to know which transactions are
automatic zero-rated.
However, with EXEMPTIONS / effective zero-rated transactions, you have to
look at other laws; thus, for effective zero-rated transactions, there is a need to get
a prior confirmation or prior approval from the BIR that the transaction is effectively
zero-rated.
NOTE however that Revenue Regulations of 4-2007 does not provide anymore that
there should be an approval before a transaction that is effectively VAT zero-rated to
become effectively VAT zero-rated, which could be a legal basis why there is no need
for prior confirmation. But Sir does not agree since there is yet no amendment in the
When VAT Rate is at 0% or at 10%

0%- if Seagate enters into such sales transactions with a purchaser (usually in a
abroad) for use or consumption OUTSIDE the Philippines
10%- if Seagate entered into with a purchaser for use or consumption IN the
Philippines, UNLESS the purchaser is exempt from the indirect burden of the VAT, in
which case it shall also be zero-rated.
to Seagate
Sir pointed out that: the difference between automatic zero-rated transactions from
Tax Code.
Exempt Transaction
- involves goods or services which, by
their nature, are specifically listed in and
expressly exempted from the VAT under
the Tax Code, without regard to the tax
status of the party (VAT-exempt or not)
to the transaction.
- such transaction is not subject to the
VAT, but the seller is not allowed any tax
refund of or credit for any input taxes
paid.
Exempt Party
- a person or entity granted VAT
exemption under the Tax Code, a special
law or an international agreement to
which the Philippines is a signatory, and
by virtue of which its taxable transactions
become exempt from the VAT.
- Such party is also not subject to the
VAT, but may be allowed a tax refund of
or credit for input taxes paid, depending
on its registration as a VAT or non-VAT
taxpayer.
While the liability is imposed on one person, the burden may be passed on to another.
Therefore, if a special law merely exempts a party as a seller from its direct liability
for payment of the VAT, but does not relieve the same party as a purchaser from its
indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase
transaction is not exempt. Applying this principle to the case at bar, the purchase
transactions entered into by respondent are not VAT-exempt.
OTHERS:
Special laws may certainly exempt transactions from the VAT. However, the
Tax Code provides that those falling under PD 66 are not. The purchase transactions
it entered into are, therefore, not VAT-exempt. These are subject to the VAT;
respondent is required to register. Its sales transactions, however, will either be zerorated or taxed at the standard rate of 10 percent, depending again on the application
of the destination principle (Under this principle, goods and services are taxed only in
Since the purchases of respondent are not exempt from the VAT, the rate to be
applied is zero.
The Tax Exemptions are Broad and Express
Applying the special laws enumerated above, respondent as an entity is
exempt from internal revenue laws and regulations. This exemption covers both direct
and indirect taxes, stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on one person but the indirect
burden is passed on to another. Respondent, as an exempt entity, can neither be
directly charged for the VAT on its sales nor indirectly made to bear, as added cost to
such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to
distinguish.
Tax Refund or Credit is in Order
Having determined that respondents purchase transactions are subject to a
zero VAT rate, the tax refund or credit is in order. As correctly held by both the CA
and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over those
in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5
percent preferential tax regime. Therefore, respondent can be considered exempt, not
from the VAT, but only from the payment of income tax for a certain number of years,
depending on its registration as a pioneer or a non-pioneer enterprise.
Summary
To summarize, special laws expressly grant preferential tax treatment to
business establishments registered and operating within an ecozone, which by law is
considered as a separate customs territory. As such, respondent is exempt from all
internal revenue taxes, including the VAT, and regulations pertaining thereto. It has
opted for the income tax holiday regime, instead of the 5 percent preferential tax
regime. As a matter of law and procedure, its registration status entitling it to such
tax holiday can no longer be questioned. Its sales transactions intended for export
may not be exempt, but like its purchase transactions, they are zero-rated. No prior
application for the effective zero rating of its transactions is necessary. Being VAT-
registered and having satisfactorily complied with all the requisites for claiming a tax
refund of or credit for the input VAT paid on capital goods purchased, respondent is
entitled to such VAT refund or credit.
American Express v. CIR
Petitioner Amex-Phil is a Philippine branch of American Express International, Inc.,
a corporation duly organized under Delaware, US laws. It is a servicing unit of
American Express International, Inc. HK branch, engaged primarily to facilitate
the collection of Amex HK's receivables from Amex cardholders residing or
situated in the Philippines, as well as the payment of Amex HK to American
Express accredited service establishments and merchants in the Philippines.
Amex-Phil made a request in writing to BIR for qualification as a zero rated VAT
enterprise.
BIR issued a VAT Ruling declaring that as a VAT registered entity whose service is
paid for in acceptable foreign currency which is remitted inwardly to the
Philippines and accounted for in accordance with the rules and regulations of the
Central Bank of the Philippines, Amex-Phils service income is automatically zero
rated effective January 1, 1988. For this, there is no need to file an application
for zero-rate.
For the taxable year 1998, petitioner allegedly generated and recorded revenues
in the total amount of P81k which were paid for in HK in foreign currency inwardly
remitted to the Philippines and accounted for in accordance with the rules and
regulations of the BSP.
Amex-Phil asserts that said revenues qualify as zero-rated pursuant Tax Code as
confirmed in the VAT Ruling. For the same period, Amex-Phil allegedly paid input
VAT amounting to P3.9M+ on its domestic purchases of taxable goods/services.
Petitioner nonetheless claims that its output VAT liability for the period amounted
only to P4k thereby leaving an unutilized input VAT of P3M averred to be directly
attributable to its zero-rated sales.
Petitioner contends that the input VAT payments in 1998 were paid in the course
of its trade or business. Further, the unapplied input VAT payments subject of this
case had not been carried over to the succeeding first quarter of 1999.
I: W/N Amex-Phil is entitled to a refund of P3,967,561.06 allegedly representing
unutilized input VAT payments on domestic purchases of taxable
goods/services which are directly attributable to zero-rated sales for the period
January 1 to December 31, 1998
R: YES. Petitioner's claim for refund is hereby PARTIALLY GRANTED. Respondent
CIR is ORDERED to REFUND to petitioner the sum of P3,967,336.97 representing
unutilized input VAT payments for the period January 1 to December 31, 1998.
The onus (burden) of taxation under our VAT system is in the country where the
goods, property or services are destined and consumed.
This is the reason why under our VAT Law, goods, property or services destined
to be consumed in the Philippines are subject to the 10% VAT whereas exports
are zero-rated.
Amexs transactions were considered zero-rated because they were services that
were paid for in an acceptable foreign currency & accounted for in accordance w/
the rules & regulations of the BSP since its transactions were paid in HK foreign
currency which was inwardly remitted to the Philippines & accounted for in
accordance w/ the rules of BSP.
The governing law in the case at bar is Section 112(A)[then Section 106(a)] in
relation to Section 108(B)(2) of the Tax Code.3 In conformity with this law, to be
entitled to a refund or tax credit of input VAT payments directly
attributable to zero-rated or effectively zero-rated sales, the following
requisites must be complied with:
1) there must be zero-rated or effectively zero-rated sales;
2) that input taxes were incurred or paid;
3) that such input VAT payments are directly attributable to zero-rated sales or
effectively zero-rated sales;
4) that the input VAT payments were not applied against any output VAT liability;
and
5) that the claim for refund was filed within the two-year prescriptive period.
PETITIONER in this case fulfilled all the requirements, except the 3rd (not all of the
input VAT payments were attributable to the zero-rated sales), hence the partial
grant.
1st requirement: Petitioner's sales of services qualify as zero-rated sales. It is a

VAT registered entity and its sales of services to AMEX HK falls under Section
108(B)(2) of the Tax Code. Further, petitioner's service fee earnings amounting to
P81k were paid for in acceptable foreign currency (US dollars) and accounted for
in accordance with the rules and regulations of the BSP as evidenced by the
various telex advices and demand deposit statementsand certification from BPI
Forex Corporation.
2ndrequisite: Petitioner submitted various suppliers' invoices and ORs which are
valid documents in accordance with Sections 113 and 237 of the Tax Code. From
said documents, petitioner established that it paid an input VAT in the sum of
P3,972,025.15 on its domestic purchases of taxable goods/services for the year
1998.
SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero rated or Effectively Zero-rated Sales. Any VAT registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
3rd requisite: Not all of the substantiated input VAT payments of P3,972,025.15
were directly attributable to petitioner's zero-rated sales. For the year 1998,
petitioner had taxable sales in the amount of P46,881.80 with the corresponding
output VAT of P4,688.18 Indubitably, only the input VAT of P3,967,336.97, arrived
at by deducting the output VAT of P4,688.18 from the substantiated input VAT of
P3,972,025.15, can be directly attributed to petitioner's zero-rated sales for the
subject period.
4threquirement: Petitioner offered in evidence its quarterly VAT return for the first
quarter of 1999 to prove that the subject claim was not applied or carried over to
the said quarter.
Last requirement: Counting the two-year prescriptive period from the date of filing
of petitioner's 1998 first quarterly VAT returns on April 20, 1998, both the
administrative (filed on April 18, 2000) and judicial (filed on April 19, 2000) claims
for refund were filed within the two-year period as mandated by law.
CIR v. CA and Commonwealth Management and Services Corporation
Commonwealth Management and Services Corporation (COMASERCO), is a Phil

corp w/c is an affiliate of PHILAMLIFE organized by the latter to perform
collection, consultative and other technical services, including functioning as an
internal auditor, of Philamlife and its other affiliates.
BIR issued an assessment to private respondent COMASERCO for deficiency VAT
amounting to P351k+ for taxable year 1988.
COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of
deficiency VAT, but the CIR sent a collection letter to COMASERCO demanding
payment of the deficiency VAT.
Thus COMASERCO file with the CTA a petition for review wherein they averred
that it was NOT engaged in the business of providing services to Philamlife and
its affiliates.
COMASERCO was established to ensure operational orderliness and
administrative efficiency of Philamlife and its affiliates, and NOT in the sale of
services. COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. Thus, it is not liable to pay VAT.
I: W/n COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon
R: YES, COMASERCO is liable to pay VAT (reversing CAs decision and reinstating
the decision of the Tax Appeal in favor of the Commissioner)
CIR avers that to "engage in business" and to "engage in the sale of services"
are two different things.
SC agreed w/ CIR in saying that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is
a tax on the value added by the performance of the service. It is immaterial
whether profit is derived from rendering the service.
Sec 99 of the NIRC provides that any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or engages in

similar transactions and any person who imports goods shall be subject to the
VAT imposed in Sections 100 to 102 of this Code."
COMASERCO contends that the term "in the course of trade or business" requires
that the "business" is carried on with a view to profit or livelihood. It avers that
the activities of the entity must be profit- oriented.
COMASERCO submits that it is not motivated by profit, as defined by its primary
purpose in the articles of incorporation, stating that it is operating "only on
reimbursement-of-cost basis, without any profit."
HOWEVER, the EVAT Law clarifies that even a non-stock, non-profit, organization
or government entity, is liable to pay VAT on the sale of goods or services.
VAT is a tax on transactions, imposed at every stage of the distribution process
on the sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. The term "in the
course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of whether or not the entity is
profit-oriented.
The definition of the term "in the course of trade or business" incorporated in the
present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or
business, sells, barters or exchanges goods and services, was already liable to
pay VAT. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of goods and
services.
Section 108 of the NIRC defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or services
rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking or project."
It is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-oncost basis only, without realizing profit, for purposes of determining liability for
VAT on services rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is subject to VAT.
CIR v SM Primeholdings Inc.
SM Prime and First Asia are both engaged in the business of operating cinema
houses, among others.
BIR sent them both preliminary assessment notices for VAT deficiency on cinema
ticket sales.
Both protested, but BIR denied their protests, arguing that the list of
enumerated services under Sec. 108 of the NIRC is not exhaustive
because it covers all sales of services. Also, the deficiency assessments
were based on Revenue Memorandum Circular No. 28-2001.
CTA ruled that the activity of showing cinematographic films was NOT subject to
VAT, and should instead be subject to an amusement tax.
CTA en banc affirmed this, saying that section 108 of the NIRC actually sets forth
an exhaustive enumeration of what services are intended to be subject to VAT,
w/c does NOT include the showing films and motion pictures.
I: W/n the gross receipts derived from admission tickets by cinema/theater

operators or proprietors are subject to VAT
R: NO, it is not subject to VAT.
The enumeration of services subject to VAT under Sec. 108 of the NIRC is not
exhaustive. It is up to the court to determine if showing of films and motion
pictures fall under the phrase similar services of Sec. 108 by ascertaining the
intent of the legislature.
Based on various amendments to the VAT coverage, none pertain to

cinema/theater operators or proprietors. In fact, the activity of showing films and
motion pictures has always been considered as a form of entertainment subject
to amusement tax.
At present, only lessors or distributors of cinematographic films are
subject to VAT, while persons subject to amusement tax are exempt
from the coverage of VAT.
It is therefore clear that the legislature never intended to subject this kind of
activity to VAT. To hold otherwise would impose an unreasonable burden
on cinema/theater houses operators or proprietors, who would be
paying an additional 10% VAT on top of the 30% amusement tax
imposed by Sec. 140 of the Local Govt. Code, or a total of 40% tax.
Such imposition would result in injustice, as persons taxed under the NIRC of
1997 would be in a better position than those taxed under the LGC of 1991.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets. The removal of the prohibition under
the Local Tax Code did not grant nor restore to the national government the
power to impose amusement tax on cinema/theater operators or proprietors.
Neither did it expand the coverage of VAT. Since the imposition of a tax is a
burden on the taxpayer, it cannot be presumed nor can it be extended by
implication. As it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government.
Considering that there is no provision of law imposing VAT on the gross receipts
of cinema/theater operators or proprietors derived from admission tickets, RMC
No. 28-2001 which imposes VAT on the gross receipts from admission to cinema
houses is therefore invalid.
The rule on tax exemptions should be construed strictly against the taxpayer
does not apply in this case. SM Primeholdings and First Asia need not prove that
they are exempted from the coverage of VAT. Such rule presupposes that the
taxpayer is clearly subject to the tax being levied against him.
The reason is obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the provision. Thus,
unless a statute imposes a tax clearly, expressly and unambiguously, what
applies is the equally well-settled rule that the imposition of a tax cannot be
presumed. In fact, in case of doubt, tax laws must be construed strictly against
the government and in favor of the taxpayer.
Tambunting alleged that it is NOT liable for tax because a pawnshop is not
enumerated as one of those engaged in "sale or exchange of services" in Section
108 of the NIRC.
The nature of the business of pawnshops does not fall under "service" as defined
under the Legal Thesaurus of William C. Burton (accommodate, administer to,
advance, afford, aid, assist, attend, be of use, care for, come to the aid of,
commodere, comply, confer a benefit, contribute to, cooperate, deservire,
discharge one's duty, do a service, do one's bidding, fill an office, forward, furnish
aid, furnish assistance, give help, lend, aid, minister to, promote, render help,
servire, submit, succor, supply aid, take care of, tend, wait on, work for)
I: W/n Pawnshops are subject to VAT pursuant to Section 108 (A) of NIRC.
Pawnshops are not under 108 of the NIRC but are specifically classified
as other Non-bank Financial Intermediaries by RA 9238.
Prior to the passage of the EVAT Law in 1994, pawnshops were treated as lending
investors subject to lending investor's tax.
Subsequently, pawnshops were then treated as VAT-able enterprises under the
general classification of "sale or exchange of services" under Section 108 (A) of the
Tax Code of 1997, as amended. Finally, R.A. No. 9238 [which was passed in
2004] classified pawnshops as Other Non-bank Financial Intermediaries.
At the time of the disputed assessment, that is, for the year 2000, pawnshops were
not subject to 10% VAT under the general provision on "sale or exchange of
services" as defined under Section 108 (A) of the Tax Code of 1997, which states:
"'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration . . . ."
Instead, due to the specific nature of its business, pawnshops were then subject to
10% VAT under the category of non-bank financial intermediaries.
The Court finds that pawnshops should have been treated as non-bank
financial intermediaries from the very beginning, subject to the appropriate
taxes provided by law, thus
o Under the NIRC of 1977, pawnshops should have been levied the 5%
percentage tax on gross receipts imposed on bank and non-bank

financial intermediaries under (now) Section 121 of the Tax Code of
o
Tambunting Pawnshop Inc v CIR
CIR assessed Tambunting pawnshop for deficiency Value-Added Tax for the taxable
year 1999.
Tambunting was ordered by the BIR to pay P3M+ representing deficiency VAT.
o
1997
With the imposition of the VAT under the EVAT Law, pawnshops should
have been subjected to the 10% VAT imposed on banks and non-bank
financial intermediaries and financial institutions under (now) Section 108
of the Tax Code of 1997
However, through the years, various laws effectively deferred the levy,
collection, and assessment of 10% VAT on services rendered by banks,
non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions from 1994 to
December 31, 2002;
With no further deferments given by law, the levy, collection and
assessment of the 10% VAT on banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not performing

quasi-banking functions were finally made effective beginning January 1,
2003;
o 2004: Finally, with the enactment of R.A. No. 9238 in 2004, the services of
banks, non-bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking functions were
specifically exempted from VAT, and the 0% to 5% percentage tax on
gross receipts on other non-bank financial intermediaries was reimposed
under Section 122 of the Tax Code of 1997.
Coming now to the issue at hand - Since petitioner is a non-bank financial
intermediary:
o For the tax years 1996-2002 it is actually subject to 10% VAT.
HOWEVER, with the levy, assessment and collection of VAT from

non-bank financial intermediaries being specifically deferred by
law then petitioner is NOT liable for VAT during these tax
years.
o Starting January 1, 2003 petitioner is LIABLE for 10% VAT for said
tax year with the full implementation of the VAT system on non-bank
financial intermediaries starting this date.
o Beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is NO longer liable for VAT but it is subject to percentage tax on
gross receipts from 0% to 5%, as the case may be.
Fort Bonifacio Dev Corp v CIR
Bground: The first VAT law, EO 273 (OLD NIRC), accommodated potential
burdens for newly liable VAT-registered persons through providing
Transitional Input Tax Credit (TITC).
Then, RA 7716 took effect, which amended the OLD NIRC and included
sales of real property in the coverage of VAT.
RA 8424 (NIRC) was enacted and amended the Transitory Provisions. It

also included the concept of Presumptive Input Tax Credit
Fort Bonifacio Development Corporation (FBDC) acquired from the National

Government a vast tract of land now known as Fort Bonifacio Global City.
Because the law then was prior to RA 7716, no VAT was paid.
However, at the effectivity of RA 7716, FBDC became a VAT-Registered

person, liable for VAT and entitled for transactional input tax credit.
FBDC executed 2 contracts to sell over lands in Global City in favor of

Metro Pacific Corporation.
It paid VAT but utilized its transitional input tax credit, which offset each
other.
Upon FBDC asking the BIR whether the offsetting was valid, BIR
recommended that their claim TITC was correct.
However, BIR subsequently issued an Assessment where it disallowed the

use of TITC on the basis of a Revenue Regulation 7-95 (limit use of 8%
transitional input tax to book value of improvements only). BIR now

claims tax deficiency.
CTA ruled in favor of the CIR. CA affirmed the decision but removed the
penalties and surcharges. FBDC filed 2 petitions to the SC, both claiming
TITC. Both were consolidated in this decision.
I: W/N Section 105 of the Old NIRC restricts the application by Real Estate
Dealers of the Transitional Input Tax only to improvements on the real
property belonging to their beginning inventory
R: No. The restriction is invalid. The FBDC is allowed to credit its transitional
input tax on the sale.
In the OLD NIRC, only goods where covered by the VAT. Real properties
were only included by an amendment of RA 7716.
But when it was amended, there was no differential treatment in
transitional input tax for goods or real properties. In addition, the definition
of Real Property is being primarily used for sale to customers or held for
lease in the ordinary course of business. Thus, the real property is treated
the same way as goods.
The issuance of RR 7-95 was erroneous. There is no logic to limit the
provision only to improvements. The very idea runs counter to what the tax
credit seeks to accomplish.
As GOODS in the business sense, refers to the product that the VATregistered person offers for sale the public, real estate dealers treat real
properties as their goods.
The purpose behind the transitional input tax credit is not confined to the
transition from sales to VAT. As proof, Congress has reenacted the
transitional input tax both in the OLD NIRC and the NEW NIRC. The
transitional aspect of the transitional input tax pertains to the event that the
taxpayer starts to become VAT-registered. As being covered by the VAT
does not merely take place by operation of law, it requires the act of a
person to be covered by VAT.
For example, A person can be liable for VAT if he decides to start a
business. Thus, transitional tax input credit is available, whether
under the OLD NIRC or NEW NIRC, to a newly-VAT registered
person.
The transitional input tax is available, regardless whether the
purchase of the goods, materials and supplies in the beginning
inventory was subjected to VAT or not. To limit its availability to goods
subjected to VAT, would be absurd. Because some goods acquired are not
subject to VAT, but still liable for tax like capital gains tax, donors tax and
estate tax. It would render the purpose of the law useless.
It is apparent that the transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they
previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies.
During that period of transition from non-VAT to VAT status, the transitional
input tax credit serves to alleviate the impact of the VAT on the taxpayer.
At the very beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output VAT. The
transitional input tax credit mitigates this initial diminution of the taxpayers
income by affording the opportunity to offset the losses incurred through
the remittance of the output VAT at a stage when the person is yet unable
to credit input VAT payments.
Although the CIR has the power to redefine the concept of goods, it
pertains to more technical matters. It cannot go as far as to amend the
provision, as it include goods and real property in the course of business.
Thus, in case of conflict between a statue and an administrative order, the
statue shall prevail
Justice Antonio Carpio dissent: The transitional input tax credit applies only
when taxes where paid on the properties in the beginning inventory, but this
would constitute a new requisite to the application of transitional input tax credit
and would require the taxpayer additional proof of payment of taxes. He also
argues that the word presumptive assumes the payment of tax, thus requiring
prior payment of taxes. The law necessarily comes into existence only after the
introduction of VAT. However, presumptive input tax credit is included in the
OLD NIRC but was never integrated until the NEW NIRC took effect, which is
more than a decade. Thus, the old meaning is not anymore attached to the
word. Only those goods on which input VAT was paid could form the basis of
input tax credit. However, this brings about the again absurd situation where
goods not subject to VAT are acquired but liable for other tax (estate / donor /
capital gains).
As a last point, the prohibition of using value of real properties in the beginning
inventory in RR 7-95 has already been repealed by RR 6-97.
Fort Bonifacio Dev Corp v CIR (MR)
RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old
NIRC by imposing for the first time VAT on sale of real properties.
The provisions of Section 105 of the NIRC remain intact despite the enactment
of RA 7716. Section 105 however was amended with the passage of the New
NIRC
In the April 2, 2009 Decision sought to be reconsidered, the Court struck down
Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that the
CIR had no power to limit the meaning and coverage of the term "goods" in
Section 105 of the Old NIRC to only apply to IMPROVEMENTS on real property
belonging to the beginning inventory.
I: W/n RR 7-95 is valid, given that
1) Sec 100 of the Old NIRC as amended by RA7716, could not have supplied the
distinction between the treatment of real properties or real estate dealers, and
the treatment of transactions involving other commercial goods, as said
distinction is found in section 105 and, subsequently, revenue regulations no. 795 which defines the input tax creditable to a real estate dealer who becomes
subject to vat for the first time.
2) Section 4.105.1 and paragraph (a) (iii) of the transitory provisions of revenue
regulations no. 7-95 validly limits the 8% transitional input tax to the
improvements on real properties.
A law must not be read in truncated parts; its provisions must be read in relation
to the whole law.
The term "goods or properties" by the unambiguous terms of Section 100

includes "real properties held primarily for sale to costumers or held for lease in
the ordinary course of business."
Having been defined in Section 100 of the NIRC, the term "goods" as used in
Section 105 of the same code could not have a different meaning.
Under Section 105, the beginning inventory of "goods" forms part of the
valuation of the transitional input tax credit.
Goods, as commonly understood in the business sense, refers to the product

which the VAT-registered person offers for sale to the public. With respect to real
estate dealers, it is the real properties themselves which constitute their "goods."
Such real properties are the operating assets of the real estate dealer.
Section 4.105-1 of RR 7-95 restricted the definition of "goods", when it stated

that in the case of real estate dealers, the basis of the presumptive input tax
shall be the improvements, such as buildings, roads, drainage systems, and
other similar structures, constructed on or after the effectivity of EO 273
(January 1, 1988). As mandated by Article 7 of the Civil Code an administrative
rule or regulation cannot contravene the law on which it is based. RR 7-95 is
inconsistent with Section 105 insofar as the definition of the term "goods" is
concerned. This is a legislative act beyond the authority of the CIR and
the Secretary of Finance.
RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional

input tax credit under Section 105 is a nullity.
CIR v PAL
From Jan to Dec 2001, PLDT collected from PAL the said 10% Overseas
Communication Tax4 on the amount paid by PAL for overseas telephone calls it
made through PLDT.
PAL filed w/ the BIR a claim for refund of the OCT it alleged to have erroneously
paid in 2001. This was based on its franchise, Sec 13 of PD 1590, w/c granted it:
o
1) the option to pay either the basic corporate income tax on its
annual net taxable income or the 2% percent franchise tax on its
gross revenues, whichever was lower; and
o
2) the exemption from all other taxes, duties, royalties,
registration, license and other fees and charges imposed by any
OCT - imposed by Section 120 of the NIRC, w/c shall be collected upon every overseas dispatch or message
transmitted from the Phils by telephone or other communication equipment.
municipal, city, provincial or national authority or government

agency, now or in the future, except only real property tax.
Also invoking a BIR Ruling in 1994, PAL maintained that, other than being liable
for basic corporate income tax or the franchise tax, whichever was lower, PAL
was exempted from ALL OTHER TAXES, including the OCT by virtue of the in
lieu of all taxes clause in Section 13 of PD1590.
BIR failed to act on the request for refund of PAL, so PAL filed a petition for
review before the CTA.
CTA ordered BIR to refund PAL the 10% OCT erroneusly collected. (However
CTA held that out of the total amount of P127k respondent sought to refund,
only P126k was supported / documents)
I: W/n CTA was correct in holding that BIR should refund PAL for 10% OCT
R: Yes, CTA was correct.
The language used in Section 13 of PD 1590, granting PAL tax exemption, is
clearly all-inclusive.
The basic corporate income tax or franchise tax paid by respondent shall be in
lieu of all other taxes, duties, royalties, registration, license, and other fees and
charges of any kind, nature, or description imposed, levied, established, assessed
or collected by any municipal, city, provincial, or national authority or
government agency, now or in the future x x x, except only real property tax.
The discussion in the previous PAL case5 on gross income is immaterial to the
case at bar. OCT is not even an income tax. It is a business tax, which the
government imposes on the gross annual sales of operators of communication
equipment sending overseas dispatches, messages or conversations from the
Philippines.
According to Section 120 of the NIRC, the person paying for the services
rendered shall pay the OCT to the person rendering the service (PLDT); the
latter, in turn, shall remit the amount to the BIR.
BIR likewise opposed the claim for refund of PAL based on the argument that the latter was not exempted from
final withholding tax on interest income, because said tax should be deemed part of the basic corporate income
tax, which respondent had opted to pay. This Court was unconvinced by BIRs argument, ratiocinating that basic
corporate income tax, under Section 13(a) of Presidential Decree No. 1590, relates to the general rate of 35%
(reduced to 32% by the year 2000) imposed on taxable income by Section 27(A) of the NIRC. Although the
definition of gross income is broad enough to include all passive incomes, the passive incomes already subjected
to different rates of final tax to be withheld at source shall no longer be included in the computation of gross
income, which shall be used in the determination of taxable income. The interest income of respondent is already
subject to final withholding tax of 20%, and no longer to the basic corporate income tax of 35%. Having
established that final tax on interest income is not part of the basic corporate income tax, then the former is
considered as among all other taxes from which respondent is exempted under Section 13 of Presidential Decree
No. 1590.
If this Court deems that final tax on interest income which is also an income
tax, but distinct from basic corporate income tax is included among all other
taxes from which respondent is exempt, then with all the more reason should
the Court consider OCT, which is altogether a different type of tax, as also
covered by the said exemption.
BIR also argues that PAL cannot avail itself of the benefit of the in lieu
of all other taxes proviso in PD1590 when it made no actual payment
of either the basic corporate income tax or the franchise tax.
BIR made the same averment in the PAL case, which the Court rejected.
It is clear that PD 1590 intended to give PAL the option to avail itself of
Subsection (a) or (b) as consideration for its franchise.
PAL has the option to choose the alternative that results in lower taxes. It is
NOT the fact of tax payment that exempts it, but the EXERCISE of its option.
Under Subsection (a), the basis for the tax rate is PALs annual net taxable
income, which (as earlier discussed) is computed by subtracting allowable
deductions and exemptions from gross income.
By basing the tax rate on the annual net taxable income, PD 1590 necessarily
recognized the situation in which taxable income may result in a negative
amount and thus translate into a zero tax liability.
The fallacy of the CIRs argument is evident from the fact that the payment of a
measly sum of one peso would suffice to exempt PAL from other taxes, whereas
a zero liability arising from its losses would not. There is no substantial
distinction between a zero tax and a one-peso tax liability.
Thus, by merely exercising its option to pay for basic corporate income tax
even if it had zero liability for the same due to its net loss position in 2001 PAL
was already exempted from all other taxes, including the OCT.
FITNESS BY DESIGN v CIR

Facts: In 2004, CIR assessed Fitness by Design, Inc. (FDI) for deficiency taxes
(Income Tax, VAT, Documentary Stamp Tax) of P10M for 1995. FDI protested on the
ground that it was issued beyond the 3-year prescriptive period under Section 203 of
the NIRC. FDI also claimed that since it was incorporated only in 1995, there was no
basis to assume that it had already earned income for that year.
CIR alleged that its right to assess had not prescribed. FDIs 1995 ITR filed in 1996
was fraudulent for its deliberate failure to declare its true sales. FDI declared that it
was on its pre-operation stage and had not declared its income. Investigation
disclosed that it was operating/doing business and had sales operations for 1995 of
P7M which it failed to report in its 1995 ITR. Likewise, FDI failed to file a VAT
Return. Hence, the corresponding taxes may be assessed at any time within 10 years
after the discovery of such omission or fraud pursuant to Section 222(a) of the NIRC.
BIR filed a criminal complaint before the DOJ against the officers and accountant of
FDI for violation of the NIRC. During the preliminary hearing, FDIs former bookkeeper
attested that a former colleague, Leonardo Sablan, illegally took custody of FDIs
accounting records, invoices, and receipts and turned them over to the BIR. CTA
denied FDIs Motion for Issuance of Subpoenas and disallowed the submission by FDI
of written interrogatories to Sablan since he was not a party to the case and that the
testimony, documents, and admissions sought were not relevant. FDIs MR was denied.
Hence, a petition for certiorari was filed against CTA.
Issue: W/N the BIR can obtain documents without the taxpayers consent. - YES
Held: WHEREFORE, in light of the foregoing disquisition, the petition is DISMISSED.
Rationale: FDI impugns the manner in which the documents in question reached the
BIR, Sablan having allegedly submitted them to the BIR without FDIs consent. FDIs
lack of consent does not, however, imply that the BIR obtained them illegally or that
the information received is false or malicious. Nor does the lack of consent preclude
the BIR from assessing deficiency taxes on FDI based on the documents. Thus
Section 5 of the NIRC provides:
In ascertaining the correctness of any return, or in making a return when
none has been made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or in evaluating tax
compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be
relevant or material to such query;
(B) To obtain on a regular basis from any person other than the person
whose internal revenue tax liability is subject to audit or
investigationany information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of taxpayers,
and the names, addresses, and financial statements of corporations,
mutual fund companies, insurance companies, regional operating
headquarters of multinational companies, joint accounts, associations,
joint ventures or consortia and registered partnerships and their
members;
(C) To summon the person liable for tax or required to file a return, or any
officer or employee of such person, or any person having possession,
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or
any other person, to appear before the Commissioner or his duly
authorized representatives at a time and place specified in the summons
and to produce such books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry;
XXX
Thus, the law allows BIR to access all relevant or material records and data in the
person of the taxpayer, and the BIR can accept documents which cannot be admitted
in a judicial proceeding where the Rules of Court are strictly observed. To require the
consent of the taxpayer would defeat the intent of the law to help the BIR assess and
collect the correct amount of taxes.
The issuance of subpoena duces tecum for the production of the documents requested
by the FDI which documents FDI claims to be crucial to its defense is unnecessary
in view of the CTA order for CIR to certify and forward to it all the records of the case.
If the order has not been complied with, the CTA can enforce it by citing CIR for
indirect contempt.
*Other issue pointed out by the Court: Sablan was not a party to the case and the
testimonies, documents, and admissions sought by FDI were not relevant to the issue
before the CTA. The only issues which surfaced during the preliminary hearing before
were whether CIRs issuance of assessment against FDI had prescribed and whether
FDIs tax return was fraudulent. Besides, the subpoenas and answers to the written
interrogatories would violate RA 2338 as implemented by Finance Department Order
46-66.
Bonifacio Sy Po v CTA
Bonifacia is the widow of the late Mr. Po Bien Sing who died in 1980. In taxable year
1964-1972, he was the sole proprietor of Silver Cup Wine factory in Cebu. He was
engaged in the business of manufacture and sale of compound liquors, using alcohol
and other ingredients as raw materials.
Silver Cup was alleged to have committed tax evasion amounting to millions
of pesos so Secretary of Finance ordered Finance-BIR-NBI Team to conduct an
investigation. A letter and a subpoena duces tecum were issued against Silver Cup
requesting production of books and accounting documents. Po Bien Sing, however,
did not comply with this. This prompted the team to enter the factory bodega. They
seized different brands of alcohol products, a total of 1,555 cases. On basis of the
teams investigation, CIR assessed Po Bien Sing deficiency income tax amounting to
P12.7M.
Fact obtained from the decision: The former employees of the factory
testified on the fraudulent practices of Po Bien Sing. The factory personnel manager
testified that false entries were entered in the official register book. The assistant
factory superintendent also testified that when the storekeeper is not around, illegal
operations happen. Untaxed alcohol is brought from Cebu Alcohol plant into the
compound of Silver Cup. When the storekeeper returns, he sees nothing because the
untaxed alcohol is brought directly to a secret tunnel within the bodega itself.
Bonifacia protested the deficiency assessments. A reinvestigation was done
but yielded the same results in view of the taxpayers insistent failure to present the
books of accounts. Warrants of distraint and levy were issued by CIR but Bonifacia
deemed it only as a denial of her protest.
Issue:
Whether or not the assessments have valid and legal bases? Yes.
Held:
(Hence, CTA and CIR have not committed errors, CTA decision is affirmed.)
Ratio:
1.
Best Evidence Obtainable is applicable in this case. Settled is the rule

that factual findings of CTA are binding upon SC and can be disturbed on
appeal only if such finding is not supported by substantial evidence. The
NIRC also gives the CIR the power to assess the proper tax based on best
evidence obtainable when (1) a person fails to file a required return or
other documents at the proper time or (2) he files a false or fraudulent
return. Rule on Best Evidence Obtainable applies when tax report required
by law for assessment is not available or when tax report is incomplete or
fraudulent.
2.
The tax figures arrived at by CIR is not arbitrary. On the basis of the
quantity of wines seized during the raid and sworn statements of former
employees, it was ascertained that Silver Cup utilized and consumed in the
manufacture of compounded liquors and other products 20k drums of
alcohol as raw materials 81,288,787 proof liters of alcohol. Also, surcharges
for failure to submit returns or for rendering false returns and Interest on
deficiency were also imposed.
3.
Burden of proof is on tax payer. It is incumbent upon the tax payer

appealing to the tax court to prove what is the correct and just liability
through a full disclosure of all pertinent data in his possession. This is the
only way he could prove that the tax assessment is wrong. Also, the
fraudulent acts detailed in the decision had not been satisfactorily rebutted
by petitioner. This, Bonifacia must counteract through substantial evidence.
CIR v Benipayo
(see block digests for the rest)
COLLECTION OF CASES WHERE THE ASSESSMENT IS FINAL AND

UNAPPEALABLE
Dayrit v Cruz
The Teodoros (petitioners) were legitimate children and heirs of the deceased
spouses Marta and Toribio Teodoro who died intestate.
The heirs separately filed estate and inheritance tax returns for the estates of the
spouses with the BIR.
The BIR then issued deficiency estate and inheritance tax assessments for both
estates. (roughly P1M each)
The heirs asked for reconsideration as the assessment was allegedly contrary to
law and not supported by sufficient evidence.
In 1974, the Commissioner filed a motion for allowance of claim against

the estates, and for an order of payment of taxes before the TC, praying
that petitioner be ordered to pay the BIR the sum of P6M+ plus surcharges and
interest.
TC ruled in favor of the Commissioner and directed payment of estate and

inheritance taxes.
Petitioners now contend that the TC acted w/ GAD in directing the order of
payment, given due to the pendency of their motion for reconsideration of the
deficiency assessments issued by the Commissioner, and that the tax
assessments were not yet final and executory.
They contended that the absence of a decision on the disputed assessments was
a bar against collection of taxes. They also insist that their act of filing an estate
and inheritance tax return of a previously untaxed wealth of the estates entitles
said estates to tax amnesty under P.D. No. 23, as amended by P.D. 67.
I: W/n the assessment is final, executory, and demandable.
R: Yes
In petitioners MR of the assessments, they requested the commissioner for a

period of 30 days from October 7, 1972 within which to submit a position paper
that would embody their grounds for reconsideration.
However, no position paper was ever filed. Such failure to file a position paper
may be construed as abandonment of their request for reconsideration.
It took the Commissioner a period of more than 1 yr and 5 months, from

October 7, 1972 to March 14, 1974, before finally instituting the action for
collection.
Under the circumstances of the case, the act of the Commissioner in filing an
action for allowance of the claim for estate and inheritance taxes, may be
considered as an outright denial of petitioners' request for reconsideration.
From the date of receipt of the copy of the Commissioner's letter for collection of
estate and inheritance taxes against the estates of the late Teodoro spouses,
petitioners must contest or dispute the same and, upon a denial thereof, the
petitioners have a period of 30 days within which to appeal the case to the CTA,
which they failed to avail of .
Tax assessment made by tax examiners are presumed correct and made in good
faith. A taxpayer has to prove otherwise.
Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made
the assessments final, executory and demandable.
OTHERS:
PD 23, as amended by PD 67 is not applicable to the situation of

petitioners. A reading of PD 23 reveals that in order to avail of tax amnesty, it
is required, among others, that there should be a voluntary disclosure of a
previously untaxed income. In this case, the petitioners were already issued an
assessment by the CIR. In addition thereto, said income must have been earned
or realized prior to 1972 and the tax return must be filed on or before March 31,
1973. Considering that P.D. No. 23 was issued on October 16, 1972, the court
rules that the said decree embraces only those income declared in pursuance
thereof within the taxable year 1972. The time frame cannot be stretched to
include declarations made prior to the issuance of the said decree or those made
outside of the time frame as envisioned in the said decree. Thus, the estates of
the Teodoro spouses which have been declared separately sometime in the
1960's are clearly outside the coverage of the tax amnesty provision.
Marcos II v CA
Following the death of former President Marcos in 1989, a Special Tax Audit
Team was created to conduct investigations and examination of tax liabilities of
the late president, his family, associates and cronies.
The investigation disclosed that the Marcoses failed to file a:

o
(1) written notice of death of the decedent
o
(2) estate tax return and 2 income tax returns for the years 1982
to 1986, all in violation of the Tax Code.
Criminal Charges were filed against Mrs. Marcos for violation of Secs. 82, 83 and
84, NIRC.
The CIR thereby caused the preparation of 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.
BIR issued deficiency estate tax assessment and the corresponding deficiency
income tax assessments. Copies of said assessments were served personally and
constructively upon Mrs. Marcos at her last known address through her
caretaker. Likewise, copies of the deficiency assessments against Marcos II were
personally and constructively served at his last known address. Formal
assessment notices were served upon Mrs. Marcos c/o petitioner at his office in
the House of Representatives, as well as a notice to taxpayer to attend a
conference furnished through her counsel.
The deficiency tax assessments were NOT administratively protested by the

Marcoses w/in 30 days from service thereof.
Subsequently, the Commissioner issued a total of 30 notices to levy on real

property against certain parcels of land and other real property owned by the
Marcoses. Copies of the aforesaid notices were served upon the Marcoses and
their counsel of record.
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 thereafter. There
being no bidder, the lots were declared forfeited in favor of the Government.
Petitioner filed a petition to annul the notices of levy and enjoin BIR from
proceeding w/ the auction.
I: W/n the proper assessment and collection was made by BIR
R: Yes, BIRs actions were proper.
The enforcement and collection of estate tax is executive in character and the
task is specifically ascribed to the BIR.
The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is NOT a mandatory requirement in the collection of estate taxes. It
cannot, therefore, be argued that the Tax Bureau erred in the proceeding w/ the
levying and sale of the properties allegedly owned by the late President on the
ground that it was required to seek first the probate courts sanction.
There is nothing in the Tax Code and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement courts approval of the States
claim for estate taxes, before the same can be enforced and collected.
On the contrary, under Sec. 87 (now, Sec. 94 of NIRC), it is the probate court
w/c is PROHIBITED from authorizing the delivery of any of the
distributive share to interested parties UNLESS there is a certification
by the CIR that estate taxes have been paid. If there is any issue as to the
validity of the BIRs decision to assess the estate taxes, this should have been
pursued through the proper administrative and judicial processes provided under
Sec. 229 (now, Sec. 228 of NIRC)
Apart from failing to file the required estate tax return w/in the time
required for filing the same, petitioner and other Marcos heirs never
questioned the assessments 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 Pres. Marcos
The Notices of Levy upon real property were issued w/in the prescriptive period
and in accordance w/ Sec. 223 (now, Sec. 222 of NIRC) 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.
Regarding the services of notices of assessments, the Court found that there was
sufficient constructive and/or personal service thereof. The subject tax
assessments having become final, executory and enforceable, the same can no
longer be contested by means of disguised protest.
Mambulao Lumber v RP
Agent Nestor Banzuela of the BIR examined the books of petitioner Mambulao
Lumber.
In his report, he stated that in January 1949, petitioner was assessed by the
Bureau of Forestry (BOF) for forest charges but hasnt paid such.
On August 1958, CIR sent a letter to Mambulao informing them of the unpaid
forest charges and demanding that such be settled within 10 days from receipt
of the letter.
Mambulao requested for a reinvestigation and was given 20 days (1959 letter) to
submit results of verification of payments. It was warned that non-compliance
would be deemed abandonment of the request for re-investigation.
Mambulao failed to comply with the demand.
On August 1961, CIR filed a collection in the CFI of Manila. CFI adjudged
Mambulao liable for the unpaid forest charges. CA affirmed.
Mambulao assails decision of the CA, contending that the period to file a
collection suit has already lapsed thus CIR is barred by prescription. It contends
that period should be reckoned from the January 1949 when it was assessed by
the BOF.
I: W/n action has prescribed
R: No. Action to file collection case has NOT PRESCRIBED.
NIRC Sec 332 provides that tax may be collected by distraint / levy OR by a
proceeding in court ONLY if begun (1) within 5 years after the assessment
of the tax, or (2) prior to the expiration of any period for collection
agreed upon in writing by the CIR and taxpayer BEFORE expiration of
such 5-year period.
THUS, 5-year period should be computed from the August 1958 letter of the BIR.
Forest charges are internal revenue taxes and the sole power and duty to collect
the same is lodged with the BIR and not w/ the Bureau of Forestry.
The computation and/or assessment of forest charges made by the Bureau of
Forestry may or may NOT be adopted by the CIR and such computation made by
the Bureau of Forestry is NOT appealable to the Court of CTA.
Therefore, for the purpose of computing the 5-year period within which to file a
complaint for collection, the demand or even the assessment made by the
Bureau of Forestry is immaterial.
The BIR Letter in August 1958 and case filed in August 1961 was well within the
5-year period to institute case.
Also, given that Mambulao did NOT appeal assessment to the CTA
within 30 days from receipt of the letter (1959 as prescribed by RA
1125), the assessment became final and executory.
In a suit for collection of internal revenue taxes, where the assessment has
already become final and executory, the action to collect is akin to an action to
enforce a judgment.
No inquiry can be made therein as to the merits of the original case or the
justness of the judgment relied upon. Petitioner is thus already precluded from
raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax assessed
against him, the same became final and properly collectible by means
of an ordinary court action.
The taxpayer cannot dispute an assessment which is being enforced by judicial
action, He should have disputed it before it was brought to court.
RP v Lim Tian Teng Sons & Co, Inc.
Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal office in
Cebu City, engaged in 1951 and 1952, among others, in the exportation of
copra.
Lim Tian then filed its income tax return for 1952 based on accrued income and
expenses. Its return showed a loss of P56,109.98.
CIR assessed Lim Tian of deficiency income tax and 50% surcharge thereon
amounting to P5,037.00 and demanded payment thereof not later than February
15, 1957.
Lim Tian requested reinvestigation of its income tax liability.
CIR did NOT reply but instead referred the case to the SolGen for collection by
judicial action.
SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwise
judicial action would be instituted without further notice.
Lim Tian thus wrote CIR and SolGen, reiterating its request for reinvestigation. It
requested that it be allowed to present its explanation together w/ supporting
papers relative to its income tax liability.
Deputy Collector of CIR informed the taxpayer that its request for reinvestigation
would be granted provided it executed within 10 days a WAIVER of the statute of
limitations as required in General Circular V-258 dated August 20, 1957. The
Deputy Collector extended the period within which to execute and file with him
the waiver of the statute of limitations to December 31, 1957, but advised that if
no waiver is forthcoming on or before said date, judicial action for collection
would be instituted without further notice.
HOWEVER, Lim Tian failed to file a waiver.
CIR thus instituted 8 months after an action in the CFI of Cebu for the collection
of deficiency income tax.
CFI declared the CIR's assessment as valid, final and executory, condemning Lim
Tian to pay CIR w/ interest at 1% monthly until fully paid.
I/R: W/n lower court has jurisdiction to entertain the case given that
CIR has NOT yet issued its final decision on request for reinvestigationYes.
Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request
for reinvestigation before he can go to court for the purpose of collecting the tax
assessed. On the contrary, Section 305 of the same Code withholds from all
courts, except the CTA under Section 11 of Republic Act 1125, the authority to
restrain the collection of any national internal-revenue tax, fee or charge,
thereby indicating the legislative policy to allow the CIR much latitude in the
speedy and prompt collection of taxes. The reason is obvious. It is upon taxation
that the government chiefly relies to obtain the means the carry on its
operations,
Section 11 of Republic Act 1125 states in part: No appeal taken to the Court
of Tax Appeals from the decision of the Collector of Internal Revenue ... shall
suspend the payment, levy, distraint, and/or sale of any property of the taxpayer
for the satisfaction of his tax liability as provided by existing law EXCEPT if it may
jeopardize interest of the gov and/or taxpayer.
2) W/n court erred in considering as final and executory the
assessment contained in the letter of the CIR dated January 16, 1957.
No, court was correct in considering assessment final and executory.
In this case, Lim Tian received said assessment on January 30, 1957 and on the
following day requested reinvestigation of its tax liability. The CIR however did
NOT reply to the request for reinvestigation. Instead, he referred the case to the
Solicitor General for collection of the tax. The lower court interpreted this action
of the Collector of Internal Revenue as a denial of defendant's request for
reinvestigation.
Instead of appealing to the Tax Court, however, Lim Tian reiterated its request
for reinvestigation.
Even if we do not count the period from October 8, 1957 (the date when
taxpayer received notice of the denial of its request for reinvestigation) to
December 31, 1957 (the deadline for the submission of the written waiver of the
statute of limitations) in reckoning the 30-day period within which the taxpayer
may appeal to the CTA, said period had long lapsed when the CIR filed the
complaint in this case on September 2, 1958.
Taxpayers failure to appeal to the CTA in due time made the assessment in
question final, executory and demandable.
And when the action was instituted on September 2, 1958 to enforce the
deficiency assessment in question, it was already barred from disputing the
correctness of the assessment or invoking any defense that would reopen the
question of his tax liability on merits. Otherwise, the period of 30 days for appeal
to the Court of Tax Appeals would make little sense.
OTHERS: Indications that taxpayer's income tax is fraudulent: Firstly, taxpayer's

beginning inventory for 1952 did not state the truth in considering the copra
outturn as copra on hand, for on December 31, 1951 such copra was not any
more in taxpayer's bodega. It was in transit to a foreign port. And the taxpayer
no longer owned the copra. As a matter of fact, it already received payment for
the same. Secondly, by observing regularly its own system of accounting,
taxpayer had no choice but to account the copra outturn as accrued income. This
it did not do. For such deviation, we see no other purpose than to lessen, if not
obliterate as in fact it did, its income tax liability per its return. The lower court
therefore did not err in imposing the 50% surcharge.
Basa v Republic
In a demand letter dated August 31, 1967, the CIR assessed against Augusto
Basa deficiency income taxes for 1957-1960 totaling P16k.
The deficiencies were based on taxpayers failure to report in full his capital gains
on sales of land. This omission or underdeclaration of income justified the
imposition of 50% surcharge. Taxpayer did not contest the assessment in Tax
Court.
The Commissioners letter decision on the case was dated December 6, 1974.
ON the assumption that the assessment has become final and incontestable, the
Commissioner on Sept. 3, 1975 sued the taxpayer in CFI Manila for collection of
said amount.
TC affirmed the assessment and ordered Basa to pay P16k. plus 5% surcharge
and 1% monthly interest from Aug. 31 1967-Aug. 31, 1970.
Instead of appealing to SC directly under RA 5440, in relation to Rules 41 and 45

of the Rules of Court, since no factual issues are involved, Basa tried to appeal to
CA. He did not perfect his appeal within the reglementary period.
TC dismissed it. Basa filed a special civil action of certiorari assailing trial courts
decision.
I: W/n the decision CFI Manila (not the Tax Court) in an income tax case is
reviewable by Appellate Court or by SC.
R: No. The TC within its jurisdiction in rendering its decision and dismissing
Basas appeal.
If Basa wanted to contest the assessments, he should have appealed to the Tax
Court. Not having done so, he could not contest the same in the CFI.
The issue of prescription raised by him is baseless. The assessments were

predicated on the fact that his income tax returns, if not fraudulent, were false
because he underdeclared his income.
In such a case, the deficiency assessments may be made within 10 years after
the discovery of the falsity or omission. The court action should be instituted
within 5 years after the assessment but this period is suspended during the
time that the Commission is prohibited from instituting a court action.
SGs memorandum: Basas request for reinvestigation tolled the prescriptive

period of 5 years within which the court action may be brought (CIR vs. Capitol
Subdivision). Moreover, the issue of prescription should have been raised in the
tax court.
Yabes v Flojo
Doroteo Yabes, was for sometime an exclusive dealer of products of the

International Harvester Macleod, Inc., received on May 1, 1962, a letter from
the CIR dated March 27, 1962, demanding payment of P15k+ as commercial
broker's fixed and percentage taxes plus surcharges and the sum of P2,530 as
compromise penalty alledgely due from Yabes for the years 1956-1960.
On May 11, 1962, Yabes, through his counsel, filed with the CIR a letter
protesting the assessment of the said taxes and penalties on the ground that his
agreements w/ International Harvester were of purchase and sale, and NOT of
agency, hence he claimed he was not able to pay such kind of taxes.
Yabes requested for reinvestigation and review of the case by the appellate
division of the BIR and that appeal be held in abeyance pending resolution of a
similar case (Constantino).
CIR DENIED the request for reinvestigation for failure to submit evidence to
offset findings of the Office. CIR however said that the administrative appeal
will be held in abeyance pending the resolution of the issues in the
Constantino case.
Yabes then filed a tax waiver on October 20, 1962, extending the period of
prescription to December 31, 1967.
Yabes died and no estate proceedings were instituted for the settlement of his
estate.
After Yabes' death, SC rendered a ruling in the Constantino case in favor of the
CIR.
After 5 yrs, the heirs of the Yabes received a letter from CIR requesting that they
"waive anew the Statute of Limitations" and further confirming the previous
understanding that the final resolution of the protest of the deceased Doroteo
Yabes was "being held in abeyance until the Supreme Court renders its decision
on a similar case involving the same factual and legal issues brought to it on
appeal" (referring to the Constantino "test" case).
Yabes filed a revised waiver further extending the period of prescription to
December 31 1970.
After, no word was received by Yabes heirs during the interim of more than 3
yrs, but on January 20, 1971, they received the summons and a copy of the
complaint filed by the Commissioner in the CFI seeking to collect taxes.
I: W/N CFI can lawfully acquire jurisdiction over a contested assessment made
by the CIR against Yabes w/c has not yet become final, executory and
incontestable, and which assessment is being contested in the CTA and still
pending consideration
R: No, CFI had no jurisdiction and should have dismissed the case. Decision is
NOT yet final, executory and incontestable.
CIR contends that Yabes received the Commissioner's letter dated August 3,
1962, denying the latter's protest against the said assessment on September 18,
1962 and FAILED to appeal therefrom within the 30-day period contemplated
under Section 11, of Republic Act 1125.
HOWEVER, the period for appeal to this Court should NOT be counted from
September 18, 1962. In a letter of July 27, 1967, CIR informed Yabes that a
resolution of their protest was being held in abeyance until the Supreme Court
renders a decision on a similar case "involving the same factual and legal issues".
As a matter of fact, in an earlier letter dated September 26, 1962, CIR also
informed Yabes' counsel that "administrative appeal for and in behalf of their
clients will be held in abeyance pending resolution of the issues on a similar case
which was appealed by you to the Court of Tax Appeals".
It is thus clear in these letters that CIR reconsidered the finality of his decision of
August 3, 1962, assuming arguendo that the letter had a tenor of finality.
The records show that a warrant of distraint and levy was issued on October 2,
1970. Had this been served on Doroteo Yabes, it would have been equivalent to
a final decision. There is, however, nothing to show that it was ever
served on Yabes. Neither is there anything in the record to show that a
formal decision of denial was made after CIR's letter of July 27, 1967.
Under the circumstances of this case, what may be considered as final decision
or assessment of the Commissioner is the filing of the complaint for collection in
the respondent Court of First Instance of Cagayan, the summons of which was
served on petitioners on January 20, 1971. THUS, the appeal with the CTA was
filed on time (w/in the 30 day prescriptive period).
CFI only acquired jurisdiction after assessment by CIR becomes final and
executory.
CRIMINAL ACTION
Republic v Patanao
Patanao was engaged in the production and sale of logs and lumber.
He was assessed deficiency income tax and additional residence taxes from 1951
to 1955.
In 1958, the Deputy CIR sent a letter of demand w/ enclosed income tax
assessment.
Patanao refused, failed and neglected to pay the said taxes.
In 1962, a complaint for collection was filed.
Patanao filed a MTD alleging:

o
Res judicata, since Patanao was acquitted in criminal cases, w/c
were prosecutions for failure to file ITR for non-payment of taxes
o
Prescription
RTC held that the action for collection was barred by prior judgment, since the
accused was acquitted in the criminal case.
I: W/n the acquittal in the criminal cases involving the failure to file return and
pay tax bars the institution of the civil case for collection.
R: NO, acquittal in the criminal case is not a bar to the institution of the civil
case.
Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. The criminal liability gives birth to the civil obligation such that
generally, if one is not criminally liable under the Penal Code, he cannot become
civilly liable thereunder.
The situation under the income tax law is the exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has engaged
himself in business, and NOT because of any criminal act committed by him.
The criminal liability arises upon failure of the debtor to satisfy his civil obligation.
The incongruity of the factual premises and foundation principles of the two
cases is one of the reasons for NOT imposing civil indemnity on the criminal
infractor of the income tax law.
Also, while section 73 NIRC has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to
make a return thereof, it failed to provide the collection of said tax in criminal
proceedings.
The only civil remedies provided, for the collection of income tax, are distraint or
judicial action, which remedies are generally exclusive in the absence of a
contrary intent from the legislator.
Considering that the Government cannot seek satisfaction of the taxpayer's civil
liability in a criminal proceeding under the tax law or, otherwise stated, since the
said civil liability is NOT deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does NOT necessarily entail exoneration from
his liability to pay the taxes.
The acquittal in the said criminal cases cannot operate to discharge defendant
from the duty of paying the taxes which the law requires to be paid, since that
duty is imposed by statute prior to and independently of any attempts by the
taxpayer to evade payment.
Said obligation is not a consequence of the felonious acts charged in the criminal
proceeding, nor is it a mere civil liability arising from crime that could be wiped
out by the judicial declaration of non-existence of the criminal acts charged.
Ungab v Cusi
In July, 1974, BIR examined the income tax returns filed by Ungab, for the
calendar year ending December 31, 1973. BIR discovered that Ungab failed
to report his income derived from sales of banana saplings.
BIR District Revenue Officer sent a "Notice of Taxpayer" to Ungab informing

him that there is due from him the amount of P104k, representing income,
business tax and forest charges for the year 1973 and inviting him to an
informal conference where he may present his objections.
Ungab wrote the BIR District Revenue Officer protesting the assessment,
claiming that he was only a dealer/ agent on commission basis in the
banana sapling business and that his income, as reported in his income tax
returns for the said year, was accurately stated.
BIR Examiner, however, was fully convinced that Ungab had filed a
fraudulent income tax return so that he submitted a "Fraud Referral
Report," to the Tax Fraud Unit of the BIR.
After examining the records of the case, the Special Investigation Division
of the BIR found sufficient proof that Ungab is guilty of tax evasion for the
taxable year 1973 and recommended his prosecution. CIR approved the
prosecution.
Thereafter, the State Prosecutor conducted a preliminary investigation of

the case, and finding probable cause, filed 6 informations against the
petitioner with CFI:
o
1) filing a fraudulent income tax return
o
2) engaging in business as producer of saplings w/o first paying
the annual fixed/privilege tax
o
3) failure to render a true and complete return on the gross
quarterly sales, receipts and earnings in his business as producer
of banana saplings and to pay the percentage tax due thereon,
Ungab filed a motion to quash the informations alleging that the trial court
has no jurisdiction to take cognizance of the cases in view of his pending
protest against the assessment made by the BIR Examiner.
TC denied the motion.
Ungab now claims that the filing of the informations was precipitate and
premature since the CIR has not yet resolved his protests against the
assessment of the Revenue District Officer; and that he was denied
recourse to the Court of Tax Appeals.
I: W/n an assessment of the deficiency tax due is necessary before the

taxpayer can be prosecuted criminally for the charges
R: NO, an assessment of a deficiency is NOT necessary to a criminal
prosecution for willful attempt to defeat and evade the income tax.
What is involved here is not the collection of taxes where the assessment of
the CIR may be reviewed by the CTA, but a criminal prosecution for
violations of the NIRC which is within the cognizance of CFI.
While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is
no requirement for the precise computation and assessment of the tax
before there can be a criminal prosecution under the Code.
The crime is complete when the violator has, as in this case, knowingly and
willfully filed fraudulent returns with intent to evade and defeat a part or all
of the tax. The perpetration of the crime is grounded upon knowledge on
the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no
connections with the commission of the crime.
THUS, an assessment of a deficiency is NOT necessary to a criminal
prosecution for willful attempt to defeat and evade the income tax.
A petition for reconsideration of an assessment may affect the suspension
of the prescriptive period for the collection of taxes, but NOT the
prescriptive period of a criminal action for violation of law.
Obviously, the protest of the Ungab against the assessment of the District
Revenue Officer cannot stop his prosecution for violation of the NIRC.
CIR v PASCOR Realty and Dev Corp
BIR Commissioner Jose Ong authorized Revenue Officers Que, Estorco and
Savillano to examine the books of accounts and other accounting records of
Pascor Realty, w/c resulted to the recommendation of an issuance of
assessments.
In 1995, CIR filed a complaint against the president and treasurer of Pascor
alleging evasion of taxes before the DOJ.
Pascor filed an Urgent Request for Reconsideration/Reinvestigation

disputing the said tax assessment. PRDC then received a subpoena from the
DOJ with regard to the complaint on March 23, 1995.
CIR denied the MR of the said assessment.
Pascor elevated the denial to CTA on petition for review.
CIR filed a motion to dismiss on the ground that CTA had no jurisdiction
over the subject matter since there was no formal assessment issued
against PRDC.
CTA denied the motion to dismiss and ordered the CIR to file an answer
within 30 days from receipt of the notice but the CIR did not comply, nor
did they file an MR.
Instead, CIR filed a petition in the CA alleging that the CTA acted with
GADALEJ.
CIR argues that the criminal action is not yet an assessment, based on Sec
205 and 223 of the NIRC w/c provides that remedies for the collection of
tax may either be civil or criminal and that in case of failure to file a return,
a tax may be assessed OR a proceeding in court may be begun without an
assessment.
Pascor argues that the joint-affidavit filed by the CIR for criminal action
already constitutes an assessment. It argues that an assessment is NOT an
action or proceeding for the collection of taxes but a mere notice of and
demand for payment of taxes due.
I: 1) W/N the criminal complaint for tax evasion can be construed as an
assessment NO
2) W/n assessment is necessary before criminal charges for tax evasion
may be instituted. - NO
R:
1) The criminal complaint for tax evasion is NOT an assessment. An
assessment is a notice to the taxpayer containing the amount of taxes due
and a demand to pay such taxes within a specific period.
It is deemed made only when the CIR releases the mail and sends such
notice to the petitioner.
The joint-affidavit for the criminal action CANNOT be considered an
assessment since:
o
It contained NO DEMAND for payment
o
There was NO specified period of payment
o
It is addressed to the Secretary of Justice and NOT the taxpayer
(Pascor)
o
Its purpose is merely to support / substantiate the criminal
complaint and NOT notify the payer of the tax due
Since there was NO assessment issued yet, no reconsideration /
reinvestigation may be asked from the CIR.
2) Sec222 of the NIRC provides that when a false/fraudulent return is filed,
an action in court may be commenced WITHOUT an assessment.
Sec 205 further provides that civil and criminal actions may be pursued
simultaneously by the CIR.
THUS, CIR is given discretion to either issue an assessment OR file a
criminal complaint or do both.
A criminal charge may be supported by only prima facie showing of failure
to file return. This fact NEED NOT be proven by an assessment.
The issuance of an assessment is DIFFERENT from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-assessment

notice sent to the taxpayer, who is given a chance to submit position papers
and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then
sent to the taxpayer informing the latter specifically and clearly that an
assessment has been made against him or her.
In contrast, the criminal charge need not go through all these. The criminal
charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that
a criminal case had been filed against him, not that the commissioner has
issued an assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.
Adamson v CA
Lucas Adamson as President of Adamson Management Corporation (AMC) sold

common shares of stock to APAC Holding Limited (APAC) and paid the capital
gains tax for the transaction.
Subsequently, AMC sold to APAC Philippines, Inc. common shares of stock and
paid the capital gains tax therefor.
CIR Vinzons-Chato issued a Notice of Taxpayer to AMC, Adamson, Therese

Adamson (AMC treasurer), and Sara de Los Reyes (AMC secretary), informing
them of deficiencies on their payment of capital gains tax and VAT.
CIR filed w/ the DOJ an Affidavit of Complaint against AMC and Adamson et al.
for violation of the NIRC.
After preliminary investigation, the state prosecutor found probable cause.
AMC and Adamson et al. then filed a letter request for re-investigation with the
Commissioner.
Before the CIR could act on their letter-request, AMC, and Adamson et al. filed a
petition for review with the CTA, assailing the CIRs finding of tax evasion against
them.
CIR moved to dismiss the petition, on the ground that it was premature, as she
had not yet issued a formal assessment of the tax liability of Adamson et al.
In 1994, Adamson, et al. were charged in a criminal case before the RTC Makati.
TC ruled that it did NOT have jurisdiction over the criminal case because the
complaints for tax evasion filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities of Adamson et al. thus
appealable to the CTA. It further held that the said cases cannot proceed
independently of the assessment case pending before the CTA, which has
jurisdiction to determine the civil and criminal tax liability of Adamson et al.
CTA denied the motion to dismiss filed by the Commissioner and considered the
criminal complaint filed by the Commissioner with the DOJ as an implied formal
assessment, and the filing of the criminal informations with the RTC as a denial
of Adamson et al.s protest regarding the tax deficiency.
CIR filed a petition for review with the CA assailing the trial courts dismissal of
the criminal cases. The CA reversed the trial courts decision and reinstated the
criminal complaints. The CA ruled that in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax evasion is
complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax.
I/ R:
1) W/n CIRs recommendation letter to DOJ can be considered as a
formal assessment of Adamson et al.s tax liability
No, the letter is NOT an assessment.
An assessment is a written notice and demand made by the BIR on the taxpayer
for the settlement of a due tax liability that is there definitely set and fixed. It is
a written communication containing a computation by a revenue officer of the
tax liability of a taxpayer and giving him an opportunity to contest or disprove
the BIR examiners findings is not an assessment since it is yet indefinite.
In this case, the recommendation letter is NOT an assessment. It served merely
as the prima facie basis for filing criminal informations that the taxpayers had
violated the Tax Code.
2) W/n the criminal complaints against Adamson et al. by the DOJ are
premature for lack of a formal assessment
No. When fraudulent tax returns are involved, a proceeding in court after the
collection of such tax may be begun without assessment.
Here, Adamson et al. had already filed the capital gains tax return and the VAT
returns, and paid the taxes they have declared due therefrom. Upon
investigation of the examiners of the BIR, there was a preliminary finding of
gross discrepancy in the computation of the capital gains taxes, and that VAT
had not been paid.
The gross disparity in the taxes due and the amounts actually declared by
Adamson, AMC, etc. constitutes badges of fraud.
3) W/n the CTA has jurisdiction to take cognizance of both the civil and
criminal aspects of the tax liability of Adamson et al.
No. CTA can only entertain an appeal from a final decision or assessment of the
Commissioner, or in cases where the Commissioner has not acted within the
period prescribed by the NIRC. In the cases at bar, the Commissioner has not
issued an assessment of the tax liability of private respondents.
PRESCRIPTION OF GOVS RIGHT TO ASSESS AND COLLECT
CIR v Goodrich Phils
Goodrich Phils., Inc. is an American-owned and controlled corporation engaged

in the manufacturing of tires and rubber products.
Pursuant to a Central Bank requirement, BF Goodrich developed a rubber

plantation. It purchased from the Phil gov certain parcels of land in Basilan (as
allowed by the Public Land Act and Parity Amendment to the 1935 Constitution).
HOWEVER, upon the expiration of the Parity Amendment more than a decade
later, the ownership rights of Americans over public agricultural lands, including
the right to dispose or sell their real estate, would be lost.
THUS, BF Goodrich sold its Basilan Landholdings to Siltown Realty.
Siltown then leased the parcels of land to BF Goodrich for 25 years.
BIR then assessed BF Goodrich for deficiency income tax, which the latter paid.
Later on, BIR assessed BF Goodrich for deficiency donors tax, in relation to the
previously mentioned sale of its Basilan landholdings to Siltown.
BIR claimed that the consideration for the sale was insufficient, so it considered
the difference between the fair market value and the actual purchase price as a
taxable donation.
Goodrich contested this assessment.
Instead, it received another assessment w/c increased the amount demanded for
the alleged deficiency donors tax, surcharge, interest and compromise penalty.
Goodrich appealed the correctness and the legality of these last two assessments
to the CTA, questioning the legality of the assessments.
I:
1) W/n the CIRs right to assess deficiency donors tax had prescribed
YES, CIRs right to assess the deficiency had already prescribed.
Sec 331 of the NIR provides that (except as provided in the succeeding section)
internal-revenue taxes shall be assessed within five years after the return
was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after expiration of such perioda return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on
such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
Involved in this petition is the income of the petitioner for the year 1974, the
returns for w/c were reqd to be filed on or before April 15, 1975.
The returns for the year 1974 were duly filed and paid on June 21, 1974, and
acknowledged by a Letter of Confirmation.
Thus, the subsequent assessment of Oct 10, 1980 modified, by that of March 16,
1981, was made BEYOND THE PERIOD expressly set by Art 331.
The law on prescription, being a remedial measure, should be liberally construed

in order to afford such protection. As a corollary, the exceptions to the law on
prescription should be strictly construed.
However, the CIR contended that there is Falsity in the return, thus, the
ordinary period of limitation upon assessment and collection does not apply.
Section 15 of the NIRC, provides that when there is reason to believe that any
such report is false, incomplete, or erroneous, the CIR shall assess the proper
tax on the best evidence obtainable. Clearly, Section 15 does not provide an
exception to the statute of limitations on the issuance of an assessment, by
allowing the initial assessment to be made on the basis of the best evidence
available.
2) W/n there was a false return, w/c extends the prescriptive period
NO, there was no false return.
Section 332 of the NIRC, enumerates the exceptions to the period of
prescription, one of w/c includes the case of a false or fraudulent return with
intent to evade a tax or of a failure to file a return. In this case, collection of tax
may be begun w/o assessment anytime w/in 10 yrs from discovery of fraud.
CIR insists that Goodrich committed falsity when it sold the property for a price
less than the FMV. HOWEVER, this fact alone did not constitute a false return.
A false return contains wrong information due to mistake, carelessness
or ignorance. It is possible that real property may be sold for less than
adequate consideration for a bona fide business purpose.
In the present case, Goodrich was compelled to sell the property even at a price
less than its market value, because it would have lost all ownership rights over it
upon the expiration of the parity amendment. It was only attempting to
MINIMIZE ITS LOSSES. At the same time, it was able to lease the property for
25 years, renewable for another 25. This can be regarded as another
consideration on the price.
The fact that the sale transaction may have partly resulted in a donation does
NOT change the fact that private respondent already reported its income for
1974 by filing an income tax return.
BIR was negligent in not issuing an assessment w/in the 5-year period.
Basilan Estates v CIR
CIR assessed Basilan Estates deficiencyincome tax and 25% surcharge on

unreasonable accumulated profit (Sec 25, Tax Code).
On non-payment of the assessed amount, a warrant of distraint and levy

was issued but the same was not executed because Basilan Estates, Inc.
succeeded in getting an Order to hold execution and maintain constructive
embargo instead.
Basilan Estates, Inc. filed with CTA a petition for review of the
Commissioner's assessment, alleging prescription of the period for
assessment and collection.
CTA held that there was no prescription.
Basilan claims that it never received notice of assessment or if it did, it

received the notice beyond the prescriptive period.
I: W/n the Commissioner's right to collect deficiency income tax prescribed?
NO, it did not.

There is no dispute that the assessment for deficiency tax was made on
February 26, 1959.
Circumstances in this case point to official performance of duty /
REGULARITY which must necessarily prevail over Basilan's contrary
interpretation:
o
On the right side of the notice is also stamped "Feb. 26, 1959"
denoting the date of release, according to BIR practice.
o
The Commissioner himself in his letter answering petitioner's
request to lift, the warrant of distraint and levy, asserts that
notice had been sent to petitioner.
o
In the letter of the Regional Director forwarding the case to the
Chief of the Investigation Division which the latter received on
March 10, 1959, notice of assessment was said to have been sent
to petitioner.
o
Subsequently, the Chief of the Investigation Division indorsed on
March 18, 1959 the case to the Chief of the Law Division. There it
was alleged that notice was already sent to petitioner on February
26, 1959.
Even granting that notice had been received by Basilan late, as alleged,
under Section 331 of the Tax Code requiring 5 years within which to assess
deficiency taxes, the assessment is deemed made when notice to this
effect is released, mailed or sent by the Collector to the taxpayer
and it is not required that the notice be received by the taxpayer
within the aforementioned 5-year period.
Tupaz v Ulep
State Prosecutor Molon filed w/ the MTC an information against Petronilla Tupaz
and her late husband Jose Tupaz as corporate officers of El Oro Engravers Corp,
for non-payment of deficiency corporate income taxes for year 1979. MTC
dismissed the case for lack of jurisdiction.
7 months later, Monlon filed w/ the RTC 2 informations against the accused and
her late husband for the same alleged nonpayment of deficiency corp income.
Case 1 was raffled to Judge Ulep (Branch 105) while Case 2 was raffled to Judge
Solano (Branch 86).
Accused filed w/ RTC Branch 86 (Case 2) a motion to dismiss /quash the
information since it was exactly the same as the information against the accused
pending before RTC Branch 105. This was denied.
In the meantime, Jose Tupaz died to Petronilla Tupaz filed w/ the RTC Branch 105
a PETITION FOR REINVESTIGATION, w/c Judge Ulep granted. RTC subsequently
arraigned Petronilla.
2 years later, Judge Ulep issued an order directing the prosecution to withdraw
the information in Case 2, after discovering that said information was identical to
the one filed with his branch.
Thus, State Prosecutor Agcaoili filed a motion to withdraw information in Case 1.

Judge Ulep granted the motion for withdrawal of the information and dismissed
the case.
Prosecutor Agcaoili filed with Branch 105 a motion to reinstate information, stating
that the motion to withdraw information was made through palpable mistake, and
was the result of excusable neglect. Reinstatement was granted.
Tupaz filed a motion for reconsideration, w/c was denied. Tupaz contends that:
o
a) the period of assessment has prescribed, applying the 3 year
prescriptive period
o
b) offense has prescribed since the complaint for preliminary
investigation was filed w/ the DOJ only on June 1989 and the
offense was committed in April 1980 when she filed the income
tax return for the year 1989
I: W/n the period of assessment had prescribed and w/n the offense had
prescribed
R: NO.
The period of assessment has NOT prescribed.
The shortened period of 3 years to prescribe under B.P. Blg. 700 is not applicable
to petitioner. The said law specifically states that the shortened period of three
years shall apply to assessments and collections of internal revenue taxes
beginning taxable year 1984. Assessments made after April 5, 1984 are governed
by the 5-year period if the taxes assessed cover taxable years prior to Jan. 1,
1984.
The deficiency income tax under consideration is for taxable year 1979 so the
period of assessment is still 5 years, under the old law.
Art 22 of the RPC does NOT apply because provisions on the period of assessment
are NOT penal in nature.
Also, the offense has not prescribed.
Petitioner was charged with failure to pay deficiency income tax after repeated
demands by the taxing authority. By its nature, the violation could only be
committed AFTER service of notice and demand for payment of the deficiency
taxes upon the taxpayer.
Hence, it cannot be said that the offense has been committed as early as 1980,
upon filing of the income tax return. This is so because prior to the finality of the
assessment, the taxpayer has NOT committed any violation for nonpayment of the
tax.
The offense was committed only after the finality of the assessment coupled with
taxpayers willful refusal to pay the taxes within the allotted period.
In this case, when the notice of assessment was issued on July 16, 1984, the
taxpayer still had 30 days from receipt thereof to protest or question the
assessment. Otherwise, the assessment would become final and unappealable.
As he did not protest, the assessment became final and unappealable on Aug 16,
1984.
Consequently, when the complaint for preliminary investigation was
filed with the DOJ on June 8, 1989, the criminal action was instituted
within the 5 year prescriptive period.
NOTE: THE 5-YR PERIOD TO COLLECT BEGINS TO TOLL FROM THE FINALITY OF
ASSESSMENT, NOT FROM THE FILING OF THE ITR.
On double jeopardy The reinstatement of the information would expose her
to double jeopardy. An accused is placed in double jeopardy if he is again tried

for an offense for which he has been convicted, acquitted or in another manner in
which the indictment against him was dismissed without his consent. In the
instant case, there was a valid complaint filed against petitioner to which she
pleaded not guilty. The court dismissed the case at the instance of the
prosecution, without asking for accused-petitioners consent. This consent cannot
be implied or presumed. Such consent must be expressed as to have no doubt as
to the accuseds conformity. As petitioners consent was not expressly given, the
dismissal of the case must be regarded as final and with prejudice to the re-filing
of the case. Consequently, the trial court committed grave abuse of discretion in
reinstating the information against petitioner in violation of her constitutionally
protected right against double jeopardy.
Nava v CIR
On 15 May 1951, Gonzalo P. Nava filed his income tax return for the year 1950,
and, on the same date, he was assessed by the CIR in the sum of P4k+ based
solely on said return.
Nava paid one-half of the tax due, leaving a balance of P2k+.
Subsequently, Nava offered his backpay certificate to pay said balance, but the
CIR refused the offer.
He requested the CIR to hold in abeyance the collection of said balance until the
question of whether or not he was entitled to pay the same out of his backpay
shall have been decided, but this was also rejected by the CIR in a reply letter.
This rejection was followed by two more letters or notices demanding payment
of the balance thereof, the last of which was dated 22 February 1955.
After investigation of Nava's 1950 income tax return, the CIR issued a deficiency
income tax assessment notice requiring Nava to pay not later than 30 April 1955
the sum of P9k+, included the balance of P2,491.00, still unpaid under the
original assessment, plus a 50% surcharge.
Several notices of this revised assessment are alleged to have been issued to the
taxpayer, but Nava claims to have learned of it for the first time on 19 December
1956, more than five years since the original tax return was filed, and testified to
that effect in the CTA.
CTA ruled that the right of the CIR to collect had not yet prescribed and only
reduced the amount due from Nava. Nava appealed to the SC.
I: W/n the enforcement of the tax assessment has prescribed.
R: YES, the tax assessment had prescribed.
The CTA, in making its decision, relied solely on the duplicate copy of the
deficiency income tax notice found in the BIR office file of Nava. On the
corresponding blank space for the date of issue, the duplicate copy was typed
3/30/55.
Nava denied having received the original copy of the said notice.
CIR failed to rebut this with competent evidence and witnesses.
Thus, contrary to CTAs finding, the CIR utterly failed to prove by substantial
evidence that the assessment notice dated 30 March 1955 and other supposed
written demand letters / notices subsequent thereto were in fact issued / sent to
the taxpayer.
The presumption that a letter duly directed and mailed was received in the
regular course of mail cannot be applied to the case at bar. For the presumption
to apply 1) the letter must be properly addressed with postage prepaid, and (b)
it must be mailed.
NONE of these requirements were shown, so there is NO valid and effective
issuance or release of said deficiency income tax assessment notice dated 30
March 1955 and of the other demand letters or notices subsequent to it (latest of
which was purportedly sent on 25 August 1956).
THUS, these dates cannot be reckoned with in computing the period of
prescription within which a court action to collect the same may be brought.
It being undisputed that an original assessment of Nava's 1950 income tax
return was made on 15 May 1951, and no valid and effective notice of the reassessment having been made against the petitioner after that date (15 May
1951), it is evident that the period under Section 331 of the Tax Code within
which to make a re-assessment expired on 15 May 1956.
Mere notations made without the taxpayer's intervention, notice, or control,
without adequate supporting evidence, cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or
defense.
RP v CA
BIR sent a demand letter to Nielson & Co on July 16, 1955 (1st LETTER) for
deficiency taxes (ad valorem, annual occupation fees, residence tax and
surcharges). The letter was sent through ordinary mail. The original letter was
NOT returned to the BIR.
BIR reiterated its demand through THREE letters, one of w/c was dated Sept 19,
1956 (2nd letter).
Nielson did NOT heed the demand so BIR filed a complaint for collection w/ the
CFI.
Case was dismissed for failure to serve summons. The case was subsequently
refiled.
Nielson claims that the assessment did NOT become final since it did not receive
the same.
BIR claims that since the assessment was sent through ordinary mail and it was
never returned to BIR, it must be considered to have been received by Nielson
upon the expiration of 5 days after mailing.

I: W/n the assessment was properly served upon Nielson and became final
R: YES, the assessment was properly served and became final.
While it is correct that a mailed letter is deemed received by the addressee in the
ordinary course of mail, stilt this is merely a disputable presumption, subject to
controversion, and a direct denial of the receipt thereof shifts the burden upon
the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.
Since the BIR had not adduced proof that Nielson had in fact received the 1st
demand letter, it cannot be assumed that Neilson received the said letter.
HOWEVER, records show that BIR sent a follow-up letter dated Sept 19, 1956
reiterating its demand for the payment of taxes as originally demanded in the 1st
letter.
The 2nd letter is considered a NOTICE OF ASSESSMENT in itself, w/c was duly
received by Nielson in accordance w/ its own admission.
Under Section 7 of RA 1125, the assessment is appealable to the CTA w/in 30
DAYS from receipt of the letter.
The taxpayer's failure to appeal in due time, as in the case at bar, makes the
assessment in question final, executory and demandable.
Thus, Nielson is now barred from disputing the correctness of the assessment or
from invoking any defense that would reopen the question of its liability on the
merits.
CIR v Western Pacific Corp
On March 2, 1959, the respondent Western Pacific Corporation, was assessed for
P3,731.00, as deficiency income tax for the year 1953.
This assessment was brought about by the disallowance of certain amounts in

Western's return for 1953 of expense items, and bad debts. The assessment was
received by respondent on the same date (March 2, 1959).
THREE days later, CIR wrote Western a letter of demand for the payment of the
amount, including therein a breakdown of said assessment.
Almost FOUR months after, Western, through an auditing firm, requested for
non-assessment. It calims that the period for making the assessment had
prescribed.
CIR denied the request on July 30, 1959 and reiterated its demand for payment
of the amount w/in 30 DAYS from receipt.
After a number of communications between the parties, CIR made a final

demand for payment on Oct 28, 1959.
Western, on Dec 18, 1959, filed w/ the CTA a petition for review of the
assessment. It argued that the period for making the assessment had already
prescribed.
CTA rendered judgment absolving Western from the assessment.
HOWEVER, it ruled out prescription, stating that March 2, 1959, was the last day
of the 5 year period within which to make the assessment. Although the last day
was IN FACT Feb 28, 1959, this was a Saturday. Thus, the official act, in this
case, the making and issuance of an assessment, could be done the NEXT
SUCCEEDING BUSINESS DAY, w/c was March 2, a Monday. This was pursuant to
the Revised Admin Code and RA 1880.
On appeal, CIR contended that the CTA erred in taking cognizance of the case,
given that it lacked jurisdiction.
I: W/n the period for making and issuing the assessment has prescribed
R: NO, the period has not yet prescribed.
RA 1880, as implemented by EO 25, ordains that all bureaus and offices of gov
shall hold office only 4 days a week or from Mon to Fri.
Sat and Sun are considered public holidays.
Thus, where the last day for issuing a tax assessment falls on a Sat, it may be
validly issued the following business day, a Monday.
As to the PETITION FOR REVIEW FILED w/ CTA: The assessment should
be maintained because when the petition for review was brought to the CTA, the
court no longer had jurisdiction to entertain the same. THE ASSESSMENT HAD
LONG BECOME FINAL.
A petition for review should be presented, within the reglementary period, as
provided for in Section 11, Republic Act No. 1125, which is 30 DAYS from
RECEIPT of assessment. The 30-day period is jurisdictional.
In this case, more than 30 days had already lapsed from the time Western was
assessed to when it formally assailed the assessment.
Western was ordered to pay the assessment.
RP v Marsman Dev
Marsman Dev was a timber licensee with concessions in Camarines Norte.
An investigation was conducted on the business operation and activities of the

corporation leading to the discovery that certain taxes were due (from) it on logs
produced from its concession.
3 assessments were made by the BIR:

o
1st: Oct 1953: P13k+ for forest charges and surcharge for the
years 1945-49
o
2nd: Sept 1954: P45k+ was demanded from the defendant
corporation representing sales tax and surcharges
o
3rd: Nov 1954: P400+ representing surcharges
Marsman acknowledged the assessments through a letter, where it requested

that it be furnished w/ an itemized statement of the taxes, and gave notice of its
intention to question the validity and the legality of the assessments.
BIR told Marsman that it must, within 10 DAYS, comply w/ the requirements for
requests for reinvestigation and reexamination of tax assessments.6
Marsman asked for an exemption from this requirements, which was denied by
the BIR.
BIR then reiterated that Marsman had 5 days to comply otherwise assessment
shall become final.
Marsman failed to act on this.
Final tax notices were sent to Marsman on April 1956.
A warrant of distraint and levy was issued 3 months later.
BIR filed a case with the CFI of Manila which ordered Marsman to pay the total
assessed amount of P53,133. Hence this appeal.
I: W/n the BIRs right to assess and collect taxes from 1945-1959 had prescribed
R: NO, BIRs right to assess and collect taxes from 1945-1959 had not yet
prescribed.
Marsman contends that CIR had only 5 years within which to assess the
percentage and forest charges herein involved.
For the filing of a return to be reckoned as the starting point of the period to
make an assessment, such return must have been substantially complete. There
was no showing that Marsman indeed filed a return, and even if it did, the
alleged return was incomplete.
Thus, in case of a false or fraudulent return, the period to make an assessment

is 10 YEARS. Assessment was made w/in the 10 YEAR period.
As to the prescription of the right to collect on the 2nd assessment
Amendedcomplaints are deemed filed only on the date of its admission; when it
comes to substantive matters such as prescription, the admission retroacts to the
day it was actually filed, which in this case was Aug 1959, STILL w/in the 5 year
period to collect.
6
Writing under oath specifying grounds relied on and other necessary docs
As to the prescription of the suit against Marmsans liquidator

Section 77 of the Corporation Law provides for a three-year period for the
continuation of the corporate existence of the corporation for purposes of
liquidation.
HOWEVER, there is nothing in the said provision which bars an action for the
recovery of the debts of the corporation against the liquidator, after the lapse of
the said three-year period.
The Government became a creditor of Marsman even before the dissolution by
the liquidation of its assets. By virtue of his being liquidator, Burgess became
TRUSTEE of the assets of Marsman for its creditors, w/c already included the
government.
CIR v Phoenix Assurance
Phoenix Assurance Co is a British insurance corporation licensed to do business

in the Philippines. It is engaged in worldwide reinsurance with various foreign
insurance companies.
It agreed to cede a portion of premiums received on original insurances

underwritten by its head office, subsidiaries, and branch offices throughout the
world, in consideration for assumption by the foreign insurance companies of an
equivalent portion of the liability from such original insurances.
Phoenix filed its income tax returns from 1952 to 54, making amendments
(1955) to the originals (1953, 54, 55).
On May 6,1958, CIR assessed Phoenix withholding tax and on Aug 1, 1958,
deficiency income tax for the years 1952 and 1954.
The deficiency income tax resulted from the disallowance by the CIR to fix head
office expenses allocable to its business in the Phils at 5% of gross Phil income.
CIR insisted that the deduction is 5% net of Phil income.
Phoenix protested and CIR denied it.
CTA said that the right of the CIR to assess deficiency taxes had already
prescribed.
I: W/n prescription had set in against the CIR
R: NO.
Period given by the Tax Code for the CIR to assess income tax is 5 YEARS from
the filing of the income tax return.
CTA ruled that the original return was a complete one containing info on various
items of income and deduction from w/c the CIR determines the tax liability of
Phoenix. THIS IS WRONG.
The CIR could not have made a correct assessment of Phoenixs tax liability
based on the original return.
The deficiency assessment was based on the amended return which is

SUBSTANTIALLY DIFFERENT from the original return.
THUS, the right to issue the assessment must be counted from the filing of the
AMENDED income tax return.
Counting from the date of amendment of the return (1955) to the date of
assessment (1958), it can be seen that CIRs power to assess the tax liability is
WITHIN 5 YEARS.
To hold otherwise would pave the way for taxpayer to evade the payment of
taxes simply reporting in their original return heavy losses and amending the
same more than 5 years later when the Commissioner has lost his authority to
assess the proper tax there under.
The object of the tax code is to impose taxes for the needs of the government,
not to enhance tax avoidance to its prejudice.
Butuan Sawmill v CTA
Butuan sold logs to Japanese firms at prices FOB Vessel Magallanes.
FOB prices included costs of loading, wharfage stevedoring and other costs in
the Philippines; that the quality, quantity and measurement specifications of the
logs were certified by the Bureau of Forestry. Freight was paid by the Japanese
buyers via a Letter of Credit.
Upon investigation by the BIR, it was ascertained that no sales tax return was
filed by Butuan, and neither did it pay the corresponding tax on the sales.
Butuan was assessed for P40k+ for sales tax, penalty and compromise penalty
on its sales of logs, later on reduced to P38k+ after reinvestigation.
LC upheld the legality and correctness of the assessment since the sales were
domestic and thus subject to our tax made w/in the 10 year period prescribed by
law, since the company FAILED to file its sales returns from 1951-1953, the
omission of w/c was only discovered on Sept 27, 1957.
I: W/n the sale was subject to sales tax YES
W/n assessments were made w/in the prescriptive period- YES
R: YES, sale was subject to sales tax.
Butuan contends that the disputed sales were consummated in Japan, and,
therefore, not subject to the taxing jurisdiction of our Government. The
contentions of petitioner are devoid of merit.
It is clear that said export sales had been consummated in the Philippines and
were, accordingly, subject to sales tax therein."
YES, assessments were made w/in prescriptive period.
An income tax return cannot be considered as a return for compensating tax for
purposes of computing the period of prescription under Section 331 (5-year
period to make an assessment) of the Tax Code.
The taxpayer must file a return for the particular tax required by law in order to
avail himself of the benefits of Section 331.
If he does not file a return, an assessment may be made within 10 years from
and after the omission to file a return under Sec 332a.
In this case, the omission to file sales return for the years 1951 to 1953 were
discovered in Sept 17, 1957, still w/in the 10-year period. Thus, the assessment
and collection of tax has NOT YET prescribed.
Taligaman Lumber v CIR
Taligaman Lumber, a domestic corporation is engaged in the business of cutting

logs in its concessions and converting said logs into lumber, as well as buying
logs from other concessionaires.
Upon examination of the books of account of the Grace Park branch, an agent of
the BIR recommended, on December 23, 1953, an assessment of P134k+ as
deficiency sales tax on the sales made in said branch for the years 1948 to 1952.
Upon reexamination of said books of account, the agent recommended a

reduction of the assessment to P93k+, plus 25% surcharge.
After a reinvestigation, the amount was further reduced to P66k+.
Meanwhile, another internal revenue agent examined the records of the Butuan
City branch and as a consequence, the sum of P98k+ was assessed as deficiency
sales tax, surcharge and penalties due on the sales made in said branch for the
period from 1948 to 1953.
Upon reinvestigation, the assessment was reduced to P39k+.
Upon refusal of the CIR to reconsider or modify either assessment, Taligaman

brought the matter for review to the CTA, w/c reduced the amt to about P86k+.
I: W/n the right of the BIR to collect deficiency taxes for 1948 and 1949 is
already barred by prescription
R:
Since prescription is one of the affirmative defenses set up by Taligaman herein,

it was incumbent upon Taligaman, if it wanted to avail itself of the benefits of
section 331 (5-year period to prescribe), to prove that it had submitted said
returns.
HOWEVER, it failed to do so, and it must be concluded that no such returns had
been filed and that the Government had 10 years within which to make the
corresponding assessments, based on Sec332 a (false / fraudulent return w/
intent to evade tax or failure to file a return).
Taligaman contends that the gov had admitted impliedly that Taligaman had
declared its receipts, though not correctly, thus relieving Taligaman of the
burden of proving that it had filed the corresponding returns because of the
phrase in its answer: petitioner had failed to declare its correct taxable receipts
during the years in question.
HOWEVER, the phrase next following is: Hence, the assessment and collection
of said taxes are authorized under the provisions of section 332 of the National
Internal Revenue Code."
In short, the Government relied upon the "failure to file a return", referred to in
said section 332, not to mere inaccuracies in the return filed, which fall under
section 331.
Tan Guan v Nable
This case involves 2 assessments that Tan Guan is challenging:
Tan Guan and one Gonzalo Padua were the cashier and the president of one
Imperial, involved in the manufacturing of cigarettes.
On the first assessment: Imperial acquired bobbins of cigarette paper from

one Mabuhay Cigarette Factory (860 bobbins) and Seng Kee & Co. (300). On
July 30, 1951, Imperial then told the BIR that they delivered 300 bobbins
subsequently to one Marikina Cigarette Factory.
CIR however found that the subsequent sale to Marikina was fictitious hence,
they demanded specific taxes on the quantity of cigarettes that MIGHT be
produced from the 300 bobbins of paper acquired by Imperial on January 21,
1953.
On Feb 1953, Padua then gave his intention to appeal the assessment. However
when it reached the conference, nobody appeared on behalf of Imperial leading
for the CIR to issue a warrant of distraint which was left unserved for Padua had
no property to be distrained.
On October 1957, a criminal action for violation of the Tax Code was filed but
was subsequently dismissed for prescription.
Thereafter, on March 1958, Commissioner then demanded from Tan Guan (this
time it was against Tan Guan, after Padua) for the payment of the assessed
specific taxes of 72, 450 and a second assessment for specific taxes of 128,800.
On the second assessment: On December 5, 1950, Manufacturing Co. asked

permission from the CIR to sell bobbins of cigarette paper to Imperial. On July
23, 1952, a representative of Imperial claims that they never received the
bobbins that was supposed to be sold by Manufacturing Co.
However, Manufacturing Co. sought reconsideration for the assessment of

specific taxes and even presented testimony and documentary evidence to prove
delivery of the goods to Imperial. On March 20, 1958, CIR then assessed
Imperial 128,800 as specific taxes on the cigarettes that Imperial COULD HAVE
manufactured out of those 800 bobbins of cigarette paper. CIR then filed a civil
action on May 7, 1958 against Tan Guan.
Tan Guan then, who could not be located initially, filed an appeal on the distraint
of his properties claiming prescription of action.
I: W/n the action had prescribed
R: No, the action did not prescribe.
Tan Guan is claiming that first, the initial 72,400 assessment was made on
January 21, 1953 while the second action was filed on May 7, 1958 or beyond
the prescriptive period of 5 years.
However, in spite of what Tan Guan was claiming, the prescriptive action was
INTERRUPTED, firstly on February 1953 when Padua (on the first assessment)
appealed the disputed assessment of 72,400.
On the second assessment, there was no 5 years yet as the first assessment was
done on May 1953, while the second one was May 7 1958, clearly no 5 years
yet. Moreover, the prescriptive period of five (5) years applies only when a
return is filed. However, in the case of a false or fraudulent return with intent to
evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud,
or omission.
Since in this case, there was no return, the 10 year prescriptive period hasnt
lapsed yet!
ADDITIONAL NOTES: The prescriptive period may be interrupted by a
REQUEST FOR REINVESTIGATION w/c is granted; and if on the basis of such
reinvestigation, another assessment is made, the prescriptive period shall be
counted from the new assessment. HOWEVER, a mere request for
reinvestigation will NOT suspend the prescriptive period if not reconsidered/acted
upon.
CIR v Ayala Securities Corp
Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on
Sept 30, 1955.
Attached to its ITR was the audited financial statements showing a surplus of
P2M+.
Income tax due on the return was duly paid w/in the period prescribed by law.
CIR then advised Ayala for the assessment of P758k unpaid tax on its
accumulated surplus.
Ayala protested ate assessment and sought reconsideration given that the
accumulation was 1) for a bona fide business purpose and not to avoid
imposition of tax, and 2) assessment was issued beyond 5 yrs.
CTA and SC both held that the assessment was made beyond the 5-year period
and thus had no binding force and effect.
I: W/n the assessment was done beyond the prescriptive period
R: YES.
In this case, the applicable provision is NOT Sec 332a but Sec 331.
Sec 332 should apply when there is fraud / falsity on the return with intent to
evade payment of tax.
There is no evidence presented by the CIR in this case as to any fraud/falsity on

the return w/ intent to avoid payment.
Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala on March
22, 1961, was made BEYOND the 5 year period prescribed under Sec331 (Ayala
could file its income tax on or before Jan 1956 thus, assessment must be
made NOT later than Jan 1961). Thus, it was no longer binding on Ayala
Securities.
Phil Journalists v CIR
PJI filed its Annual Income Tax Return for the calendar year which ended
on December 31, 1994
August 10, 1995- Revenue District No. 33 of BIR issued Letter of

Authority to 2 of its officers to examine PJIs book of accounts and
accounting records for internal revenue taxes for period January 1, 1994 to
December 31, 2004
PJI was told that there were deficiency taxes, inclusive of surcharges,
interest and compromise penalty
August 29, 1997- Revenue District Officer Jaime Concepcion invited PJI to
send a representative to an informal conference on September 15, 1997 for
an opportunity to object and present documentary evidence relative to the
proposed assessment
Sept 22, 1997- PJIs comptroller executed a Waiver of Statute of

Limitation under NIRC (The document "waived the running of the
prescriptive period provided by Sections 223 and 224 and other relevant
provisions of the NIRC and consent[ed] to the assessment and collection of
taxes which may be found due after the examination at any time after the
lapse of the period of limitations fixed by said Sections 223 and 224 and
other relevant provisions of the NIRC, until the completion of the
investigation")
Oct 5, 1998- Assessment Division of the BIR issued Pre-Assessment

Notices which informed PJI of the results of the investigation finding that
petitioner had deficiency taxes (P136,952,408.97)
Dec 9, 1998-BIR issued Assessment/Demand No. 33-1-000757-94
Mar 16, 1999- a Preliminary Collection Letter was sent by Deputy

Commissioner Romeo S. Panganiban to the PJI to pay the assessment
within ten (10) days from receipt of the letter
November 10, 1999- Final Notice Before Seizure was issued by the same
deputy commissioner giving the PJI ten (10) days from receipt to pay
(received by PJI on Nov 24, 1999)
Nov 26, 1999- PJI asked BIR for a clarification how it became liable for tax
deficiency and sent a follow up letter asserting that its record did not show
receipt of Assessment/Demand No. 33-1-000757-94
Mar 28, 2000- PJI received Warrant of Distraint and Levy
May 12, 2000- PJI filed a Petition for Review with the CTA. One of its
grounds was that the assessment, having been made beyond the 3-year
prescriptive period was null and void
CTA ruled that the assessments were issued beyond the 3 year
prescriptive period and that the Waiver of Statute of Limitations
null and void (unlimited for not containing expiry date, failed to state the
date of acceptance by the BIR and PJI was not furnished a copy- all
contrary to RMO 20-90)
CA reversed the CTA and ruled in favor of PJI.
I: 1) W/n there was a valid waiver of the statute of limitations

R: NO. Thus, assessment was issued BEYOND the prescriptive period.
The waiver of the statute of limitations is not a waiver of the right to invoke the
defense of prescription as erroneously held by the Court of Appeals.
It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain.
The waiver does NOT mean that the taxpayer relinquishes the right to invoke
prescription unequivocally particularly where the language of the document is
equivocal.
For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being a remedial measure,
should be liberally construed in order to afford such protection. As a corollary,
the exceptions to the law on prescription should perforce be strictly construed.
RMO No. 20-90 implements the provisions of NIRC relating to the period of
prescription. The waiver must be in the form identified. The phrase "but not after
_________ 19___" should be filled up. This indicates the expiry date of the
period agreed upon to assess/collect the tax after the regular three-year period
of prescription.
The period agreed upon shall constitute the time within which to effect
the assessment/collection of the tax in addition to the ordinary
prescriptive period.
Waiver must be signed by the National Office Commissioner for taxes more than
P1M, or the Regional District Officer for taxes still pending and period to assess is
about to prescribe, regardless of amount.
THE WAIVER WAS INVALID FOR THE FOLLOWING REASONS:
o
It does not conform with the provisions of RMO No. 20-90. It did not specify
a definite agreed date between the BIR and petitioner, within which the
former may assess and collect revenue taxes. Thus, petitioners waiver
became unlimited in time, violating Section 222(b) of the NIRC.
o
defective from the government side because it was signed only by a
revenue district officer, not the Commissioner, as mandated by the NIRC
and RMO No. 20-90
o
PJI was not furnished a copy of the waiver.
RP v Lim de Yu
Rita Lim de Yu filed her yearly income tax returns from 1948 through 1953.
BIR assessed the taxes due on each return, and Rita paid them accordingly. On
July 17, 1956 the Bureau issued to Rita deficiency income tax assessments for
the years 1945 to 1953 in the total amount of P22,450.50.
She protested the assessments and requested a reinvestigation.
On August 30, 1956 she signed a "waiver" of the statute of limitations under the
Tax Code as condition to the reinvestigation requested. In the waiver, Rita
consented to ASSESSMENT AND C OLLECTION if not made later than Dec 1958.
Even after reinvestigation, Rita failed in her contentions and was assessed 50%
surcharge.
Upon Rita's failure to pay, an action for collection was filed against her in the CFI
of Cotabato on May 11, 1959.
Lower court dismissed the case on the ground that right to collect had already
prescribed pursuant to the waiver.
I/R: 1) W/n lower court was correct in ruling that the deficiency income
taxes for 1948, 1949 and 1956 were NOT collected on time
YES, lower court was correct. Deficiency taxes were NOT collected on time.
Although Republic alleged that the returns were false and fraudulent (prescribing
10 yrs instead of 5), it FAILED to establish such allegation.
In fact, every time Rita filed her returns, and every time there was a
recomputation by the Bureau, she PAID the amounts due.
Even the Bureau itself appears none too sure as to the real amts of net income
for those years.
It is NOT enough that fraud is alleged as it must be duly established. Hence, the
10yr period for fraud cases cannot be availed of.
Also, the tax years 1948 to 1950 cannot be deemed included in the "waiver of
the statute of limitations.
Although Sec332 waiver provides fro an exemption to the code, such

AGEREMENT must be made BEFORE, and NOT AFTER the expiration of the
original period. It prevents prescription from attaching and does NOT operate to
authorize extension once prescription has attached.
Thus, the amounts were not collected on time.
2) W/n LC was correct in dismissing the case because the right to

collect had prescribed already pursuant to waiver
NO, LC was incorrect on this point.
Assessment and collection are 2 dif processes. Sec331 gives gov 5 years from
filing of return within w/c to assess taxes due. Sec332b allows extension of this
agreement by WRITTEN AGREEMENT between taxpayer and CIR.
On the other hand, par.c. is concerned w/ collection of taxes after assessment,

regardless of whether made during 5yrs or UPON extension.
Hence, collection can be affected w/in 5 yrs OR the agreed upon extension
between taxpayer and commissioner.
Thus, assessment and collection if made not later than Dec 1958 should be
deemed to refer merely to the right to assess and NOT to collect, for it that were
so, agreement would LIMIT instead of extend the right to collect.
RP v Heirs of Cesar Jalandoni
Isabel Ledesma died intestate leaving real properties and personal properties
consisting of shares of stock in various domestic corporations.
She left as heirs her husband and 3 children.
On November 19, 1948, Cesar Jalandoni, one of the children, filed an estate and
inheritance tax return.
On the basis of this return, BIR made an assessment calling for payment of
estate and inheritance taxes, stating that the assessment was "to be considered
partial pending investigation of the return."
These sums were paid by Cesar Jalandoni.
A second assessment was made on January 27, 1953 by BIR showing that there
was due from the estate deficiency estate and inheritance taxes, respectively, for
which reason a demand was made on Bernardino Jalandoni stating therein that
the same was still "to be considered partial pending further investigation of the
return.
These amounts were paid by Bernardino Jalandoni.
BIR then conducted another investigation and this time it found (1) that the
market value of the lands reported in the return filed by Cesar Jalandoni was
underdeclared; (2) that seven sugar lands in Talisay-Silay were omitted from the
return the same having a market value of P100,200.00; and (3) the shares of
stock owned by the deceased in the Victorias Milling Company, HawaiianPhilippine Company and Central Azucarera de la Carlota, were underdeclared.
As such, the heirs were required to pay deficiency estate and inheritance taxes,
respectively, including accrued interests, with the warning that failure on their
part to pay the same would subject them to the payment of surcharge, interest,
and penalty for late payment of the tax.
B. Jalandoni wrote a letter to CIR setting up the defense of prescription in the

sense that the deficiency in the estate and inheritance taxes payment of which
was required therein can no longer be collected since more than five years
had already elapsed from the filing of the return invoking in his favor
Section 331 of NIRC.
CIR retorted claiming that the stand of counsel cannot be entertained for the
reason that, it appearing that the estate and inheritance tax return which was
filed by the administrator or by the heirs contained omissions which amount to
fraud indicative of an intention to evade payment of the proper tax due the
government, the taxes then being collected could still be demanded within 10
years from the discovery of the falsity or omission.
TC ordered Jalandonis to pay the amount.
I: W/n there was fraud w/c would make the assessment valid and the
prescriptive period 10 years
R: NO, There was no fraud and the assessment was filed BEYOND the
prescriptive period.
As to the sugarlands: Certainly if there is any mistake in the valuation made
by Jalandoni the same can only be considered as honest mistake, or one based
on excusable inadvertence, he being not an expert in appraising real estate.
Of the 7 lots, 3 were actually included in the return. The 3 lots were the most
valuable with total value of 86k. Total value of 7 lots was 90k. There was reason
therefore to believe that the omission was due merely to inadvertence.
The deficiency assessment, moreover, was made by the CIR more than five
years from the filing of the return, and experience shows that such an
intervening period is sufficiently long to warrant an increase in value of real
estate which is precisely what was found by the CIR with regard to the lands in
question. It is certainly an error to impute fraud based on an honest difference of
opinion.
As to the shares: The fact that the value given in the returns did not tally with
the book value appearing in the corporate books is not in itself indicative of fraud
especially when we take into consideration the circumstance that said book value
only became known several months after the death of the deceased.
Moreover, it is a known fact that stock securities frequently fluctuate in value
and a mere difference of opinion in relation thereto cannot serve as proper basis
for assessing an intention to defraud the government.
Tan Guan v CIR
Tan Guan and Sia Lin, Chinese nationals, organized and registered the Phil
Surplus Company, a general partnership.
Tan filed an income tax return declaring deductions for service of engine, freight
and steam hoist.
Acting upon a confidential report, that the company posted fictitious expenses in
its books to avoid taxes, BIR investigated the books of the partnership and
discovered expenses NOT covered by receipts, names of payees erased and
payees who did not report sums in question in their income tax.
Thus, BIR disallowed expense deductions in 1948. They were treated as the
income of individual partners and BIR assessed them deficiency income taxes
I: W/n the deductions should be allowed to absolve Tan from assessed

deficiency liability
R: No, deductions should NOT be allowed.
CIRs findings that the facts constituting fraud proven by the CTA were NOT
rebutted by the taxpayer.
Tan did NOT present evidence to disprove findings, considering that the
investigation was made PRIOR to the 5-year period to preserve and keep
receipts.
For failure to overcome the burden, Tan cannot claim the expenses as deduction
from gross income.
Also, since the tax return was fraudulent due to fictitious expenses, the CIR had
10 yrs to assess.
CIR did NOT lose its right to issue the assessment on 1957, which is WITHIN 10
years from 1954, when the fraud was discovered.
Aznar v CTA
The late Matias Aznar filed his income tax returns of 1945-1949.
The CIR, having his doubts on the veracity of the reported income of one who is
obviously wealthy, caused BIR Examiner Honorio Guerrero to ascertain the
taxpayer's (Matias Aznar) true income for said years by using the net worth and
expenditures method of tax investigation.
It was discovered that from 1946 to 1951, his net worth had increased every
year, much more than the income reported. The findings clearly indicated that
the taxpayer did not declare correctly the income reported in his income tax
returns for those years.
CIR notified the taxpayer of the assessed tax delinquency.
Taxpayer requested a reinvestigation which was granted.
After the reinvestigation, another deficiency assessment to the reduced amount

superseded the previous assessment and notice thereof was received by Aznar in
1955.
In Feb 1953, CIR through the City Treasurer of Cebu, placed the properties of
Aznar under distraint and levy to secure payment of the deficiency income tax in
question.
Aznar argues that NIRC Sec. 331 applies in this case. Section 331 provides for
five years limitation upon assessment and collection from the filing of the
returns.
He argues that since the 1946 income tax return could be presumed filed before
March 1, 1947 and the notice of final and last assessment was received by the
taxpayer on March 2, 1955, a period of about 8 years had elapsed, and the five
year period provided by law had already expired.
CIR asserted that the 10-year period should apply since this involved a false and
fraudulent return. CIR and CTA found that the very "substantial under
declarations of income for six consecutive years eloquently demonstrate the
falsity or fraudulence of the income tax returns with an intent to evade the
payment of tax."
I: 1) W/n the right of the CIR to assess deficiency income taxes for the years
1946-1948 had already prescribed at the time the assessment was made on
November 28, 1952
2) W/N the lower court erred in imposing the fraud penalty (surcharge of 50%).
Yes.
R: 1) YES, CIR still had the right to assess deficiency income taxes.
Right had NOT prescribed.
In the three different cases of (a) false return, (b) fraudulent return with intent
to evade tax, (c) failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of (a) falsity, (2)
fraud, (3) omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with
intent to evade tax, and failure to file a return is strengthened immeasurably by
the last portion of the provision which segregates the situations into three
different classes, namely falsity, fraud and omission.
That there is a difference between false return and fraudulent return cannot
be denied. While the first merely implies deviation from the truth, whether
intentional or not, the second implies intentional or deceitful entry with intent to
evade he taxes due.
The ordinary period of prescription of five years within which to assess tax
liabilities under Sec. 331 of the NIRC should be applicable to normal
circumstances, but whenever the government is placed at a disadvantage so as
to prevent is lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax, or failure to file
returns, the period of ten year provided for in Sec. 332 (a) NIRC, from the time
of the discovery of the falsity, fraud or omission even seems to be inadequate
and should be the one enforced.
There being undoubtedly false tax returns in this case, Sec. 332 (a) of the NIRC
should apply and that the period of ten years within which to assess petitioners
tax liability had not expired at the time said assessment was made.
2) YES, LC should Not have imposed fraud penalty.
Fraud cannot be presumed but must be proven. Fraudulent intent could not be
deduced from mistakes however frequent they may be, especially if such
mistakes emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities.
Matias Aznar undoubtedly filed his income tax returns for "the years 1946 to
1951 and those tax returns were prepared for him by his accountant and
employees. It also appears that petitioner in his lifetime and during the
investigation of his tax liabilities cooperated readily with the BIR and there is no
indication in the record of any act of bad faith committed by him.
The lower court's conclusion regarding the existence of fraudulent intent to
evade payment of taxes was based merely on a presumption and not on
evidence establishing a willful filing of false and fraudulent returns so as to
warrant the imposition of the fraud penalty.
The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by the law.
Thus, a mere mistake cannot be considered as fraudulent intent, and if both

petitioner and CIR committed mistakes in making entries in the returns and in
the assessment, respectively, under the inventory method of determining tax
liability, it would be unfair to treat the mistakes of the petitioner as tainted with
fraud and those of the respondent as made in good faith.
* Yas: So I guess in this case, petitioner was liable of FALSE return, but there was
NO fraud?
CIR v Ayala Securities Corp
An assessment made on 21 February 1961 by the CIR against the Ayala

Securities Corporation (and received by the latter on 22 March 1961) for
accumulated profit surplus for the fiscal year ending 1955.
CTA reversed the assessment of the 25% surtax and interest in the amount of
P758,687.04, and thereby cancelled and declared of no force and effect the
assessment of the CIR.
SC affirmed CTA decision and ruled that the assessment was made AFTER the
expiration of the said 5-year prescriptive period and was of no binding force and
effect.
The Commissioner moved for reconsideration, contending that the assessment to

be filed w/in 5-years only refers to taxes which have their basis the requirement
of law to be reported in a return. No law requires taxpayers to file returns of
their accumulated profits, as opposed to, for example, income taxes.
I: W/n BIR is mandated to make an assessment w/in 5 years from the filing of
the taxpayer of his return w/ regard to surtaxes on unreasonably accumulated
profits
R: No, it does not.
The provisions of sections 331 and 332 of the National Internal Revenue Code
for prescriptive periods of 5 and 10 years after the filing of the return do not
apply to the tax on the taxpayers unreasonably accumulated surplus under
section 25 of the Tax Code since no return is required to be filed by law or by
regulation on such unduly accumulated surplus on earnings. The 25% surtax is
not subject to any statutory prescriptive period.
A tax imposed upon unreasonable accumulation of surplus is in the nature of a

penalty. It would NOT be proper for the law to compel a corporation to report
improper accumulation of surplus.
Section 331 applies to assessment of NIRC taxes WHICH REQUIRES THE FILING
OF RETURNS. To start the running of the 5-year period, the return must be one
REQUIRED for the particular tax.
Thus, filing of income tax return does NOT start the running of prescriptive
period for assessment of SALES TAX (Butuan Sawmill, Inc. v. Court of Tax
Appeals)
No return could have been filed, and the law could not possibly require, for
obvious reasons, the filing of a return covering unreasonable accumulation of
corporate surplus profits.
It is well settled limitations upon the right of the government to assess and
collect taxes will not be presumed in the absence of clear legislation to the
contrary. In the absence of express statutory provision, the right of the
government to assess unpaid taxes is imprescriptible. Since there is no express
statutory provision limiting the right of the Commissioner of Internal Revenue to
assess the tax on unreasonable accumulation of surplus provided in Section 25 of
the Revenue Code, said tax may be assessed at any time.
The underlying purpose of the additional tax in question on a corporations
improperly accumulated profits or surplus is to avoid the situation where a
corporation unduly retains its surplus earnings instead of declaring and paying
dividends to its shareholders or members who would then have to pay the
income tax due on such dividends received by them.
Ayala Securities Corporation is a mere holding company of its shareholders
through its mother company, a registered co-partnership then set up by the
individual shareholders belonging to the same family. Said prima facie evidence
and presumption set up by the Tax Code is applied without having been
adequately rebutted by the corporation.
The Corporation falls under Revenue Regulation 2, implementing the provisions
of the income tax law which provides on holding and investment companies that
A corporation having practically no activities except holding property, and
collecting the income therefrom or investing therein shall be considered a holding
company within the meaning of section 25. (Section 20)
Guagua Electric Light Plant v CIR
Guagua Electric Light Plant Co is a grantee of municipal franchise by the

municipal council of Guagua.
Guagua realized and reported a gross income in the sum of P1M+ and paid
thereon a franchise tax computed at 5% in accordance w/ the NIRC.
Believing that it should pay franchise tax at the lower rates provided for in its
franchises instead of 5% fixed by Section 259 of the Tax Code, it filed a claim for
refund for allegedly overpaid franchise tax.
CIR denied refund of franchise tax corresponding to the period prior to the fourth
quarter of 1951 on the ground that the right to its refund had prescribed. He
however granted refund of P16k+.
Not satisfied, Guagua appealed to CTA.
CTA dismissed appeal upon motion of CIR on the ground that the same was
instituted beyond the 30-days, period provided for in Section 11 of Republic Act
1125.
CIR assessed against Guagua Electric deficiency franchise tax and later issued a
revised assessment eliminating deficiency tax for the period prior to January 1,
1956, as recommended.
I: W/n the government is precluded from recovering the amount refunded to it
on grounds of prescription and failure to set up as counterclaim in the CTA case
R: YES, gov can no longer recover the amount refunded to it.
CIR seeks recover of the amount of P16k+ alledly erroneously refunded to
Guagua Electric. It represents the diff between the tax computed at 5% pursuant
to Tax Code and 1% or 2% under its franchises from Sept 1951 to Nov 1956.
If Guagua were required to pay the P16k+ IN ADDITION to the P19k+, it would
be paying TWICE the same deficiency tax for the period from Jan to Nov 1956.
Moreoever, CIR revised his first deficiency tax assessment by eliminating the
deficiency tax for the period from Jan 1956 because the right to assess the same
had prescribed. By insisting on the payment of the P16k+, he is in fact trying to
collect the same deficiency tax, the right to assess the same he found
to have been lost by prescription.
Also, it is wrong for CIR to say that right to assess and collect is governed by
Civil Code (6 years). What governs is the Tax Code (special law should prevail
over general law).
The constitutionality of collecting franchise tax at the rate of 5% of the gross
receipts as provided for in the Tax Code instead of at the lower rates fixed by the
franchise granted under Act 667, has already been settled in several cases.
Guagua Electric, whose franchises were similarly granted under Act 667, being
similarly situated as the taxpayers-franchise holders in those cases already
decided by Us, shall likewise be subject to the 5% rate imposed in Section 259 of
the Tax Code.
Vera v Fernandez
Intestate estate of Tongoy was assessed deficiency income taxes from 1963 to
1964 inclusive of 5% surcharge, 1% monthly interest and compromise penalties.
The administrator opposed on the ground that the claim was barred for being
filed beyond the period prescribed in the ROC, Rule 86 (in settlement of estate,
taxes should be filed in administration proceedings as claims against the estate
as a regular money debt).
I: W/n Rule 86 of ROC (state of non-claims) bars the claim of gov for unpaid
taxes, even if period is still w/in the time in the NIRC
R: NO. Claim is NOT barred and gov can still collect w/in the prescriptive period.
Taxes are of an entirely different character from the claims (money claims
against the decedent) enumerated in the statute.
Under the familiar rule of statutory construction of expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not
mentioned.
The reason for the more liberal treatment of claims for taxes against a
decedent's estate in the form of exception from the application of the statute of
non-claims is that taxes are the lifeblood of the Government and their
prompt and certain availability are imperious need.
In fact, claims for taxes may be collected even AFTER the distribution of the
decedents estate among heirs who shall be liable in proportion to their share of
inheritance.
Payment of income tax shall be a lien in favor of the gov from the time the
assessment was made by the Cir until paid w/ interests, penalties, etc. Thus,
BEFORE inheritance has passed to heirs, unpaid taxes may be collected without
having been presented under the Rule 86 of the ROC.
Even assuming that claims for taxes have to be filed within the time prescribed in
Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even
AFTER the expiration of the time originally fixed.
In this case, gov filed its claim AFTER the expiration of the time allowed but
BEFORE the distribution of the estate. The claim SHOULD be allowed,
considering the claim is made for the people at large.
RP v Limcaco
Limcaco is engaged in the importation of cigarettes and, being such, owed the
government revenue taxes.
To guarantee their payment, the private respondents (Limcaco as the principal,

Visayan as the surety) executed two Importers bonds worth P3,000.
Upon arrival of their new shipment of cigarettes on July 15, 1946, the principal
was assessed a tax of P6,000, which they paidP1,000 in cash and P5,000 in
check. The cigarettes were released into their custody.
The check was subsequently dishonored for lack of funds.
On June 17, 1948, the CIR wrote Limcaco and demanded from him deficiency
tax due on the cigarettes, but it remained unpaid despite repeated demands.
They instead resorted to Visayan Surety for fulfillment.
Visayan Surety requested for the complaint which would be initiated against both
Visayan and Limcaco be temporarily suspended.
CIR filed a complaint praying for forfeiture of the importers bonds and payment
of the deficiency tax plus interest.
Defendants, however, interposed the defense of prescription and questioned the

validity of the assessment.
I: W/n there was prescription in the case.
R: NO, there was no prescription.
Being a complaint for taxes previously paid, compliance with Sec. 306 of the
NIRC must first be adequately performed.
A taxpayer must first file a claim for refund or tax credit with the CIR first before
maintaining a suit for recovery of tax alleged to be illegally or erroneously
assessed or collected. It is a condition precedent, failure to do so will subject the
claim to dismissal for lack of cause of action.
No evidence was shown to prove that Visayan complied with such a condition.
The counterclaim should have been dismissed.
Governments action has not prescribed. The collection of taxes should be done
within 5 years after assessment. The assessment was actually on June 17,
1948, the day when the demand letter was sent to Limcaco and Visayan, not
on the day they were originally supposed to pay for the taxes.
To assess means to impose a tax, to charge with a tax, to declare a tax to be
payable, to apportion a tax to be paid and contributed, to fix a rate, to fix or
settle a sum to be paid by way of tax, to set or charge a certain sum to each
taxpayer, and to settle or determine or fix the amount of tax to be paid.
The right to collect the deficient tax of P5,000 only accrued after the dishonor.
Judicial action having been instituted on February 18, 1953, the five year period
had not yet lapsed.
Even assuming that the earlier date is the date of assessment, there would still
be no prescription because the prescription was interrupted when there is
written acknowledgement of the debt by the debtor. Moreover, it is not a
collection of taxes but of the bonds, which is an action separate and distinct from
an action to collect taxes (this is an action upon a written contract, w/c must be
brought w/in 10 yrs from the time the right of action accrues).
RP v Ret
On February 23, 1949, Damian Ret filed with the BIR his Income Tax Return for
the year 1948, where he made it appear that his net income was only P2k+ with
no income tax liability at all.
The BIR found out later that the return was fraudulent since Ret's income,
derived from his sales of office supplies to different provincial government
offices, totaled P94k+.
The BIR assessed him deficiency income tax for 1948, inclusive of the 50%
surcharge for rendering a false and/or fraudulent return.
Ret failed to file his Income Tax return for 1949, notwithstanding the fact that he
earned a net income of P150k+, also from sale of office supplies. His income, as
assessed for tax purposes, showed a deficiency tax for 1949.
CIR demanded from Ret the payment of the above sums, but he failed and/or
refused to pay said amounts.
On January 20, 1951, the Collector issued income tax assessment notices to Ret,
urging him to pay the sums mentioned, but with the same result.
Upon recommendation of the Collector, Ret was prosecuted for a violation of

Sections 45[a], 51[d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof
(Crim. Cases Nos. 19037, and 19038. He pleaded guilty to the two (2) cases and
was sentenced to pay a fine of P300.00 in each.
After his conviction, the Republic filed the present complaint for the recovery of
Ret's deficiency taxes in the total sum of P103k+ plus 5% surcharge and 1%
monthly interest.
Instead of answering, he presented a Motion to Dismiss on February 8, 1958,

claiming that the "cause of action had already prescribed".
CFI held that the five-year period fixed by law for the filing of suit for the
collection of income tax having already expired, the plaintiff has no cause of
action against the defendant and the motion to dismiss should be and is hereby
granted, and the case is dismissed without pronouncement as to costs.
I: W/n right of BIR to collect income taxes had already prescribed
R: YES, cause of action has already prescribed.
Section 332 of the Revenue Code does NOT apply to income taxes if the
collection of said taxes will be made by summary proceedings, because this is
provided for by Section 51 (d); but if the collection of income taxes is to be
effected by court action, then section 332 will be the controlling provision.
The gov contends that granting the applicability of Sec 332, it has 10 yrs from
discovery of fraud, falsity or omission within w/c to file the action.
Under this section, the CIR is given 2 alternatives:
o
Assess tax WITHIN 10 YRS from discovery of falsity, fraud,
omission
o
File an action in court for the collection of tax WITHOUT
ASSESSMENT also WITHIN 10 YRS from discovery of falsity,
fraud, omission
In this case, the assessment has been made and this fact has taken it out of the
realm of Sec 332 (a) and placed it under Sec 332 (c) w/c provides that payment
must be made w/in 5 YEAR prescriptive period.
The CIR made the assessment on January 20, 1951 and had up to January 20,
1956 to file the necessary action. It was only on September 5, 1957, that an
action was filed in Court for the collection of alleged deficiency income tax far
beyond the 5-year period.
Gov was NOT prohibited from collecting deficiency income tax during
pendency of criminal cases. The present complaint against Ret is NOT for
the recovery of civil liability arising from the offense of falsification; it is for the
collection of deficiency income tax. The criminal actions are entirely separate and
distinct from the present civil suit. There is nothing in the law which would have
stopped CIR from filing this civil suit simultaneously with or during the pendency
of the criminal cases.
It is also averred that the period of prescription for the collection of tax
was suspended because of the written extrajudicial demand made by
the CIR.
HOWEVER, the only agreement that could have suspended the running of the
prescriptive period was a written agreement between Solano and the Collector,
entered before the expiration of the five (5) year prescriptive period, extending
the period of limitations prescribed by law.
In the instant case, there is no such written agreement.
RP v Razon
Haig Assadourian (an Egyptian national) was hired as general manager of Jai
Alai.
He eventually left the Phils for the USA after securing a tax clearance. He never
returned to the Phils.
Jai Alai through its VP Jose Razon entered into a contract w/ Assadourain (Ass)
where Jai Alai would pay Ass P200k as full payment of all his claim for
percentages earned by the Jai Alai from 1940-1945, as well as those to be
earned from 1946-1950 (for his services as general manager).
The same were by Jai Alai by telegraphic transfer and later by Sen. Madrigal, a
stockholder.
In 1949, the BIR discovered the failure to file a withholding tax return.
Thus, in 1952, it wrote a letter to Jai Alai demanding payment of taxes w/c Jail
Alai should have withheld on the P200k payment in accordance w/ the Tax Code
enclosing assessment notices.
Upon failure to pay, CIR commenced a collection suit in 1953.
I: W/n action for collection had prescribed
R: NO, action to collect had not yet prescribed.
For its omission / failure to file a withholding tax return, the applicable provision
of the then Tax Code is that a proceeding in court for collection may be filed
WITHOUT ASSESSMENT any time w/in 10 yrs from discovery of omission.
In this case, omission was discovered in 1949 during the investigation of the
BIR examiner.
The judicial suit was intitiated in 1953 impleading Jai Alai. Thus, only 4 years
had elapsed from the time of discovery of the omission to file a return
from filing a judicial suit. Action to collect had NOT prescribed.
OTHERS:
Assadourian was a nonresident alien not engaged in trade or business in the

Philippines, which means that he was within the purview of Section 53 (b) of the
then National Internal Revenue Code which requires any person or corporation in
control of his earnings as such nonresident alien to withhold 20% from such
annual or periodical gains, profits and income as tax.
With regard to the payment of Jai-Alai to Assadourian, it was held that it was not
merely for the purchase price of certain inchoate or contingent interest belonging
to him, but it was considered income where withholding tax is mandatory. This
is due to the fact that Assadourian, in consideration of the sum of 200,000.00,
acknowledged full payment of all his claim for percentages earned by the Jai-Alai
Stadium for the years 1940 to 1945, and to be earned during the years 1946 to
1950. Since Jai-Alai made payment directly to Assadourian, there is no doubt
that the former is liable for withholding tax.
Payment made by Sen. Madrigal was really payment made on behalf of Jai Alai.
RP v Acebedo
A notice of assessment was issued on September 24, 1949 to Felix Acebedo in

the amount of P5,962.83.
He asked for a reinvestigation on October 11, 1949.
There is no evidence that this request was considered or acted upon.
In fact, on October 23, 1950 the then CIR issued a warrant of distraint and levy
for the full amount of the assessment, but there was no follow up of this
warrant.
Acebedo again requested for a reinvestigation of his tax liability on October 6,
1951. Nothing came of this request either.
Acebedos lawyers then wrote the CIR informing him that the books of their
client were ready at their office for examination. The reply was dated more than
a year later, or on October 4, 1955, when the Collector bestirred himself for the
first time in connection with the reinvestigation sought, and required that the
defendants specify his objections to the assessment and execute "the enclosed
forms for waiver, of the statute of limitations."
The last part of the letter was a warning that unless the waiver "was
accomplished and submitted within 10 days the collection of the deficiency taxes
would be enforced by means of the remedies provided for by law.
CIR filed a complaint on December 27, 1961.
After Acebedo filed his answer but before trial started, he moved to dismiss
on the ground of prescription.
TC dismissed the complaint, saying that a mere request for reinvestigation or
reconsideration of an assessment does NOT have the effect of such suspension.
This is an appeal by the plaintiff from the order of dismissal.
I/R:
1) W/n the assessment begun prior to the expiration of the period
agreed upon in writing by the CIR and before the expiration of the 5year period
NO, the waiver of statute of limitations was ineffective because it was executed
BEYOND the 5-year limitation (in 1959).
2) W/n the period of prescription was suspended by Acebedos
requests for reinvestigation / reconsideration of tax assessment
NO. A mere request for reinvestigation / recon DOES NOT give an effect of
suspension. Otherwise, there would be no point to the legal reqment that
extension of the original period be agreed upon in writing.
HOWEVER, there are cases when taxpayer may be prevented from setting up
prescription even if he has waived it in writing as when by his repeated requests
/ positive acts, the gov has been persuaded to postpone collections to make him
feel that the demand was NOT unreasonable / that no harassment / injustice is
meant.
When a taxpayer asks for a reinvestigation of the tax assessment issued to him
and such reinvestigation is made, on the basis of which the Government makes
another assessment, the five-year period with which an action for collection may
be commenced should be counted from this last assessment.
In this case, the delay in collection could not be attributed to Acebedo at all. His
requests in fact had been unheeded until then, and there was nothing
to impede enforcement of the tax liability by any of the means
provided by law.
By October 4, 1955, more than five years had elapsed since assessment
in question was made, and hence prescription had already set in,
making subsequent events in connection with the said assessment entirely
immaterial.
Even the written waiver of the statute signed by the defendant on December 17,
1959, which was the only evidence presented , could no longer revive the right
of action, for under the law such waiver must be executed within the original
five-year period within which suit could
CIR v CA
January 15, 1982 and November 20, 1981: Carnation filed its Corporation Annual
Income Tax Return and its Manufacturers/Producers Percentage Tax Return
respectively for the quarter ending September 30, 1981.
In 1987, Carnation, through its Senior Vice President, signed three separate
"WAIVERS of the Statute of Limitations Under the National Internal Revenue
Code" wherein it waived the running of the prescriptive period provided for in
provisions of the NIRC and consents to the assessment and collection of the
taxes which may be found due after reinvestigation and reconsideration at
anytime before or after the lapse of the period of limitations fixed the provisions
of the NIRC, but not after (13 April 1987 for the earlier-executed waiver, or June
14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the
case may be).
However, the taxpayer does not waive any prescription already accrued in its
favor.
The waivers were not signed by the BIR Commissioner or any of his
agents.
Carnation received BIR's letter of demand asking the said corporation to pay
deficiency income tax, deficiency sales tax and deficiency sales tax on undeclared
sales, all for the year 1981. This demand letter was accompanied by 3
assessment Notices.
Carnation disputed the assessments and requested a reconsideration and

reinvestigation thereof.
CIR contends that the waivers signed by Carnation were valid although not
signed by the BIR Commissioner because:
o
(a) when the BIR agents/examiners extended the period to audit and
investigate Carnation's tax returns, the BIR gave its implied consent to such
waivers;
o
(b) the signature of the Commissioner is a mere formality and the lack of it
does not vitiate binding effect of the waivers; and
(c) that a waiver is not a contract but a unilateral act of renouncing ones
right to avail of the defense of prescription and remains binding in
accordance with the terms and conditions set forth in the waiver
CTA held that assessment Notices are NULL AND VOID for having been issued
beyond the five-year prescriptive period provided by law.
I: W/n the 3 waivers signed Carnation are valid and binding as to toll the running
of the prescriptive period for assessment and not bar the Government from
issuing subject deficiency tax assessments?
R: NO, the waivers are NOT valid. The prescriptive period is NOT suspended.
Sec. 203 of the National Internal Revenue Code, the law then applicable provides
that Except as provided in the succeeding section, internal revenue taxes shall
be assessed within five years after the return was filed, and no proceeding in
court without assessment for the collection of such taxes shall be begun after the
expiration of such period. For the purpose of this section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on
such last day: Provided, That this limitation shall not apply to cases already
Carnations income 1981 with income and sales taxes could have been validly
assessed only until January 14, 1987 and November 19, 1986, respectively. In
other words the assessments by the CIR should be passed from:
January 15, 1982 up to January 12 1987 only
November 20, 1981 up to November 19, 1986 only

However, Carnations income and sales taxes were assessed only on July 29, 1987,
beyond the five-year prescriptive period.
ALSO, Section 319 of the Tax code is clear and explicit that the waiver of the fiveyear prescriptive period must be in writing and signed by both the BIR
Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do NOT bear the written consent of
the BIR Commissioner as required by law.
These "waivers" to be invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent by the CIR.
Neither implied consent can be presumed nor can it be contended that the waiver
required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said
that concurrence to such an agreements a mere formality because it is the very
signatures of both the Commissioner of Internal Revenue and the taxpayer which
give birth to such a valid agreement.
o
RP v Lopez
BIR made an assessment on Benito Lopez resulting in a deficiency income tax of

245k.
Lopez moved for a reconsideration of the assessment.
BIR eventually complied and reduced the amount.
After that, Lopez manifested that he will settle the obligation by the end of the
month. However, he pleaded for another reinvestigation.
BIR against granted the request and lessened the deficiency amount to 25k.
Notwithstanding the reduction, Lopez again requested for a 3rd reinvestigation.
BIR agreed on the request provided that Lopez waives the statue of limitations.
Lopez countered that the BIR should then finish the investigation by Dec 31,
1957 or else the case would prescribe.
Ignoring the deadline set by Lopez, BIR issued the assessment on March 23,
1960.
Due to non-payment of tax several times, a collection suit was filed against
Lopez. Lopez moved to dismiss the case on the ground of prescription. The CFI
granted the motion and dismissed the case.
I: W/n the deadline set by Lopez (Dec 31, 1957) would be binding and operative.
R: NO, the deadline is NOT binding and operative.
The 5-year prescriptive period within which the Govt may sue to collect tax is to
be counted from the last revised assessment due to taxpayers request for
reinvestigation and the time employed in the reinvestigation should be deducted
from the total period of limitation.
In this case, the 5-year limitation has not yet elapsed. If the period from the time
of first reinvestigation up to the time of filing of the collection complaint (4 years
3 months 6 days) is deducted from the total period of limitation period (6 years 2
months and 15 days), the total prescriptive would still be less than 5 years (1
year 3 months and 6 days).
The deadline set by the taxpayer, which technically reduces the prescriptive
period against the Govt, cannot be binding as it works to the detriment of the
state, which diminishes the opportunities of collecting taxes due to the Govt. But
even if the date was binding, the period would still be less than 5 years due to
deductions caused by reinvestigation.
The proper remedy of the taxpayer was to appeal the ruling to the CTA, not
request for another reinvestigation. The failure to appeal to the CTA constitutes
a waiver of the defenses and estops the taxpayer from raising objections
thereafter.
The Court took note of the extraordinary reduction of the deficiency tax from
245k to 20k, which evidences carelessness of the BIR in making grossly
excessive assessments. It also observed the BIRs toleration repeated request for
reinvestigation. Irregularities of this kind provoke suspicion over the competency
and honesty of Revenue Officials. It is expected that immediate and drastic steps
to stop such practices shall be exercised promptly.
RP v Ker & Company
BIR examined and audited Kers returns and books of accounts and issued
assessment for deficiency income tax form 1947 to 1950 due and payable on
dates indicated in the accompanying notice e of assessment.
The assessments from 1948 to 1950 carried a surcharge of 50% under Sec 72 of
the Tax Code for filing of fraudulent returns.
BIR demanded payment together w/
Ker refused to pay and set up defense of prescription of CIRs right to collect.
CFI dismissed the claim for collection of deficiency taxes for 1947 but ordered
Ker to pay deficiency taxes from 1948 to 1950.
Republic filed a motion for recon contending that CIRs right did NOT prescribe
because taxpayers income tax return was fraudulent, in w/c case prescription
sets in 10 YRS from DATE of discovery of fraud.
Motion was denied.
I/R:
1) W/n CIRs right to assess deficiency income tax for 1947 already
prescribed
YES, assessment for 1947 was issued 5 YEARS, 3 MONTHS AND 13 DAYS from
date return was filed.
Republic did NOT allege fraud nor present evidence to prove it.
Since 1947 assessment had become final and executory, Ker can no longer raise
defenses w/c go into merits of assessment like prescription of CIRs right to
assess tax.
2) W/n filing of petition for review by Ker in CTA suspended the
running of the prescriptive period to collect deficiency income from
1948 to 1950
YES, filing of petition for review suspended running of prescriptive period.
Under Section 333 of the Tax Code, the running of the prescriptive period to
collect the tax shall be suspended for the period during which the Commissioner
of Internal Revenue is prohibited from beginning a distraint and levy or
instituting a proceeding in court, and for sixty days thereafter.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the CTA,
the CIR was prevented, from filing an ordinary action in the Court of First
Instance to collect the tax. Besides, to do so would be to violate the judicial
policy of avoiding multiplicity of suits and the rule on lis pendens.
ALSO, note: surcharge and interest shall accrue from the time the tax became
due = thus, DATE OF ASSESSMENT as shown in assessment notice (not date of
complaint)
RP v Arache
In 1958, Republic filed an action against Joseph Arache (principal) and Globe
Assurance Co (surety) for the forfeiture of the surety bond executed to them to
secure payment for the sum of P22k+ representing Araches income tax for 1946
and surcharge plus interest.
Arache interposed the defense of prescription and alleged that he was compelled
against his will to execute the surety bond sought to be forfeited, because BIR
refused to issue him a tax clearance w/c he needed to make a business trip
abroad.
Globe likewise adopted the same defenses as that of its co-defendant, Arache.
Court ruled in favor of Republic, ordering Arache and Globe to pay CIR solidarily
w/ interest.
I: W/n Arache may validly invoke prescription
R: NO, the defense of prescription cannot be invoked.
A taxpayer may be prevented from setting up the defense of prescription even if
he has no previously waived it in writing as when by his repeated requests or
positive acts, the Government has been, for good reasons, persuaded to
postpone collection to make him feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Government.
And when such situation comes to pass there are authorities that hold, based on
weighty reasons, that such an attitude or behavior should not be countenanced if
only to protect the interest of the Government.
In this case, the delay in the collection of his 1946 tax liability was due to
Araches own repeated requests for reinvestigation and similarly repeated
requests for extension of time to pay.
Arcache admitted in writing his tax obligation and promised to pay the same, not
once but several times even after the date when according to him the
government's right to collect had already prescribed.
In fact, he not only made such repeated promise to settle his account but he
actually made two partial payments, the first of P2,000 and the last P1,000.
Moreover, it is to be noted that the present action was filed for the forfeiture of
the bond in satisfaction of the tax obligation. Thus, the action is for the
enforcement of a written contractual obligation, for which the prescriptive period
is ten years which in this case had not yet elapsed when the action was filed.
It is already settled in this connection that the giving of a bond as a condition of
an extension of time for the payment of income tax, even after the collection of
the tax as such was barred by the statute of limitations, does not preclude
recovery on the bond.
LEARNING: The taxpayer may be ESTOPPED from claiming prescription when
he asks for a reinvestigation of the tax assessment issued to him and such
reinvestigation is made.
Phil National Oil Co v CA
Tirso Savellano submitted a sworn statement to the BIR informing them that PNB
failed to withold 15% final tax on interest earnings and/or yields from the money
placements of PNOC with the said bank, in violation of PD1931, w/c withdrew all
tax exemptions of government-owned and controlled corporations.
BIR requested PNOC to settle its liability for taxes on the interests earned by its
money placements with PNB and which PNB did not withhold.
PNOC proposed to BIR compromise its tax liability, by setting-off its tax liability
against a claim for tax refund/credit of the NAPOCOR. then pending with the BIR
(P335k+). The amount of the claim for tax refund/credit was supposedly a
receivable account of PNOC from NAPOCOR.
On Oct 8, 1986, BIR sent a demand letter to PNB, as withholding agent, for the
payment of the final tax on the interest earnings and/or yields from PNOC's
money placements with the bank. On the same date, the BIR also mailed a letter
to PNOC informing it of the demand letter sent to PNB.
After several negotiations between BIR and PNOC, they agreed to a compromise
regarding the tax liability of PNOC.
Savellano was paid by the BIR a tax equal to15% of the amount in the
compromise agreement.
I: W/n the right of BIR to assess and collect the income tax had already
prescribed
R: No, BIR's right had NOT yet prescribed.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in
conjunction with one another:
o
Section 268 requires that assessment be made within three years
from the last day prescribed by law for the filing of the return.
o
Section 269(c), on the other hand, provides that when an
assessment is issued within the prescribed period provided in
Section 268, the BIR has three years, counted from the date of
the assessment, to collect the tax assessed either by distraint,
levy or court action.
Therefore, when an assessment is timely issued in accordance with
Section 268, the BIR is given another three-year period, under Section
269(c), within which to collect the tax assessed, reckoned from the
date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on October
8, 1986, so that the BIR had until October 7, 1989 to enforce it and to collect
the tax assessed. The filing, however, by Savellano of his Amended
Petition for Review before the CTA on July 2, 1988 already constituted
a judicial action for collection of the tax assessed which stops the
running of the three-year prescriptive period for collection thereof. A
judicial action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for.
The present case is unique, however, because the Petition for Review was filed
by Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the
collecting government agency; PNOC, the taxpayer; and PNB, the withholding
agent, initially found themselves on the same side. Savellano, in his Amended
Petition for Review w/ the CTA prayed for (1) the CTA to direct the BIR
Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay
the tax making the said CTA Case7 a collection case.
It is immaterial that the Amended Petition for Review was filed by the informer
Savellano and NOT the taxpayer; and that the prayer for the enforcement of the
tax assessment and payment of the tax was also made by the informer, not the
BIR. This should not affect the nature of the case as a judicial action for
collection. What is controlling here is the fact that the BIR Commissioner cannot
file a judicial action in any other court for the collection of the tax because such
a case would necessarily involve the same parties and involve the same issues
already being litigated before the CTA in the said case. The three-year
prescriptive period for collection of the tax shall commence to run only
after the promulgation of the decision of this Court in which the issues
of the present case are resolved with finality.
In case the CTA grants the Petition and the prayer therein, as what has
happened in the present case, the ultimate result would be the collection of the
tax assessed. Consequently, upon the filing of the Amended Petition for Review
by private respondent Savellano, judicial action for collection of the tax had been
initiated and the running of the prescriptive period for collection of the said tax
was terminated.
Supposing that the said CTA Case is not a collection case which stops the
running of the prescriptive period for the collection of the tax, the said CTA case,
at the very least, suspends the running of the said prescriptive period. Under
Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended for
the period during which the BIR Commissioner is prohibited from
beginning a distraint or levy or instituting a proceeding in court, and
for 60 days thereafter.
The pendency of the present case before the CTA, the Court of Appeals and the
SC legally prevents the BIR Commissioner from instituting an action for collection
of the same tax liabilities assessed against PNOC and PNB in the CTA or the
regular trial courts. To rule otherwise would be to violate the judicial policy of
avoiding multiplicity of suits and the rule on lis pendens.
Whether the filing of the Amended Petition for Review by Savellano entirely stops
or merely suspends the running of the prescriptive period for collection of the
tax, it had been premature for the BIR Commissioner to issue a writ of
garnishment against PNB and for the Central Bank of the Philippines to debit the
account of PNB pursuant to the said writ, because the case was by then, pending
review by the Court of Appeals. However, since the SC found that the
compromise agreement is without force and effect, it ordered the enforcement of
the assessment against PNB. Any issue or controversy arising from the
CTA Case No. 4249
premature garnishment of PNB's account and collection of the tax by the BIR
became moot and academic.
BPI v CIR (2005)
Far East Bank & Trust Co v CIR
FEBTC filed with the Bureau of Internal Revenue an application for a tax credit/tax
refund of alleged excess payments of its gross receipts tax. FEBTC claimed it had
overpaid its gross receipt tax for the 3rd and 4th quarters of 1994 and the entire 1995
amounting to P14,816,373. Since no action was taken by the CIR on its claim,
petitioner filed a case in the CTA on October 18, 1996 to comply with the 2-year
reglementary period and avoid the prescription of its action. On July 30, 1998, the
CTA rendered a decision denying the claim for lack of evidence.
It appears that petitioner failed to file its formal offer of evidence in the CTA,
constraining the tax court to rule in favor of the CIR. On August 26, 1998, 22 days
after its receipt of the decision, petitioner filed a motion for reconsideration. The CTA
denied the motion for being filed out of time and for lack of merit. Aggrieved,
petitioner elevated the case to the CA. CA found the petition devoid of merit.
Eventually, it dismissed the petition and affirmed the CTA decision in toto. Petitioners
motion for reconsideration was also denied. Thus, this petition.
Issue:
Can procedural rules be relaxed to give due course to the petition? NO, not in this
case. Petition is denied against FEBTC.
Rationale:
First, it is well-settled that the courts cannot consider evidence which has not been
formally offered. Parties are required to inform the courts of the purpose of
introducing their respective exhibits to assist the latter in ruling on their admissibility
in case an objection thereto is made. Without a formal offer of evidence, courts are
constrained to take no notice of the evidence even if it has been marked and
identified. Needless to say, the failure of petitioner to make a formal offer of evidence
was detrimental to its cause.
This case does not fall within the exception in Oate v. Court of Appeals where the
Court relaxed the foregoing rule and allowed evidence, not formally offered, to be
considered on condition that: (1) evidence must have been identified by testimony
duly recorded and (2) it must have been incorporated in the records of the case. In
this case, "[petitioners] duly marked and identified exhibits [were] not incorporated
in the records... They are nowhere to be found."
A tax refund is in the nature of a tax exemption which must be construed strictissimi
juris against the taxpayer. To stress, the taxpayer must present convincing evidence
to substantiate a claim for refund. Without any documentary evidence on record,
petitioner failed to discharge the burden of proving its right to a tax credit/tax refund.
Therefore, the CTA and CA correctly denied its claim.
Second, if no appeal or motion for reconsideration is filed on time, the judgment or
final order of the court becomes final and executory. Here, the records of the case
confirm that petitioners motion for reconsideration in the CTA was filed out of time.
Petitioner received its notice and a copy of the CTA decision on August 4, 1998.15
Under the rules, it had fifteen days (or until August 19, 1998) to move for
reconsideration. By the time it filed its motion for reconsideration on August 26, 1998,
the decision of the CTA had already attained finality. As a final judgment, it had by
then already laid the issues to rest and the appellate courts could no longer review it.
CIR v Phil Global Comm
Philippine Global Communication was assessed for deficiency taxes in April 1994. On
May 1994, they filed 2 letters of protest requesting for the cancellation of the tax
assessment for lack of factual and legal basis. In 2002, respondents received a
decision from the CIR denying the protest. Respondents appealed the CTA and ruled
that the right to collect on the 1994 tax assessment has prescribed.
ISSUE: W/N the action to collect has prescribed. (YES)
RATIO:
Section 269(c) provides that any internal revenue tax which has been assessed within
the period of limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax. The
assessment, in this case, was presumably issued on 14 April 1994 since the
respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April
1997. The earliest attempt of the BIR to collect the tax due based on this assessment
was when it filed its Answer in CTA Case No. 6568 on 9 January 2003.
Reason for Prescriptive Period:
Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should be estopped
from collecting the tax where it failed to make the necessary investigation and
assessment within 5 years after the filing of the return and where it failed to collect
the tax within 5 years from the date of assessment thereof. Just as the government is
interested in the stability of its collections, so also are the taxpayers entitled to an
assurance that they will not be subjected to further investigation for tax purposes
after the expiration of a reasonable period of time.
Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the agency
charged with the assessment and collection may not tarry too long or indefinitely to
the prejudice of the interests of the Government, which needs taxes to run it; and for
the taxpayer so that within a reasonable time after filing his return, he may know the
amount of the assessment he is required to pay, whether or not such assessment is
well founded and reasonable so that he may either pay the amount of the assessment
or contest its validity in court.
Without such legal defense taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents.
Suspension of Prescriptive Period:
Section 224 provides that the prescriptive period is suspended when the taxpayer
requests for a reinvestigation. This exception does not apply to this case since the
respondent never requested for a reinvestigation. More importantly, the CIR could not
have conducted a reinvestigation where, as admitted by the CIR in its Petition, the
respondent refused to submit any new evidence.
Request for reconsideration-- refers to a plea for a reevaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a
question of fact or of law or both.
Request for reinvestigationrefers to a plea for re-evaluation
of an assessment on the basis of newly-discovered evidence
or additional evidence that a taxpayer intends to present in
the investigation. It may also involve a question of fact or law or
both. (RR 12-85)
Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former can
suspend the running of the statute of limitations on collection of the assessed tax,
while the latter cannot. In the present case, the separate letters of protest dated 6
May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that
there was a request for reinvestigation is inconceivable since respondent consistently
and categorically refused to submit new evidence and cooperate in any reinvestigation
proceedings.
The distinction between a request for reconsideration and a request for
reinvestigation is significant. It bears repetition that a request for reconsideration,
unlike a request for reinvestigation, cannot suspend the statute of limitations on the
collection of an assessed tax. If both types of protest can effectively interrupt the
running of the statute of limitations, an erroneous assessment may never prescribe. If
the taxpayer fails to file a protest, then the erroneous assessment would become final
and unappealable.29 On the other hand, if the taxpayer does file the protest on a
patently erroneous assessment, the statute of limitations would automatically be
suspended and the tax thereon may be collected long after it was assessed.
The government also urges that partial payment is "acknowledgement of the tax
obligation", hence a "waiver on the defense of prescription." But partial payment
would not prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby "persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is
meant."
NOTE:
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request
for reconsideration and a request for reinvestigation, there have been cases wherein
these two terms were used interchangeably. But upon closer examination, these cases
all involved a reinvestigation that was requested by the taxpayer and granted by the
BIR.
BPI v CIR (2008)
November 26, 1986: CIR issued to the petitioner a pre-assessment notice (PAN).
November 29, 1986: BPI sent in a letter requested for the details of the amounts
alleged as 1982-1986 deficiency taxes mentioned in the PAN April 7, 1989: CIR
issued to the petitioner, assessment/demand notices for deficiency withholding tax at
source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and
P24,587,174.63, for the years 1982 to 1986. April 20, 1989: BPI filed a protest on
the demand/assessment notices. May 8, 1989, petitioner filed a supplemental protest.
March 12, 1993: BPI requested for an opportunity to present or submit additional
documentation on the Swap Transactions with the then Central Bank Attached to the
letter dated June 17, 1994, in connection with the reinvestigation of the
abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with
the Central Bank. BPI executed Waivers of the Statutes of Limitations, the
last of which was effective until Dec. 31, 1994. August 9, 2002: CIR issued a
final decision on petitioners protest ordering the withdrawal and cancellation of the
deficiency withholding tax assessment in the amount of P190,752,860.82 and
considered the same as closed and terminated. On the other hand, the deficiency DST
assessment in the amount of P24,587,174.63 was reiterated and the petitioner was
ordered to pay the said amount within thirty (30) days from receipt of such order.
Petitioner received a copy of the said decision on January 15, 2003. Thereafter,
January 24, 2003, petitioner filed a Petition for Review before in Court. August 31,
2004: the Court rendered a Decision denying the petitioners Petition for Review, and
BPI was ordered to pay the corresponding tax dues. September 21, 2004, BPI filed
a Motion for Reconsideration which was again denied for lack of merit. March 9,
2005: BPI filed with the Court En Banc a Motion for Extension of Time to File Petition
for Review praying for an extension of fifteen (15) days from March 10, 2005 or until
March 25, 2005. Petitioners motion was granted. March 28, 2005, (March 25 was
Good Friday), petitioner filed the instant Petition for Review, arguing that the court
overlooked the significance of the waiver made by parties valid until Dec. 31, 2004
and that the court erred in holding that the collection for tax deficiency has not yet
prescribed. CTA ruled that BPIs protest and supplemental protest should be
considered requests for reinvestigation which tolled the prescriptive period provided
by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held
that BPIs cabled instructions to its foreign correspondent bank to remit a specific sum
in dollars to the Federal Reserve Bank, the same to be credited to the account of the
Central Bank, are in the nature of a telegraphic transfer subject to DST under Section
195 of the Tax Code. In its Petition for Review dated 24 November 2006, BPI argues
that the governments right to collect the DST had already prescribed because the
Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPIs
request for reinvestigation manifested in the protest letters dated 20 April and 8 May
1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency
DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the
request for reinvestigation, warranting the conclusion that prescription had already set
in. The Office of the Solicitor General (OSG) filed a Comment dated 1 June 2007, on
behalf of the CIR, asserting that the prescriptive period was tolled by the protest
letters filed by BPI which were granted and acted upon by the CIR. Such action was
allegedly communicated to BPI as, in fact, the latter submitted additional documents
pertaining to its SWAP transactions in support of its request for reinvestigation. Thus,
it was only upon BPIs receipt on 13 January 2003 of the 9 August 2002 Decision that
the period to collect commenced to run again. The OSG cites the case of Collector of
Internal Revenue v. Suyoc Consolidated Mining Company, et al.(Suyoc case) in
support of its argument that BPI is already estopped from raising the defense of
prescription in view of its repeated requests for reinvestigation which allegedly
induced the CIR to delay the collection of the assessed tax. In its Reply dated 30
August 2007, BPI argues against the application of the Suyoc case on two points:
first, it never induced the CIR to postpone tax collection; second, its request for
reinvestigation was not categorically acted upon by the CIR within the three-year
collection period after assessment. BPI maintains that it did not receive any
communication from the CIR in reply to its protest letters.
Issue: Whether the collection of the deficiency DST is barred by prescription and
whether BPI is liable for DST on its SWAP loan transactions.
Held: WHEREFORE, the petition is GRANTED. The Decision of the Court of Tax
Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are hereby
REVERSED and SET ASIDE. No pronouncement as to costs.
Rationale: Section 318 of the Tax Code of 1977 provides: Period of limitation
upon assessment and collection.Except as provided in the succeeding section,
internal revenue taxes shall be assessed within five years after the return was filed,
and no proceeding in court without assessment for the collection of such taxes shall
be begun after the expiration of such period. For the purposes of this section, a return
filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day: Provided, That this limitation shall not apply to cases already
The statute of limitations on assessment and collection of national internal revenue
taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg.
700. Thus, the CIR has three (3) years from the date of actual filing of the tax return
to assess a national internal revenue tax or to commence court proceedings for the
collection thereof without an assessment. When it validly issues an assessment within
the three (3)-year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is deemed
made and the three (3)-year period for collection of the assessed tax begins to run on
the date the assessment notice had been released, mailed or sent to the taxpayer. As
applied to the present case, the CIR had three (3) years from the time he issued
assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect
the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI
to pay the deficiency.
In order to determine whether the prescriptive period for collecting the tax deficiency
was effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May
1989 as claimed by the CIR, we need to examine Section 320 of the Tax Code of
1977, which states:
Sec. 320. Suspension of running of statute.The running of the statute of limitations
provided in Sections 318 or 319 on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner is prohibited from
making the assessment or beginning distraint or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer requests for a re-investigation which
is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or
collected: Provided, That if the taxpayer informs the Commissioner of any change in
address, the running of the statute of limitations will not be suspended; when the
warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines. There is
nothing in the records of this case which indicates, expressly or impliedly, that the CIR
had granted the request for reinvestigation filed by BPI. What is reflected in the
records is the piercing silence and inaction of the CIR on the request for
reinvestigation, as he considered BPIs letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR, through the
OSG, argued for the first time that he had granted the request for reinvestigation. His
consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that
the prescriptive period was tolled by BPIs request for reinvestigation, without any
assertion that the same had been granted or at least acted upon.
In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent
letters seeking the reinvestigation or reconsideration of the deficiency tax
assessments issued by the BIR. The records of the case showed that as a result of
these protest letters, the BIR Manufacturing Audit Division conducted a review and
reinvestigation of the assessments. The records further showed that the company,
thru its finance manager, communicated its inability to settle the tax deficiency
assessment and admitted that it knew of the ongoing review and consideration of its
protest.
As differentiated from the Wyeth Suaco case, however, there is no evidence in this
case that the CIR actually conducted a reinvestigation upon the request of BPI or that
the latter was made aware of the action taken on its request. Hence, there is no basis
for the tax courts ruling that the filing of the request for reinvestigation tolled the
running of the prescriptive period for collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective
until 31 December 1994 suspend the prescriptive period. The CIR himself contends
that the waiver is void as it shows no date of acceptance in violation of RMO No. 2090. At any rate, the records of this case do not disclose any effort on the part of the
Bureau of Internal Revenue to collect the deficiency tax after the expiration of the
waiver until eight (8) years thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several requests for
reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company
purporting to question the correctness of tax assessments against it. As a result, the
Collector of Internal Revenue refrained from collecting the tax by distraint, levy or
court proceeding in order to give the company every opportunity to prove its claim.
The Collector also conducted several reinvestigations which eventually led to a
reduced assessment. The company, however, filed a petition with the CTA claiming
that the right of the government to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not set up the defense
of prescription since, by its own action, the government was induced to delay the
collection of taxes to make the company feel that the demand was not unreasonable
or that no harassment or injustice was meant by the government.
In this case, BPIs letters of protest and submission of additional documents
pertaining to its SWAP transactions, which were never even acted upon, much less
granted, cannot be said to have persuaded the CIR to postpone the collection of the
deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the request for
reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had
resulted in the prescription of the governments right to collect the deficiency. As this
Court declared in Republic of the Philippines v. Ablaza:
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax
officers would be obliged to act promptly in the making of assessment, and to citizens
because after the lapse of the period of prescription citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latters real liability, but to take advantage of
every opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep their books
and keep them open for inspection subject to harassment by unscrupulous tax agents.
The law on prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to the
taxpayer within the contemplation of the Commission which recommend the approval
of the law.
Given the prescription of the governments claim, we no longer deem it necessary to
pass upon the validity of the assessment
CIR v Capitol Subdivision
In this case Capitol Subdivision, Inc. is a corporation engaged in the purchase sane
and barter of urban estates and their improvement into residential lots for resale to
the public. Capitol filed their income tax returns promptly and paid the taxes however
when an investigation was made they were found liable for tax deficiency. So they
were sent income tax assessment notices on April 8, 1953. On May 30, 1953
Capitol then requested for the breakdown of the amounts reflected so that they could
be able to determine where the deficiencies came from. On July 1, 1955 CIR then
reiterated its request for the payment of the taxes. On October 15, 1955 CIR then
tried to explain the disallowed taxes explaining that they were really expenses an they
requested for reinvestigation. On Sept. 2, 1959 after reinvestigation the examiner
in a memo reiterated the demand for the taxes and affirmed the prior assessment and
demanded again for the deficiency. On September 16, 1959 petitioner invoked the
defense of prescription. CTA rendered a decision saying that the right of the court had
already prescribed because under the tax code any remedy for collection such as levy
or distraint prescribes after 5 years from the date of assessment and since
assessment was made on April 8, 1953 it had already prescribed.
Issue: Won the right to collect already prescribed Not yet.
Ratio:
The SC held in this case that the right to collect had not yet been lost.
Although there is no question that the period began on April 8, 1953 when the
assessment was made it was interrupted several times by the respondent. First when
it asked for an itemized information. Although it did not specifically use the words
review or reinvestigation one can see from the request itself had the effect of
questioning/assailing the correctness of the assessment. Then again the period was
interrupted when it requested for reinvestigation thus the period was tolled gain and it
was only Sept. 2, 1959 when the reinvestigation was denied the period began again
and when the taxpayers case was filed with the CTA on December 28, 1959 and the
CIR answered (tantamount to a judicial action) it was well within the prescription
period.
April 8, 1953 December 28,1959 = 6 years, 8 months, 21 days
Less (all the interruptions): May 30, 1953 (clarification) June 21, 1955 ( denied the
petition) = 2 years 21 days
= There was left a period of 4 years and 8 months well within the prescription period.
Lim, Sr v CA
Petitioner spouses Emilio E. Lim, Sr. and Antonia Sun Lim, with business address at
No. 336 Nueva Street, Manila, were engaged in the dealership of various household
appliances They filed income tax returns for the years 1958 and 1959. a raid was
conducted at their business address by the NBI. A similar raid was made on
petitioners' premises at 111 12th Street, Quezon City. Seized by the BIR from the Lim
couple were business and accounting records which served as bases for an
investigation. BIR informed petitioners that revenue examiners had been authorized
to examine their books of account. The 1958 and 1959 tax returns were found false
and fraudulent.
Lim asked for reinvestigation but was denied. On October 10, 1967, the BIR rendered
a final decision holding that there was no cause for reversal of the assessment against
the Lim couple. Petitioners were required to pay deficiency income taxes for 1958 and
1959 amounting to P1,237,190.55 inclusive of interest, surcharges and compromise
penalty for late payment. The final notice and demand for payment was served on
petitioners through their daughter-in-law on July 3, 1968. Still there was no payment;
thus, four (4) separate criminal informations were filed against petitioners for violation
of Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code.
Trial ensued. The decisions of the court were.
In Criminal Cases Nos. 1789 and 1788:
WHEREFORE, in view of the foregoing considerations, the Court finds the
accused Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of
Section 51 penalized under Section 73 of the National Internal Revenue
Code and each is hereby sentenced in each case to pay a fine of P2,000.00
and to pay the government pursuant to Presidential No. 69 the amounts of
P580,588.75 and P656,601.80 as deficiency income taxes for the years
1958 and 1959, respectively, and the costs of the proceedings.
In Criminal Cases Nos. 1790 and 1791:

WHEREFORE, in view of the foregoing considerations, the Court finds the accused
Emilio E. Lim, Sr. and Antonia Sun Lim guilty of a violation of Section 45 in relation to
Section 332 of the National Internal Revenue Code as amended, penalized under
Section 73 of the same Code and hereby sentences each to pay a fine of P4,000.00 in
each case and the costs of the proceedings.
On September 26, 1977, petitioners moved for a reconsideration of the decision dated
September 1, 1977. On April 4, 1978, the Court of Appeals promulgated a resolution
as follows:
WHEREFORE, pursuant to Article 89 of the Revised Penal Code, by the death of
appellant Emilio E. Lim, Sr. his criminal liability is totally extinguished but his counsel
is hereby required to inform the Court as to who are the heirs of the deceased
following which the caption should be modified so as to reflect the civil aspect and
substitution of the heirs, as defendants. In all other respects, the decision of this
Court promulgated September 1, 1977, stands.
Hence the present petition for review by certiorari.
Issue:
1) W/N the period to file the criminal cases against Lim has prescribed. NO.
2) W/N the payment of deficiency taxes could be included in the criminal
cases. No.
3) W/N the pecuniary liability of Emilio Lim is extinguished because of his
death. Yes.
Held/Ratio:
1) Petitioners maintain that the five-year period of limitation under Section 354 should
be reckoned from April 7, 1965, the date of the original assessment while the
Government insists that it should be counted from July 3, 1968 when the final notice
and demand was served on petitioners' daughter-in-law.
Inasmuch as the final notice and demand for payment of the deficiency taxes was
served on petitioners on July 3, 1968, it was only then that the cause of action on the
part of the BIR accrued. This is so because prior to the receipt of the letterassessment, no violation has yet been committed by the taxpayers. The offense was
committed only after receipt was coupled with the wilful refusal to pay the taxes due
within the alloted period. The two criminal informations, having been filed on June 23,
1970, are well-within the five-year prescriptive period and are not time-barred.
With regard to Criminal Cases Nos. 1790 and 1791 which dealt with petitioners' filing
of fraudulent consolidated income tax returns with intent to evade the assessment
decreed by law, petitioners contend that the said crimes have likewise prescribed.
They advance the view that the five-year period should be counted from the date of
discovery of the alleged fraud which, at the latest, should have been October 15,
1964, the date stated by the Appellate Court in its resolution of April 4, 1978 as the
date the fraudulent nature of the returns was unearthed.
On behalf of the Government, the Solicitor General counters that the crime of filing
false returns can be considered "discovered" only after the manner of commission,
and the nature and extent of the fraud have been definitely ascertained. It was only
on October 10, 1967 when the BIR rendered its final decision holding that there was
no ground for the reversal of the assessment and therefore required the petitioners to
pay P1,237,190.55 in deficiency taxes that the tax infractions were discovered.
Not only that. The Solicitor General stresses that Section 354 speaks not only of
discovery of the fraud but also institution of judicial proceedings. Note the conjunctive
word "and" between the phrases "the discovery thereof" and "the institution of judicial
proceedings for its investigation and proceedings." In other words, in addition to the
fact of discovery, there must be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting period begins to run. It
was on September 1, 1969 that the offenses subject of Criminal Cases Nos. 1790 and
1791 were indorsed to the Fiscal's Office for preliminary investigation. Inasmuch as a
preliminary investigation is a proceeding for investigation and punishment of a crime,
it was only on September 1, 1969 that the prescriptive period commenced.
2) The petition, however, is impressed with merit insofar as it assails the inclusion in
the judgment of the payment of deficiency taxes in Criminal Cases Nos. 1788-1789.
The trial court had absolutely no jurisdiction in sentencing the Lim couple to indemnify
the Government for the taxes unpaid. The lower court erred in applying Presidential
Decree No. 69, particularly Section 316 thereof, which provides that "judgment in the
criminal case shall not only impose the penalty but shall order payment of the taxes
subject of the criminal case", because that decree took effect only on January 1, 1973
whereas the criminal cases subject of this appeal were instituted on June 23, 1970.
Save in the two specific instances, Presidential Decree No. 69 has no retroactive
application.
(In the case of People v. Tierra, reiterated People v. Arnault) ... While Section 73 of
the National Internal Revenue Code provides for the imposition of the penalty for
refusal or neglect to pay income tax or to make a return thereof, by imprisonment or
fine, or both, it fails to provide for the collection of said tax in criminal proceedings. As
well contended by counsel for appellant, Chapters I and II of Title IX of the National
Internal Revenue Code provides only for civil remedies for the collection of the income
tax, and under Section 316, the civil remedy is either by distraint of goods, chattels,
etc., or by judicial action. It is a commonly accepted principle of law that the method
prescribed by statute for the collection of taxes is generally exclusive, and unless a
contrary intent be gathered from the statute, it should be followed strictly.
Under the cited Tierra and Arnault cases, it is clear that criminal conviction for a
violation of any penal provision in the Tax Code does not amount at the same time to
a decision for the payment of the unpaid taxes inasmuch as there is no specific
provision in the Tax Code to that effect.
3) Considering that under Section 316 of the Tax Code prior to its amendment the
trial could not order the payment of the unpaid taxes as part of the sentence, the
question of whether or not the supervening death of petitioner Emilio E. Lim, Sr. has
extinguished his tax liability need not concern us. However, with regard to the
pecuniary penalty of fine imposed on the deceased Lim, this is necessarily

extinguished by his death in accordance with Section 89 of the Revised Penal Code.
TAXPAYERS REMEDIES
Refunds
Vda de Aguinaldo v CIR
Leopoldo Aguinaldo and his wife Andrea received cash dividends worth P10k
from Aguinaldo Brothers, Inc.
They did NOT declare said dividends in their joint ITR, but declared P5k of said
dividends in their ITR for 1953 and paid corresponding tax.
A year after, BIR re-examined the 1952 &1953 ITRs of the spouses and
discovered the non-declaration.
BIR readjusted the ITRs, increasing the declared income, w/c resulted in
deficiency income tax in 1952 and overpayment of tax in 1953.
The examination report recommended that the overpayment for 1953 of P1k+
be credited against the deficiency tax for 1952.
In Oct 1957, CIR assessed Aguinaldo for deficiency income tax for 1952, without
crediting the overpayment in 1953.
Aguinaldo protested the assessment, and requested that the overpayment for
1953 be credited. The request was denied.
He asked for a reconsideration but the CIR said that the P1,600 cannot be
credited against the tax for 1952 since the claim for tax credit was filed beyond
the 2-year period provided for in 309 of the NIRC.
After the husbands death, the wife Andrea appealed to the CTA.
The CTA dismissed the appeal for lack of cause of action.
I: W/n petitioner is entitled to tax credit for 1953 pursuant to 309 of the Tax
Code.
R: No, petitioner is not entitled to tax credit.
Petitioner contends that Sec 309 does NOT require the filing of a claim w/in 2
years from payment of the tax before credit should be given.
Section 309 of the Tax Code CLERALY requires the filing by the taxpayer of the
written claim for credit / refund WITHIN 2 yrs after the payment of tax, before
the CIR can exercise his authority to grant credit/ refund.
Such reqment is the condition precedent and non-compliance PRECLUDES CIR

from exercising the authority given.
In this case, the Aguinaldos paid the income tax on August 14, 1954 although
the adjustment took place on August 29, 1955.
Tax credit was filed in JAN 1958, so clearly, more than two years have elapsed
(reckoned from both dates), beyond the period stated in 309.
Gibbs v CIR (Feb 1960)
Allison and Esther Gibbs protested the 1950 deficiency income tax assessment
issued against them by the CIR, on the ground that said deficiency assessment
was based on a disallowance of bad debts and losses claimed in their income tax
return for 1950.
CIR rejected Gibbs' protest and reiterated his demand.

Gibbs however paid the deficiency and at the same time demanding the
immediate refund of the amount paid.
CIR denied the request for refund, and required Gibbs to pay the amounts of
P1.5k and P2k as surcharge, interest, and compromise penalty.
Notice of said denial was received by Gibbs on November 14, 1956.
On September 27, 1957 - Gibbs filed with CTA a petition for review and
refund, with a motion for suspension of collection of penalties.
CIR filed a motion to dismiss, on the ground that the petition was filed beyond
the 30-day period provided under Section 11, in relation to Section 7, of RA No.
1125, which motion, was opposed by Gibbs.
CTA dismissed the petition saying they no longer had jurisdiction because Gibbs
filed the appeal 10 months after the receipt, clearly beyond the 30-day period set
by law.
Gibbs argued that Section 306 of the Revenue Code provides that judicial
proceedings may be instituted for recovery of an internal revenue tax within two
years from the date of payment. CTA said this was before RA1125 was enacted.
I: W/n the appeal of Gibbs was made within the statutory period
R: NO, the appeal was NOT made w/in the statutory period.
RA No. 1125 provides that CTA has appellate jurisdiction to review decisions of
the CIR in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto but filing must
be within 30 days after receipt of such ruling.
SEC. 306 of the Tax Code provides that for Recovery of tax erroneously or
illegally collected, the suit shall be begun within 2 years from the date of
payment of the tax or penalty.
RA No. 1125 was intended to cope with a situation where the taxpayer, upon
receipt of a decision or ruling of the CIR, elects to appeal to the CTA instead of
paying the tax. For this reason, the latter part of said Section 11 RA 1125,
provides that no such appeal would suspend the payment of the tax demanded
by the Government, unless for special reasons, the CTA would deem it fit to
restrain said collection.
Section 306 of the Tax Code, on the other hand, contemplates of a case
wherein the taxpayer paid the tax, whether under protest or not, and later on
decides to go to court for its recovery.
THUS, where payment has already been made and the taxpayer is
merely asking for its refund, he must first file with the CIR a claim for
refund WITHIN 2 YEARS from time of payment before taking the
matter to the CTA, as required by Section 306 of the NIRC.
Appeals from decisions of CIR to CTA must ALWAYS be perfected
within 30 days after the receipt of the decision that is being appealed,
as required by Section 11 of RA No. 1125.
If the CIR takes time in deciding the claim, and the period of two years
is about to end, the suit or proceeding must be started in the CTA
before the end of the 2-year period without awaiting the decision of
the Collector.
This is so because of the positive requirement of Section 306 and the doctrine
that delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute.
THERE is no conflict and the 2 laws must be reconciled.
In this case, Gibbs filed the appeal MORE THAN 10 MONTHS after receipt of the
CIRs notice of denial. Thus, it was beyond the 30-day period.
Cir v Palanca
On July 1950, Palanca donated several stocks in La Tondena to his son.

HOWEVER, he failed to file a return on the donations on time.
Thus CIR assessed him deficiency taxes (tax + surcharge + Interest), which he
in turn paid on June 1955 (1st assessment).
On March 1956, Palanca filed an Income Tax Return.
On November 1956 he filed an amended tax return and a claim for the refund
of overpaid taxes (1st). The claimed overpayment was due to a failure to
deduct from his ITR a deduction on the interest paid on the gift tax stated
earlier.
He claimed that the interest fell under then section 30 of NIRC which authorizes
the deduction from gross income of interest paid within the taxable year on
indebtedness.
BIR denied refund. After several appeals, all were denied.
Meanwhile, CIR considered the donation of stocks to his son to be a transfer in

contemplation of death. He was then assessed the sum of P191k+ as estate and
inheritance taxes (2nd assessment).
BASED on this 2nd assessment, Palanca again AMENDED his original return,
asking for another deduction of P60k+ representing estate + inheritance taxes.
THUS, Palanca was asking for a refund of P20k+ (diff between 1 st and 2nd
assessment).
WITHOUT WAITING FOR BIRs decision, Palanca filed a petition for review / CTA.
CTA granted the claim for refund and ruled in favor of Palanca.
CIR appealed to SC.
I/R: 1) W/n the interest paid on delinquent estate and inheritance taxes
is DEDUCTIBLE from gross income
YES, interest paid is deductible from gross income.
Citing CIR v. Prieto: Under the law, for interest to be deductible, it must be
shown that there be an indebtedness, that there should be interest upon it, and
that what is claimed as an interest deduction should have been paid or accrued
within the year.
In this case, what was sought to be deducted was interest paid as a

consequence of the LATE PAYMENT of estate and inheritance taxes, and the
same was paid w/in the year it was sought to be deducted.
Such interest was made upon indebtedness and was thus deductable.
2) W/N action for refund (2nd) has prescribed for violating the 30 day period
requirement
NO, the claim for refund had NOT yet prescribed.
There was only 1 transaction (transfer of shares of stock) w/c became the
TAXABLE EVENT.
HOWEVER, since 2 assessments were made by the BIR, the FIRST being the
donees gift tax, and the SECOND as estate tax, there were 2 claims for
refund as well.
THUS, the 30-day period did NOT even commence to run in this incident because
the 1st assessment was abandoned and a subsequent assessment was issued to
Palanca. The 2nd assessment was likewise for a different liability.
Considering that it is the interest paid on the 2nd assessment (estate and
inheritance tax) that Palanca is claiming refund for, then the 30-day period
should be computed from the receipt of the final denial by the Bureau of
Internal Revenue of the said claim Denial: 1959!
Also, the claim at bar refers to the alleged overpayment by Palanca of his 1955
income tax. Inasmuch as the said account was paid by him by installment, then
the computation of the 2-year prescriptive period, under Section 306 of the
National Internal Revenue Code, should be from the date of the last installment
(which was on Aug 14, 1956.)
Gibbs v CIR (Nov 1965)
On Feb 1956, CIR issued against Finley Gibbs a deficiency income tax
assessment notice.
1 month after, Allison Gibbs, signing as attorney in fact for her brother,
acknowledged receipt of the above assessment notice and notified the CIR that
Finley Gibbs was then living in California and that the latter was notified by him
of the said deficiency assessment.
In the same letter, Allison Gibbs questioned the disallowance of certain items
which gave rise to the deficiency assessment and requested for a correction of it.
CIR denied the request on August 1965.
Having deemed the denial as the final decision of the CIR, Allison Gibbs wrote
on October 1956 the CIR saying they are paying the assessed amount as a sign
of good faith, but reiterated that the assessment is contrary to law. She also
demanded refund of the payment.
In a letter in Oct 1956, CIR denied petitioners claim for refund. Such denial was
admittedly received by the office of Allison Gibbs on NOV 1956.
In Sept 1958, Allison, signing as counsel for Finley, wrote another letter
addressed to CIR to reiterate the demand for refund. Letter also said that the
denial letter in Oct 1956 was NOT a ruling on Finleys claim for refund.
On Oct 1958, petitioners filed with the CTA a Petitioner for Review and Refund
of Income Tax with Motion for Suspension of Collection of Additional Taxes,
alleging mainly the claims for refunds and tax credits in the letter.
CTA dismissed the case on the ground of lack of jurisdiction given that the
petition for review was filed BEYOND 30 days from date of receipt of CIRs
decision.
I/R: 1) W/n Gibbs claims have already prescribed
YES, Gibbs claims HAVE already prescribed
Petitioners contend that the claims had NOT yet prescribed because there was
no evidence that they received a copy of the letter in Oct 1956 DENYING their
claim for refund, and the letter itself is NOT a denial of their claim for refund.
HOWEVER, it is has been proven that Allison is not a mere atty-in-fact but
counsel of Gibbs, and thus, receipt she should have immediately filed an appeal
upon denial.
Also, the claim that the letter of Oct 26 1956 was NOT a denial of the claim for
refund was unmeritorious. The letter clearly states that for reasons stated in our
letter dated Aug 28 1956, THIS OFFICE has NO JUSTIFIABLE BASIS to grant
your request.
2) W/n withholding tax credits amount to payment for the purpose of
determining the 2-year period provided in Sec 306 of the NIRC
YES, w/holding tax credits = payment!
2 year period shall be counted from the DATE THE WITHOLDING TAX IS DUE.
A taxpayer, resident or non-resident, who contributes to the withholding tax
system, does so not really to deposit an amount to the CIR but to perform and
extinguish his tax obligation for the year concerned.
In other words, he is paying his tax liabilities for that year.
Consequently, a taxpayer whose income is withheld at the source will be deemed
to have paid his tax liability when the same falls due at the end of the tax year.
THUS, it is when the tax liability falls due, that the 2-year prescriptive period
under Section 306 of the Revenue Code starts to run with respect to payments
effected through the withholding tax system.
It is of no consequence whatever that a claim for refund or credit against the
amount withheld at the source may have been presented and may have
remained unresolved since.
Taxpayer who has paid the tax, whether under protest or not, and who is
claiming a refund of the same, must file a claim for refund with the CIR within 2
years from the date of his payment of the tax (Sec 306, NIRC)
He must then appeal to the CTA w/in 30 DAYS from receipt of the CIRs decision
denying claim for refund (Sec 11, RA 1125)
If, however, the Collector takes time in deciding the claim, and the period of two
years is about to end, the suit or proceeding must be started in the CTA BEFORE
the end of the 2-year period WITHOUT awaiting the decision of the Collector.
This is so because of the positive requirement of Section 306 and the doctrine
that delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute.
CIR v Sweeney
International Club of Iloilo, Inc. (the Club) is a non-profit, non-stock corporation

organized to promote athletic and social relations among its members.
In consonance with its purpose, the club, during its lifespan from 1949 to 1951,
maintained and operated a clubhouse with a bar, wherein liquor and light
refreshments were sold exclusively to its members and their guest with a light
overprice to cover operational expenses.
The Club never paid fixed or percentage taxes as operator of a bar during its
brief lifespan.
In 1950, CIR addressed and demanded from the Club payment of the sum of
P1,987.01 as fixed and percentage tax and surcharge as operator of a bar for the
period covering August 1949 to September 1950.
In 1951, J. N. Sweeney, then president of the Club, wrote the City Treasurer of
Iloilo, protesting the aforementioned assessment against the Club and asking
that it be withdrawn for the reason that the Club was a private one and not
organized for profit so it should not be held liable for the taxes sought to be
collected.
This protest remained unanswered for about 10 months.
In the meantime, the Club was dissolved sometime in Sept 1951.
In Jan 1952, CIR denied Sweeneys request for withdrawal.
BIR demanded from Sweeney payment of P3k+ representing fixed and

percentage taxes and surcharge, as operator of a bar for Aug 1959 to Aug 1951.
Although no payment was made, BIR did NOT take positive steps to enforce
collection.
HOWEVER, on August 15, 1953 and October 15, 1953, the CIR urged the City
Fiscal of Iloilo to prosecute criminally the past presidents of the Club for violation
of sections 182, 183 and 191 of the tax Code.
On the same date, the Club sought a refund for the amounts paid under protest.
Not having received any reply from the CIR regarding said claim for refund, the
Club filed a PETITON FOR REVIEW w/ the CTA.
I: W/n CTA has jurisdiction YES
W/n the Club is liable for the tax. NO, the club is not liable.
R:
The CIR contends that the CTA has no jurisdiction to order the refund of the
taxes involved because, first, said amounts had been paid by respondents in the
extra-judicial settlement of the case against them (The extrajudicial settlement
refers to the act of the respondents in paying the assessed tax liabilities. The CIR
also contends that this act of paying is in the form of a compromise wherein the
CIR will withdraw the information if they pay their liabilities.), and second,
respondents had no cause of action in as much as the petitioner has not yet
ruled upon the respondents requests for refund.
As to CIRs first contention, the CIR had not entered into a compromise as to the
payment of the taxes whose refund is now being sought. The Compromise
entered into by respondents was only in regard to the payment of P50.00 by
each of them in order to avoid criminal prosecution which might affect their
standing as businessmen in their community.
In fact upon payment of said P50.00 by each of them, the City Fiscal desisted
from continuing the prosecution. But that was entirely apart from and
independent of the payment of the taxes which, as already, was made under
protests and on the same day, a petition demanding refund was filed with the
same court.
As to CIRs second contention, taxpayers need not wait for the action of the CIR
on the request for refund before taking the matter to court. The law does not
require the taxpayer to wait for the CIRs action on its request for refund
because the taxpayer only has two years after the payment of the taxes from
which to claim the refund.
If he files beyond two years, then he can no longer claim.
ALSO, the club cannot be liable for payment of fixed and percentage taxes
because it was not engaged in the business of selling liquor.
Its bar dispensed liquor only to members, their families and their guest. It is true
that for a time it made a little profit in such sale, that is to say, the little
overprice put on the liquor dispensed, presumably intended to cover expenses in
the maintenance of the bar, exceeded said expenses but said profits never went
to the members of the Club but were used in the operation of the Club, which as
a matter of fact incurred a loss, so that it may not be said that the operation of
the bar and in dispensing liquor to its members or families and their guest the
International Club of Iloilo, Inc. was engaged in business and that it was
organized for profit.
CIR v Tokyo Shipping Co.
Tokyo Shipping Co. Ltd (Tokyo Shipping) is a foreign corporation represented in

the Philippines by Soriamont Steamship Agencies, Incorporated (Soriamont). It
owns and operates tramper vessel M/V Gardenia.
NASUTRA chartered M/V Gardenia to load tons of raw sugar in the Philippines.
Mr. Lising, the operations supervisor of Soriamont paid the required income and
common carrier's taxes 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 Soriamont mutually agreed to have the
vessel sail for Japan without any cargo.
On March 23, 1981, Tokyo Shipping sought to refund the prepaid income and
common carriers tax alleging that no sale was realized from its agreement with
Nasutra.
CIR failed to act on the matter.
Thus Tokyo Shipping filed a petition for review with the CTA on May 14, 1981.
CTA ruled in favor of Tokyo Shipping. It found that the chartered vessel sailed
out of the Philippine port with absolutely no cargo laden on board as cleared and
certified by the Customs authorities.
It also found that the Appellate Division of the BIR and the examiner who
examined this case has already recommended the approval of Tokyo Shippings
claim for refund.
I: W/n Tokyo Shipping is entitled to refund
R: YES, Tokyo is entitled to a refund. (after 15 years refund was delayed)
Pursuant to this Section 24(b) (2)8, a resident foreign corporation engaged in the
transport of cargo is liable for taxes depending on the amount of income it
derives from sources within the Philippines. Thus, before such a tax liability can
be enforced the taxpayer must be shown to have earned income sourced from
the Philippines.
The CTA held that sufficient evidence has been adduced by Tokyo Shipping to
prove that it derived no receipt from its charter agreement with NASUTRA.
This finding of fact show that M/V "Gardenia" arrived in Iloilo on January 10,
1981 but found no raw sugar to load and returned to Japan without any cargo
laden on board. This claim is supported by the Clearance Vessel to a Foreign Port
issued by the District Collector of Customs and the Certification by the Officer-inCharge, Export Division of the Bureau of Customs Iloilo. Documents issued by
the Customs officer enjoy the presumption of regularity. CIR did not present
evidence to counter this presumption. Records also show the inconsistent stand
of the CIR. It did not withdraw its opposition to the petition for review even
when its counsel manifested that the BIR examiner and the appellate division of
the BIR have both recommended the approval of Tokyo Shippings claim for
refund.
Evidence supports the CTAs decision regarding the propriety of tax refund due
to Tokyo Shipping. Fair deal is expected by our taxpayers from the BIR and the
duty demands that BIR should refund without any unreasonable delay what it
has erroneously collected.
On the issue that Tokyo did NOT present its charter agreement w/ NASUTRA, it
presupposes without any basis that the charter agreement is prejudicial evidence
against Tokyo. It will show that Tokyo earned a charter fee with or without
transporting its supposed cargo from Iloilo to Japan.
A corporation organized, authorized, or existing under the laws of any foreign country, engaged
in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income derived in the preceding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the Philippines. The gross revenue realized from the
said cargo or mail include the gross freight charge up to final destination. Gross revenue from
chartered flights originating from the Philippines shall likewise form part of "Gross Philippine
Billings" regardless of the place or payment of the passage documents . . . . .
CIR did not present evidence to support this allegation. Moreover, the charter
agreement could have been presented by CIR itself thru the proper use of a
subpoena duces tecum.
Phil Bank of Comm v CIR
The Philippine Bank of Communications (PBCom), a commercial banking

corporation duly organized under Philippine laws, filed its quarterly income tax
returns for the 1st and 2nd quarters of 1985, reported profits, and paid the total
income tax of P5M++.
The taxes due were settled by applying PBComs tax credit memos and
accordingly, the BIR issued Tax Debit Memo for P3M and P1.6M, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual
Income Tax Returns for the year-ended 1985, it declared a net loss of P25M,
thereby showing no income tax liability.
For the succeeding year, 1986, PBCom likewise reported a net loss of P14.1M,
and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties.
The lessees withheld and remitted to the BIR withholding creditable taxes.
On 7 August 1987, PBCom requested the CIR, among others, for a tax credit of
P5M representing the overpayment of taxes in the 1st and 2nd quarters of 1985.
Thereafter, on 25 July 1988, PBCom filed a claim for refund of creditable taxes
withheld by their lessees from property rentals.
Pending the investigation of the CIR, PBCom instituted a Petition for Review
before the CTA.
CTA dismissed this for lack of merit; and thus denied PBComs claim for
refund/tax credit of overpaid income tax on the ground that it was filed BEYOND
the 2-year reglementary period provided for by law.
PBComs claim for 2nd refund was likewise denied on the assumption that it was
automatically credited by PBCom against its tax payment in the succeeding year.
I/R:
1) W/n PBCom is correct in saying that the FIRST REFUND was filed on
time
NO, PBCom was incorrect. PBCom relied on RMC 7-85 w/c says that the
prescriptive period is 10 and NOT 2 yrs.
The issuance is administrative and it CANNOT contravene the NIRC w/c is a

statute.
Although administrative issuances are accorded great respect, such

interpretation is NOT conclusive and will be ignored if found to be erroneous.
Also, State cannot be put in estoppel by mistakes of its agents. There are no
vested rights to speak of respecting a wrong interpretation.
Also, non-retroactivity of rulings of CIR is NOT applicable in this case because

the nullity of the RMC was declared by the COURTS and NOT the CIR.
The 2-year prescriptive period should be computed from the time of filing the
Adjustment Return (when the refund is ascertained) and final payment of the tax
for the year.
2) W/n the CA was correct in denying the plea for tax refund or tax
credits on the ground of prescription, despite petitioner's good faith
reliance on RMC No. 7-85, changing the prescriptive period of 2 years
to 10 yrs
YES, CA was correct. Tax refund should be denied on ground of prescription.
With respect to corporate taxpayers, in case of overpayment of quarterly income
taxes, there is a need to specify whether the taxpayer intends to avail of a tax
refund or a tax credit, thus Sec. 69 of the 1977 NIRC (now, Sec. 76 of the
1997 NIRC) provides that any excess of the total quarterly payments over the
actual income tax computed in the adjustment or final corporate income tax
return, shall either (a) be refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The Corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR form) its intention, whether to
request for a refund or claim for an automatic tax credit for the succeeding
taxable year.
To ease the administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
PBCom opted to apply for automatic tax credit. This was the basis used (vis-a-vis
the fact that the 1987 annual corporate tax return was not offered by the
petitioner as evidence) by the CTA in concluding that PBCom had indeed availed
of and applied the automatic tax credit to the succeeding year, hence it can no
longer ask for refund, as to [sic] the two remedies of refund and tax credit are
alternative. Since PBCom opted for an automatic tax credit in accordance with
Section 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax
Return, such a finding of fact must be respected by the Supreme Court. This,
especially, in light that the 1987 annual corporate tax return of PBCom was not
offered as evidence to controvert said fact.
CIR v CA
BPI, a bank, acted as liquidator for Paramount Acceptance Corporation during

dissolution on March 31, 1986.
Paramount filed its Corporate Income Tax Return (CITR) for calendar year of
1985. Paramount paid a total of P1.2+M.
After deducting Paramounts total quarterly income tax payments of P1.2+M

from its income tax of P1.1+M, the return showed a refundable amount of P65k.
The appropriate box in the return was marked with a cross (x) indicating To be
refunded the amount of P65k.
The following day or April 15, BPI filed and instant petition with CTA to toll the
running of the prescriptive period for filing a claim for refund of overpaid income
taxes.
The question was whether the 2-year prescriptive period for filing a refund
should be counted from April 2, when the CITR was actually filed (under Sec.
230 of NIRC, where its provided that the period must be counted from the day
of payment of tax) or from April 15 (under Sec. 70b) where the final adjustment
return could still be filed without incurring any penalties.
CTA rendered a decision stating that period commenced from April 15, 1986, the
last day for filing the corporate income tax return, and, since the claim for refund
was filed on April 14, 1988 and the action was brought on April 15, 1988, it held
that prescription had not set in.
CTA ordered CIR to refund Paramount.
CA affirmed the decision.
I: W/n the prescriptive period should commence when the Corporate Income Tax
Return is actually filed (Sec. 230), or from April 15 where final adjustment could
be filed w/o incurring penalties.
R: Prescriptive period should commence from the filing the Adjustment Return or
Annual Income Tax Return and Final Payment of Income Tax. PERIOD in this
case had already prescribed and no refund can be made.
In CIR v. TMX Sales, SC held that the filing of a quarterly income tax return and
payment of quarterly income tax should only be considered mere installments of
the annual tax due.
These quarterly tax payments which are computed based on the cumulative
figures of gross receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the annual income tax due,
to be adjusted at the end of the calendar or fiscal year.
This is reinforced by Sec. 87 [now Sec. 69] which provides for the filing of
adjustment returns and final payment of income tax. Consequently, the 2-year
prescriptive period provided in Section 230 should be computed from the time of
filing the Adjustment Return or Annual Income Tax Return and Final Payment of
Income Tax.
This is so because at that point, it can already be determined whether there has
been an overpayment by the taxpayer. Moreover under Sec 49a, payment is
made at the time return is filed.
In the case at bar, Paramount filed its corporate annual income tax return on
April 2, 1986. However, BPI, as liquidator of Paramount, filed a written claim for
refund only on April 14, 1988 and a petition for refund only on April 15, 1988.
Both claim and action for refund were barred by prescription.
CIR v Philamlife
Philamlife paid to the BIR its first quarterly corporate income tax for 1983
amounting to P3.2M+.
On August 29, 1983, it paid P300k+ for the Second Quarter of 1983.
For the Third Quarter of 1983, it declared a net taxable income of P2M+ and tax
due of P708k+.
After crediting the amount of P3M+ it declared a refundable amount of P3.1M+.
For its Fourth and final quarter ending December 31, Philamlife suffered a loss
and thereby had no income tax liability.
In the return for that quarter, it declared a refund of P3.9M representing the first
and second quarterly payments.
In 1984, private respondent again suffered a loss and declared no income tax
liability. However, it applied as tax credit for 1984, the amount of P3.9M
representing its 1982 and 1983 overpaid income taxes and the amount of
P250,867.00 as withholding tax on rental income for 1984.
On September 26, 1984, Philamlife filed a claim for its 1982 income tax refund of
P133,084.00.
On November 22, 1984, it filed a petition for review with the CTA with respect to
its 1982 claim for refund of P133,084.00.
On December 16, 1985, it filed another claim for refund with the CIR appellate
division.
On January 2, 1986, Philamlife filed a petition for review w/ the CTA regarding its
1983 and 1984 claims for refund.
CTA ordered the refund to the Philamlife for the first and second quarters of
1983. CA affirmed the decision, hence this appeal.
I: Where corporate taxpayer remits/pays to the BIR tax withheld on income for
the first quarter but whose business operations actually resulted in a loss for that
year, should not the running of the prescriptive period commence 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?
R: NO, prescriptive period should commence from the time of filing of final
adjustment return.
Section 292 (now Section 230) stipulates that the two-year prescriptive period to
claim refunds should be counted from date of payment of the tax sought to be
refunded.
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 quantity what is due the
government nor what should be refunded to the corporation.
This interpretation may be gleaned from the last paragraph of Section 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.
Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it
would not have been able to ascertain on that date, that the said amount was
refundable. The same applies with cogency to the payment of P396,874.00 on

August 29, 1983.
Clearly, 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 adjustment return is accomplished.
In the present case, the claim for refund and petition for review were made
within the two-year reglementary period.
Philamlife being a corporation, Section 292 (now Section 230) cannot serve as
the sole basis for determining the two-year prescriptive period for refunds.
As we have earlier said in the TMX Sales case, Sections 68, 69, and 70 on
Quarterly Corporate Income Tax Payment and Section 321 should be considered
in conjunction with it.
Moreover, even if the two-year period had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity and other special
circumstances.
ACCRA v CA
ACCRA Investments, a domestic corp engaged in real estate and mgmt

consultancy, filed its annual corp income tax return.
In the return, it declared as creditable all taxes withheld at source by various

witholding agents, amounting to P82k.
The withholding agents had already paid and remitted the amounts to BIR, way
ahead of ACCRAIns filing of its return.
ACCRAIn filed a claim for refund inasmuch as it had no tax liability against which
to credit the amounts withheld.
CTA denied the claim on the ground that the 2-year prescriptive period had
already lapsed, based on the case of Gibbs ruling w/c stated that a taxpayer
whose income is withheld at source will be deemed to have paid his tax liability
when the same falls due at the end of the tax year.
THUS, w/ the withholding agents paying taxes WAY AHEAD of ACCRAIn, its now
too late for ACCRAIn to claim for a refund, since it is deemed to have paid a
long time ago already.
I: W/n ACCRAIN is barred from recovering the 82k overpaid taxes
R: No, ACCRAIN is NOT barred from recovering. The prescriptive period did NOT
run when the taxes were paid.
Sec 230 of the old NIRC provides that no suit or proceeding shall begin after the
expiration of two years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment.
The lower court was wrong in considering the end of the tax year as the proper
reckoning date based on Gibbs, because ACCRAIn is NOT claming a refund for
overpaid witholding taxes, per se.
INSTEAD, it is asking for the recovery of 82k, refundable or creditable amount

determined upon the petitioner corps filing of its FINAL ADJUSTMENT TAX
RETURN on / before April 15 1982.
THUS, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and
regulations mandates that the corporate taxpayer opting to ask for a refund
must show in its final adjustment return the income it received from all sources
and the amount of withholding taxes remitted by its withholding agents to the
Bureau of Internal Revenue.
The petitioner corporation filed its final adjustment return for its 1981 taxable
year on April 15, 1982, w/c was WITHIN the period.
Philex Mining v CIR
Philam entered into a Mining License Agreement w/ Ministry of Nat Resources

(now DENR).
From the period July 1, 1980 to December 31, 1981, Philam purchased from
several oil companies, refined and manufactured mineral oils, motor fuels, and
diesel fuel oils.
The specific taxes passed on to the petitioner amounted to P2,492,677.22.
On October 1982, pursuant to R.A. 1435, petitioner filed a claim for refund
with the CIR for P623,169.30, representing the 25% of the specific taxes paid on
their use of refined and manufactured mineral oils, motor fuels and diesel fuel
oils.
Pending CIR action, on November 1982, the petitioner filed a case for tax refund
with the CTA.
The petitioner sought judgment ordering the CIR to pay as refund the amount
of P623,169.30, with 20% interest per annum, plus the costs of suit.
On August 4, 1994, the CTA rendered its decision, quoted at the outset,
granting the tax refund, but only to the extent of P16,747.36 (only 20% of
the specific taxes deemed paid under R.A. 1435).
Petitioner seeks a higher tax base (specific taxes actually paid) for the refund it
seeks.
I: W/N CA erred in basing the tax refund on the 20% specific taxes deemed paid
under RA 1435 (taxes deemed paid) instead of the increased rates imposed by
Sec 142 and 145 (taxes actually paid)
R: NO, court's decision was proper.
Right to refund under R.A. 1435
RA 1435 (An Act to Provide Means for Increasing the Highway Special Fund)
states that mining and lumber companies seldom use national highways. Since
the gasoline and fuel purchased by mining and lumber companies are used
within their own compounds and roads, and they do not benefit directly from the
Fund, the government granted to these companies a 25% partial refund of
specific taxes paid on purchases of manufactured diesel and fuel oils.
Tax refund under R.A. 1435 is computed on the basis of the specific tax deemed
paid and NOT on the increased rates actually paid under 1977 NIRC.
Since the partial refund authorized under Section 5, R.A. 1435, is in the nature of
a tax exemption, it must be construed strictissimi juris against the grantee.
The subsequent codification of tax laws under the NIRC Sec 153 and 156
mandated increase rates of specific taxes on oils, fules, etc.
Although PHILEX paid the taxes on their oil and fuel based on the increased
rates, the latter law did NOT specifically provide for a refund based on the
increased rates.
Also, claims for refund w/c were not filed w/ CIR and those that prescribed must
be deemed excluded for being outside the ambit of legislative enactment.
CIR v PNB
Philippine National Bank (PNB) issued to BIR PNB Cashiers Check No. 109435 for
P180,000,000.00, representing PNBs advance income tax payment for the banks
1991 operations.
The BIR acknowledged receipt of the amount by issuing a payment order and
receipt.
PNB requested the issuance of a tax credit certificate (TCC) to be utilized against
future tax obligations of the bank.
For the first and second quarters of 1991, PNB also paid additional taxes.
By the end of 1991, PNBs annual income tax liabilityresulted to a credit balance
in its favor in the amount of P73,298,892.60.
On July 28, 1997, PNB wrote then BIR Commissioner Vinzons-Chato, to inform
her about the above developments and to reiterate its request for the issuance
of a TCC, this time for the unutilized balance of its advance payment made in
1991 amounting to P73,298,892.60.
CIR denied the request .
PNB filed a petition for review w/ CTA.
CTA denied the claim on the ground that it had already prescribed (beyond the
2-year prescriptive period).
PNB filed a petition for review with the Court of Appeals (CA).
The CA reversed the CTA considering the special circumstance that the tax
credit PNB has been seeking is to be sourced not from any tax erroneously or
illegally collected but from advance income tax payment voluntarily made in
response to then President Aquinos call to generate more revenues for the
government.
I: W/n PNBs claim for refund/ credit was time-barred
R: NO, it was not.
IN THIS CASE, PNB sought the application of amounts advanced to the BIR to
future annual income tax liabilities, in view of its inability to carry-over the
remaining amount of such advance payment to the four (4) succeeding taxable
years, not having incurred income tax liability during that period.
It would be improper to treat the same as erroneous, wrongful or illegal payment

of tax within the meaning of Section 230 of the Tax Code, since it would be
inequitable to strictly impose the two (2)-year prescriptive period as to
legally bar any request for such tax credit certificate considering the
special circumstances under which the advance income tax payment
was made and the unexpected event (four years of business losses) which
prevented such application or carry over.
The mandate of Rev. Reg. No. 10-77 is hardly of any application to PNBs
advance payment which, needless to stress, are not quarterly payments
reflected in the adjusted final return, but a lump sum payment to cover future
tax obligations. Neither can such advance lump sum payment be considered
overpaid income tax for a given taxable year, so that the carrying forward of any
excess or overpaid income tax for a given taxable year is limited to the
succeeding taxable year only.
Limiting the right to carry-over the balance of respondents advance
payment only to the immediately succeeding taxable year would be
unfair and improper considering that, at the time payment was made, BIR
was put on due notice of PNBs intention to apply the entire amount to
its future tax obligations.
The suspension of the two (2)-year prescriptive period is warranted not solely by
the objective or purpose pursuant to which PNB made the advance income tax
payment in 1991. Records show that the BIRs very own conduct led PNB
to believe all along that its original intention to apply the advance
payment to its future income tax obligations will be respected by the
BIR.
An availment of tax credit for reasons other than erroneous / wrongful collection
of taxes may have a different prescriptive period.
ABSENT any provision in the Tax Code / special laws, period = 10 years under
Art 1144 of the CC.
Philam Asset Mgmt v CIR
IN A NUTSHELL: Philam wanted to claim for refund on unutilized tax credits
(Case 1) and unapplied creditable withholding tax (Case 2) . HOWEVER, this was
denied by CTA.
1st case:
Philam Asset Management, Inc. (Philam) is a domestic corporation which acts as
the investment manager of both Philippine Fund, Inc. (PFI) and Philam Bond
Fund, Inc. (PBFI), which are open-end investment companies.
Both PFI and PBFI agreed to pay Philam by way of compensation for its services
and facilities, a monthly management fee from which PFI and PBFI withhold an
amount equivalent to a 5% creditable tax.
In April 1998, Philam filed its income tax return for the taxable year 1997
representing a net loss of approximately P2.6M.
Philam failed to utilize the creditable tax on professional fees withheld by PFI and
PBFI so it filed a claim for refund with the BIR representing unutilized excess tax
credits.
BIR did not act on the claim for refund hence in November 1999, Philam filed a
petition for review with the CTA. In 2002, The CTA denied the claim for
refund.
2nd case:
In April 1999, Philam filed its income tax return for the taxable year 1998
declaring a net loss of approximately P1.5M.
Philam had an unapplied creditable withholding tax which had been previously
withheld in that year by PFI and PBFI.
Philam likewise declared in its 1999 tax return an amount representing its prior
excess credits for taxable year 1998.
In the succeeding year, Philam had a tax due approximately in the amount of
P80K and a creditable withholding tax approximately in the amount of P915K. In
2000, Philam filed for a claim for refund with respect to the unapplied creditable
withholding tax.
BIR did not act on the claim for refund hence Philam filed a petition for review
before the CTA in 2000. The CTA denied the claim for refund.
Ruling of CA for claim of refund for both cases:
CA denied the claim for refund of Philams excess creditable taxes withheld for
the years 1997 and 1998, ruling that Philam did not indicate its option to have
the amounts either refunded or carried over and applied to the succeeding year.
The CA also ruled that to request for either a refund or a credit of income tax
paid, a corporation must signify its intention by marking the corresponding
option box on its annual corporate adjustment return, and failure to do so would
result in the automatic carry-over of any excess tax credit for the prior year.
I: W/n Philam is entitled to a refund of its creditable taxes withheld for taxable
years 1997 and 1998
R: Philam is entitled to a tax refund of its 1997 excess tax credits, while it is not
entitled to a tax refund which corresponds to its 1998 excess tax credits.
Ratio for allowing a tax refund of Philams 1997 excess tax credits
Section 76 of the Tax Code offers two options to a taxable corporation whose
total quarterly income tax payments in a given taxable year exceeds its total
income tax due.
These options are (1) filing for a tax refund or (2) availing of a tax credit. The
first option is relatively simple: any tax on income that is paid in excess of the
amount due the government may be refunded, provided that a taxpayer properly
applies for the refund.
The second option works by applying the refundable amount, as shown on the
Final Adjustment Return (FAR) of a given taxable year, against the estimated
quarterly income tax liabilities of the succeeding taxable year. These two options
under Section 76 are alternative in nature the choice of one precludes the
other.
Failure to signify ones intention in the FAR does not mean outright barring of a
valid request for a refund, should one still choose this option later on.
Requiring that the income tax return or the FAR of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law and
jurisprudence:
1.
Section 76 does not mandate it. The law merely requires the filing of the
FAR for the preceding -- not the succeeding -- taxable year.
2. Moreover, there is no automatic grant of a tax refund. Exercising the option
for a tax refund or a tax credit does not ipso facto confer upon a taxpayer
the right to an immediate availment of the choice made. Neither does it
impose a duty on the government to allow tax collection to be at the sole
control of a taxpayer.
3. Moreover, the BIR ought to have on file its own copies of petitioners FAR
for the succeeding year, on the basis of which it could rebut the assertion
that there was a subsequent credit of the excess income tax payments for
the previous year. Its failure to present this vital document to support its
contention against the grant of a tax refund to petitioner is certainly fatal.
4. Furthermore, the Tax Code allows the refund of taxes to a taxpayer that
claims it in writing within two years after payment of the taxes erroneously
received by the BIR. Despite the failure of Philam to make the appropriate
marking in the BIR form, the filing of its written claim effectively serves as
an expression of its choice to request a tax refund, instead of a tax credit.
In the present case, although petitioner did not mark the refund box in its 1997
FAR, neither did it perform any act indicating that it chose a tax credit. On the
contrary, it filed in 1998 a claim for refund of its excess taxes withheld in 1997.
Under these circumstances, Philam is entitled to a tax refund of its 1997 excess
tax credits.
Ratio for disallowing a tax refund of Philams 1998 excess tax credits
As to the second case, Section 76 also applies. The carry-over option under
Section 76 is permissive. Once chosen, the carry-over option shall be considered
irrevocable for that taxable period, and no application for a tax refund or
issuance of a tax credit certificate shall then be allowed.
The subsequent acts of Philam reveal that it has effectively chosen the carryover option:
1. First, the fact that it filled out the portion Prior Years Excess Credits in its
1999 FAR means that it categorically availed itself of the carry-over option.
If an application for a tax refund has been -- or will be -- filed, then that
portion of the BIR form should necessarily be blank, even if the FAR of the
previous taxable year already shows an overpayment in taxes.
2. Second, the resulting redundancy in the claim of Philam for a refund of its
1998 excess tax credits cannot be countenanced. It cannot be allowed to
avail itself of a tax refund and a tax credit at the same time for the same
excess income taxes paid.
3. Third, the first-in first-out (FIFO) principle enunciated by the CTA does not
apply. The amount to be applied against the approximately P80K income
tax due in the 1998 FAR of Philam may be taken from its excess credits in
1997 or from those withheld in 1998 or from both. Whichever of these the
amount will be taken from will not make a difference. Whether the FIFO
principle is applied or not, Section 76 remains clear and unequivocal. Once
the carry-over option is taken, actually or constructively, it becomes

irrevocable.
Philam has chosen that option for its 1998 creditable withholding taxes. Thus, it
is no longer entitled to a tax refund of the amount corresponding to its 1998
excess tax credit. Nonetheless, the amount will not be forfeited in the
governments favor, because it may be claimed by petitioner as tax credits in the
succeeding taxable years.
FEBTC v CIR
FEBTC is the trustee of various retirement plans established by several

companies for its employees. As trustee of the retirement plans, petitioner was
authorized to hold, manage, invest and reinvest the assets of these plans. It
invested the retirement funds in various money market placements, bank
deposits, deposit substitute instruments and government securities. These
investments necessarily earned interest income. Petitioners claim for refund
centers on the tax withheld by the various withholding agents, and paid to the
CIR for the four (4) quarters of 1993, amounting to P6,049,971.83.
On four dates, 12 May 1993, 16 August 1993, 31 January 1994, and 29 April
1994, petitioner filed its written claim for refund with the BIR, alleging that the
employees trusts are exempted by specific mandate of law from income
taxation. Nonetheless, the claims were denied.
Meanwhile, the petitioner already had a pending petition before the CTA, apparently
involving the same legal issue but a previous taxable period. Hoping to comply with
the 2-year period within which to file an action for refund under Section 230 of the
Tax Code, petitioner filed a Motion to Admit Supplemental Petition in the said
pending case.
The CTA denied the motion, claiming that it would further delay the proceedings.
Nonetheless, the CTA advised that petitioner could instead file a separate petition for
review for the refund of the withholding taxes paid in 1993.
Petitioner followed the CTAs advice, and on October 9, 1995, it filed another petition
for review with the CTA. This was again denied due to prescription and for failing to
submit such necessary documentary proof of transactions, such as confirmation
receipts and purchase orders.
Its MR and/or Motion New Trial were also denied. The CA affirmed the CTAs ruling.
Issues/Held: Did the lower courts erred in dismissing FEBTCs petition on a mere
technicality? NO! Petition denied.
Ratio:
1. Procedural error of FEBTC
Sec. 6 of Rule 43 provides that the petition for review must be accompanied by
"certified true copies of such material portions of the record referred to in the petition
and other supporting papers". Under Section 7, Rule 43, the failure to attach such
documents which should accompany the petition is sufficient ground for the dismissal
of the petition.
The CA would have no way to ascertain the veracity of the submissions unless the
certified true copies of such portions of the record referred to in the petition be
attached. The records are an essential requisite for the determination of prima facie
basis for giving due course to the petition.
The confirmation receipts and purchase orders would ordinarily show the fact of
purchase of treasury bills or money market placements by the various funds. They
represent the best evidence on the participation of the funds. What has to be
established though, as a matter of evidence, is that the amount sought to be
refunded to petitioner actually corresponds to the tax withheld on the interest income
earned from the exempt employees trusts. The need to be determinate on this point
especially that petitioner earns interest income not only from its investments of
employees trusts, but on a whole range of accounts which do not enjoy the same
broad exemption as employees trusts. For these certifications to hold value, there is
particular need for them to segregate such taxes withheld from the interest income of
employees trusts, and those withheld from other income sources. Otherwise, these
certifications are ineffectual to establish the present claim for refund.
FEBTC failed to submit documentary proof of transactions.
2. It is a fact that Income from Employees trust are exempted from income tax,
therefore, Section 230 of the NIRC applies.
RA 4917, RA 8424 and Section 60(B) of the NIRC granted exemption from income tax
to employees trusts. But FEBTC did pay the income tax when it was withheld,
therefore Such taxes were erroneously assessed or collected, giving rise to the
application of Section 230.
SEC. 230. ....In any case, no such suit or proceeding shall be
begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening
cause that may arise after payment...
3. When should the 2-year prescriptive period be reckoned?
FEBTC submits that it should be reckoned from the date of its filing of the
Supplemental Petition on 28 April 1995, not from the filing of its new petition for
review after the Supplemental Petition was denied.
Even granting that this should be the case, such argument would still preclude the
refund of taxes wrongfully paid from January to 27 April 1993, the two (2)-year
prescriptive period for those taxes paid then having already become operative.
4. Could the 2-year prescriptive period for the refund be deemed tolled by the filing of
the Supplemental Petition? NO!
In this case, there is no doubt that the CTA has jurisdiction over actions seeking the
refund of income taxes erroneously paid. But it should be borne in mind that
petitioner initially sought to bring its claim for refund for the taxes paid in 1993
through a supplemental petition in another case pending before the CTA, and not
through an original action. The admission of supplemental pleadings remains in the
sound discretion of the court. It is only upon the admission by the court of the
supplemental complaint that it may be deem to augment the original complaint. Until
such time, the court acquires no jurisdiction over such new claims as may be raised in
the supplemental complaint. In this case, the CTA refused to admit the supplemental
petition, thus it cannot even be deemed as having been filed.
The CTA only acquired jurisdiction over the claim for refund for taxes paid by
petitioner in 1993 only upon the filing of the new Petition for Review on 9 October
1995.
Pilipinas Shell v CIR

Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of
the international petroleum giant Shell, and is engaged in the importation, refining
and sale of petroleum products in the country.
CASE 1 validity of transfer of TCCs
From 1988 to 1997, PSPC paid part of its excise tax liabilities with
Certificates (TCCs) which it acquired through the Department of Finance
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (Center)
BOI-registered companies. BIR accepted the TCC payments and issued
memoranda (TDM) .
Tax Credit
(DOF) One
from other
a tax debit
April 22 1998 - However, despite such payment, BIR assess PSPC for alleged
deficiency excise tax liabilities of PhP1.7M for the taxable years 1992 and 1994 to
1997, inclusive of delinquency surcharges and interest. BIR said that PSPC is not a
qualified transferee of the TCCs it acquired from other BOI-registered
companies.
PSPC protested the collection letter, but the protest was denied. PSPC filed its
motion for reconsideration. CIR did not reply. PSPC filed a petition for review before
the CTA
CTA held that payment by the use of TCCs was legal and valid, and that
respondents attempt to collect alleged delinquent taxes and penalties from
PSPC without an assessment constitutes denial of due process. Thus, it held
that the April 22 assessment was invalid. CIR appealed to the CA.
CASE 2 fraudulent transfer of TCCs
Pending appeal of Case 1, the Center sent letters to PSPC requiring the latter to
submit copies of pertinent sales invoices and delivery receipts covering a) sale
transactions with the TCC assignors/transferors purportedly in connection with an
ongoing post audit and; b) PSPC Industrial Fuel Oil (IFO) deliveries to Spintex
International, Inc. PSPC replied saying that the required submission of these
documents had no legal basis, for the applicable rules and regulations on the matter
only require that both the assignor and assignee of TCCs be BOI-registered entities.
The Center ignored this defense and informed PSPC of the cancellation of the first
batch of TCCs transferred to PSPC and the TDM covering PSPCs use of these TCCs
as well as the corresponding TCC assignments. PSPCs MR was ignored.
November 22, 1999 - PSPC received the November 15, 1999 assessment
letter from respondent for excise tax deficiencies, surcharges, and interest based on
the first batch of cancelled TCCs and TDM covering PSPCs use of the
TCCs. PSPC protested the assessment letter, but the protest was denied by the BIR,
constraining it to file another petition for review before the CTA
[On March 30, 2004, R.A.9282 was promulgated amending RA 1125, expanding the
jurisdiction of the CTA and enlarging its membership. It became effective on April 23,
2004 after its due publication. Thus, CTA CASE 2 was heard and decided by a CTA
Division.]
CTA Division held that respondent failed to prove with convincing evidence that the
TCCs transferred to PSPC were fraudulently issued as respondents finding of alleged
fraud was merely speculative. CIR and the Center did not present proof that PSPC
acted fraudulently. They merely based their conclusions on the audited financial
statements of the transferors which did not clearly show the actual export sales of
transactions from which the TCCs were issued. The Center erroneously based its
findings of fraud on two possibilities: either the transferor did not declare its export
sales or underdeclare them, without specifying identifying or proving the fraudulent
acts. The CTA Division concluded that the TCCs transferred to PSPC were not
fraudulently issued. The CTA Division said that the November assessment was
not precluded by the CASE 1 as the latter concerned the validity of the
transfer of the TCCs, while CASE 2 involved alleged fraudulent procurement
and transfer of the TCCs.
CTA En Banc ruled, among other things, that BIRs assessment did not prescribe
considering that no payment took effect as the subject TCCs were canceled
upon post audit. Consequently, the filing of the tax return sans payment due to the
cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax
return which put them in the ambit of the applicability of the 10-year prescriptive
period from the discovery of falsity, fraud, or omission. The CTA En Banc also
applied Aznar v. Court of Tax Appeals, where this Court held that without proof that
the taxpayer participated in the fraud, the 50% fraud surcharge is not imposed, but
the 25% late payment and the 20% interest per annum are applicable.
Held:
The CTA En Banc Decision is hereby REVERSED and SET ASIDE, and CTA Decision in
CASE 1 disallowing the April 22, 2009 assessment is hereby REINSTATED.
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive

condition, the very purpose of the TCC would be defeated as there would be no
guarantee that the TCC would be honored by the government as payment for
taxes. No investor would take the risk of utilizing TCCs if these were subject to a
post-audit that may invalidate them, without prescribed grounds or limits as to the
exercise of said post-audit.
Issue/Ruling:
*Important Issue
1. WON the CTA gravely erred in ordering petitioner PSPC to
pay P285,766,987.00, as alleged deficiency excise taxes,
for the taxable years, 1992 and 1994 to 1997: YES
2. (See definition of tax credit and TCC below9)
TCC is an undertaking by the government through the BIR or DOF, acknowledging

that a taxpayer is entitled to a certain amount of tax credit from either an
overpayment of income taxes, a direct benefit granted by law or other sources and
instances granted by law such as on specific unused input taxes and excise taxes on
certain goods. As such, tax credit is transferable in accordance with pertinent laws,
rules, and regulations.
CTA En Banc is incorrect. We cannot subscribe to the CTA En Bancs holding that the
suspensive condition suspends the effectivity of the TCCs as payment until after the
post-audit. This strains the very nature of a TCC. A TCC is an undertaking by the
government through the BIR or DOF, acknowledging that a taxpayer is entitled to a
certain amount of tax credit from either an overpayment of income taxes, a direct
benefit granted by law or other sources and instances granted by law such as on
specific unused input taxes and excise taxes on certain goods. As such, tax credit is
transferable in accordance with pertinent laws, rules, and regulations. The effectivity
and validity of the TCC do not depend on the outcome of a post-audit. The
subsequent post-audit cannot void the TCCs and allow the respondent to declare that
utilizing canceled TCCs results in nonpayment on the part of PSPC.
*Other issues:
3. WON the CTA appeals gravely erred in imposing
surcharges and interests on the alleged deficiency excise
tax of petitioner PSPC: YES
Ratio: If we are to sustain the appellate tax court, it would be absurd to make the
effectivity of the payment of a TCC dependent on a post-audit since there is no

contemplation of the situation wherein there is no post-audit. Does the payment
made become effective if no post-audit is conducted? Or does the so-called
suspensive condition still apply as no law, rule, or regulation specifies a period when a
post-audit should or could be conducted with a prescriptive period? Clearly, a tax
payment through a TCC cannot be both effective when made and dependent on a
future event for its effectivity. Our system of laws and procedures abhors ambiguity.
9
Tax credits were granted under EO 226 as incentives to encourage investments in certain
businesses. A tax credit generally refers to an amount that may be subtracted directly from ones
total tax liability. It is an allowance against the tax itself or a deduction from what is owed by a
taxpayer to the government.
A TCC is a certification, duly issued to the taxpayer named therein, by the Commissioner or his
duly authorized representative, reduced in a BIR Accountable Form in accordance with the
prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a
tax credit, the money value of which may be used in payment or in satisfaction of any of his
internal revenue tax liability (except those excluded), or may be converted as a cash refund,
or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as
may be prescribed by the provisions of these Regulations.
Assuming that fraud attended the procurement of the subject TCCs, it cannot
prejudice PSPCs rights as earlier explained since PSPC has not been shown or proven
to have participated in the perpetration of the fraudulent acts, nor is it shown that
PSPC committed fraud in the transfer and utilization of the subject TCCs.
While the Center has authority to cancel the TCCs, it must bear in mind the nature of
the TCCs immediate effectiveness and validity for which cancellation may only be
exercised before a transferred TCC has been fully utilized or canceled by the BIR after
due application of the available tax credit to the internal revenue tax liabilities of an
innocent transferee for value, unless of course the claimant or transferee was involved
in the perpetration of the fraud in the TCCs issuance, transfer, or utilization. The
utilization of the TCC will not shield a guilty party from the consequences of the fraud
committed.
While we agree with respondent that the State in the performance of governmental
function is not estopped by the neglect or omission of its agents, and nowhere is this
truer than in the field of taxation, this principle cannot be applied to work injustice
against an innocent party. In the case at bar, PSPCs rights as an innocent transferee
for value must be protected. Therefore, the remedy for respondent is to go after the
claimant companies who allegedly perpetrated the fraud (was the subject of a criminal
prosecution before the Sandiganbayan.)
4.
WON the assessment dated 15 November 1999 is void

considering that it failed to comply with the statutory as
well as regulatory requirements in the issuance of

assessments: YES
5.
Respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. While PSPC indeed protested the formal assessment, such
does not denigrate the fact that it was deprived of statutory and procedural due
process to contest the assessment before it was issued.
What is applicable is RR 12-9910, which superseded RR 12-85, pursuant to Sec. 244 in
relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249
on the assessment of national internal revenue taxes, fees, and charges. The
procedures delineated in the said statutory provisos and RR 12-99 were not followed
by respondent, depriving PSPC of due process in contesting the formal assessment
levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for
informal conference and a preliminary assessment notice, as required. PSPCs
November 4, 1999 motion for reconsideration of the purported Center findings and
cancellation of the subject TCCs and the TDM was not even acted upon. PSPC was
merely informed that it is liable for the amount of excise taxes it declared in its excise
tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal
letter of demand and assessment notice. For being formally defective, the November
15, 1999 formal letter of demand and assessment notice is void.
10
Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:

3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayers deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice shall
be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. x
x x (Emphasis supplied.)

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CASE LIST IN TAX 1

In 1924, the CFI appointed an administrator, Moore, eventually replaced by

succession of a person are transmitted from the moment of his death)

HOWEVER, there is no distinction between different classes of heirs. The

TAX 2 MONTERO | Y. Sanchez A2012

Walter G. Stevenson was born in the Philippines of British parents, married

Statt filed an amended estate and inheritance tax return claiming

On the other hand, Section 13851 of the California

TAX 2 MONTERO | Y. Sanchez A2012

every character if the Territory or other State of the

Maria Cerdeira was a Spanish national by reason of her marriage to a Spanish

transfers by reason of death of movable properties, corporeal or incorporeal,

TAX 2 MONTERO | Y. Sanchez A2012

Neither can these donations be considered as an advance on inheritance or

In 1922, Esperanza Tuason Chuajap made a donation inter vivos of certain

TAX 2 MONTERO | Y. Sanchez A2012

no inheritance tax under Act No. 2601 (Chapter 40 of the Administrative

Vidal de Roces v Posadas

Esperanza Tuazon by public document donated parcels of land situated in Manila

CIR v CA and Pajonar

RTC appointed Josefina as regular administratrix of Pedros estate.

TAX 2 MONTERO | Y. Sanchez A2012

CTA ordered CIR to refund Josefina the amount of 252k, representing

Judicial expenses are expenses for administration. Administration expenses

Testate Estate of the late Felix de Guzman v de Guzman-Carillo

Felix Guzman died and was survived by eight children.

Dizon in his capacity as Administrator of the deceased Fernandez v CIR

TAX 2 MONTERO | Y. Sanchez A2012

against a decedent's estate is generally construed to mean debts or

When Florentino died in 1925, intestate proceedings were instituted where

During the pendency of the intestate proceedings, the administrator Jose

In 1927, subsequent to the distribution of Florentinos estate, the

Heirs are liable for the deficiency income taxes, in proportion to

The administration proceedings of the late Florentino having been closed,

TAX 2 MONTERO | Y. Sanchez A2012

heirs, who shall be liable therefor in proportion to their share in the

Manuel, the eldest child, contested the assessment. Subsequently, he

Manuel opposed the proposition on the ground that as an heir he is liable

Philippine Islands v. Pamintuan.

inheritance, for unpaid income taxes for which said estate is

If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance

TAX 2 MONTERO | Y. Sanchez A2012

On January 25, 1955, BIR demanded payment of assessed estate and

(2) when it covers the entire period involved;

(3) when it contains information as to the various items of

It was incomplete. It declared only 93 parcels of land and

Moreover, the return mentioned no heir. Thus, no inheritance tax

for tax collection, applies. He is obligated to make a return or amend one

TAX 2 MONTERO | Y. Sanchez A2012

1939 to 1950 (except in 1947 and 1948) P4,000 in cash;

The instituted trustee was Allisons brother, Finley Gibb.

TAX 2 MONTERO | Y. Sanchez A2012

PIROVANO vs. CIR

Enrico Pirovano was the father Carla Pirovano.

TAX 2 MONTERO | Y. Sanchez A2012

A donation made by the corporation to the heirs of a deceased officer out of

SPS. Gestopa vs. CA ad Mercedes Danlag

Diego and Catalina Danlag were owners of 6 parcels of unregistered lands.

They executed 3 deeds of donation mortis causa in favor of Mercedes

Diego w/ the consent of Catalina then executed a deed of donation inter

This contained two conditions

TAX 2 MONTERO | Y. Sanchez A2012