Tax Case Digest: Davao Gulf Lumber

Corporation v. CIR (1998)

Davao Gulf Lumber Corporation v. CIR
G.R. No. 117359 July 23, 1998
PANGANIBAN, J

Lessons Applicable: tax exemption should be construed strictissimi juris against the grantee,
equity is not a ground for tax exemption

Laws Applicable:

FACTS:

 Davao Gulf Lumber Corporation, a licensed forest concessionaire possessing a Timber

License Agreement granted by the Ministry of Natural Resources (Now DENR),
purchased from various oil companies refined and manufactured oils as well as motor and
diesel fuels for its exploitation and operation.
 Selling companies paid and passed the specific taxes imposed under Sec. 153 and 156 of
the 1997 NIRC to petitioner as purchaser who in turn filed before CIR a Claim for
Refund for P120, 825 representing 25% of the specific taxes actually paid based on
Insular Lumber Co. v. CTA and Sec. 5 of RA 1435 and complied with its procedure.
 Then, petitioner filed before CA a Petition for Review: Favored petitioner to a partial
refund P2,923 (excluding those that have prescribed) and based on the rates deemed paid
under RA 1435 (NOT higher rates actually paid under the NIRC)
 Insisting that the basis be the higher rate, petitioner elevated the case to the CTA who
affirmed the CA's decision

ISSUE: W/N the basis should be the higher rates prescribed by Sec. 153 and 156 of the 1997
NIRC

HELD: NO. A tax cannot be imposed unless it is supported by the clear and express language
of a statute; On the other hand, once the tax is unquestionably imposed, a claim of exemption
from tax payments must be clearly shown and based on language in the law too plain to be
mistaken. Section 5, RA 1435 as a tax exemption, must be construed strictissimi juris against
the grantee.

 Supported by CIR v. CA and Atlas Co., CIR v. Rio Tuba Nickel Mining Corp. and
Insular Lumber Co. - all cases where purchases was made BEFORE 1997 NIRC is in
effect.
 According to an eminent authority on taxation, there is no tax exemption solely on the
ground of equity
Reyes vs. Almanzor
REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and
occupied as dwelling
units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the
Rental
Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling
units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were
precluded from
raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-
classified and
reassessed the value of the subject properties based on the schedule of market values, which
entailed an
increase in the corresponding tax rates prompting petitioners to file a Memorandum of
Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from
their
properties. They argued that the income approach should have been used in determining the land
values instead
of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification
for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all
persons under
similar circumstances or that all persons must be treated in the same manner, the conditions not
being different
both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its
Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and eventually
result in the
forfeiture of their properties.
PBCom. vs. CIR(GR 112024. Jan. 28, 1999)
Posted by taxcasesdigest on Tuesday, July 7, 2009

Labels: 2-year, administrative issuance, reglementary period, tax credit, tax refund

FACTS:Petitioner, Philippine Bank of Communications (PBCom), a commercial

banking corporation duly organized under Philippine laws, filed its quarterly income
tax returns for the first and second quarters of 1985, reported profits, and paid the
total income tax of P5,016,954.00 by applying PBCom's tax credit memos for
P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom
suffered net loss of P25,317,228.00, thereby showing no income tax liability in its
Annual Income Tax Returns for the year-ended December 31, 1985. For the
succeeding year, ending December 31, 1986, the petitioner likewise reported a net
loss of P14,129,602.00, and thus declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties.
The lessees withheld and remitted to the BIR withholding creditable taxes of
P282,795.50 in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner
requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second
quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in
1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue,

petitioner instituted a Petition for Review on November 18, 1988 before the Court
of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled:
"Philippine Bank of Communications vs. Commissioner of Internal Revenue."

The CTA decided in favor of the BIR on the ground that the Petition was filed out of
time as the same was filed beyond the two-year reglementary period. A motion for
Reconsideration was denied and the appeal to Court of Appeals was likewise denied.
Thus, this appeal to Supreme Court.

Issues:

a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary
period from two (2) years to ten (10) years is valid.

b) Whether or not the petition for tax refund had already prescribed.

Ruling:

a. RR 7-85 altering the 2-year prescriptive period imposed by law to 10-

year prescriptive period is invalid.

Administrative issuances are merely interpretations and not expansions of the

provisions of law, thus, in case of inconsistency, the law prevails over them.
Administrative agencies have no legislative power.

“When the Acting Commissioner of Internal Revenue issued RMC 7-85,

changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret
the law; rather it legislated guidelines contrary to the statute passed by Congress.”
“It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations
of tax laws) which are issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement.”

“Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony with
Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute.
Hence, his interpretation could not be given weight for to do so would, in effect,
amend the statute.”

b. By implication of the above, claim for refund had already prescribed.

Since the petition had been filed beyond the prescriptive period, the same has
already prescribed. The fact that the final adjusted return show an excess tax credit
does not automatically entitle taxpayer claim for refund without any express intent.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals
appealed from is AFFIRMED, with COSTS against the petitioner.
Philippiine Guaranty Inc. vs. CIR
PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered
into reinsurance contracts with foreign insurance companies not doing business in the country,
thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines. The premiums paid by such companies were excluded by the
petitioner from its gross income when it file its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested
the assessment on the ground that the premiums are not subject to tax for the premiums did not
constitute income from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines, and CIR's previous rulings did not require insurance
companies to withhold income tax due from foreign companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to
foreign insurance companies, which deprives the government from collecting the tax due from
them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of
civil servants to serve, public improvement designed for the enjoyment of the citizenry and those
which come within the State's territory, and facilities and protection which a government is
supposed to provide. Considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of
maintaining the state.
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding
of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or
penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such withholding tax. The Government is not estopped from
collecting taxes by the mistakes or errors of its agents.
Philex Mining vs CIR
PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998
294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming
the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax
liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
Philex protested the demand for payment of the tax liabilities stating that it has pending claims
for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be
applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the
petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without unnecessary hindrance.
Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in
jurisprudence.To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on
the ground that it has a pending tax claim for refund or credit against the government which has
not yet been granted.Taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the Government
in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx
There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.
North Camarines vs. CIR
NORTH CAMARINES LUMBER CO., INC. v. CIR
GR No. L-12353, September 30, 1960
109 PHIL 511
FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the
agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised
the parties that the bureau interposes no objection so long as the tax due shall be covered by a
surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and
so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955.
Twice did the petitioner filed a request for reconsideration before finally submitting the denied
request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it
was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of
the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in
perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the
second request for reconsideration, should be considered as the final decision contemplated in
Section 7, and not the letter of demand dated August 30, 1955.

ISSUE: Is the contention of the petitioner tenable?

HELD: No. This contention is untenable. We cannot countenance that theory that would make
the commencement of the statutory 30-day period solely dependent on the will of the taxpayer
and place the latter in a position to put off indefinitely and at his convenience the finality of a tax
assessment. Such an absurd procedure would be detrimental to the interest of the Government,
for "taxes are the lifeblood of the government, and their prompt and certain availability is an
imperious need."
WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio Jayme Ledesma,
plaintiff-appellant v. J. ANTONIO ARANETA, as collector of Internal Revenue, defendant-apppelle

G.R No. L-7856. December 22, 1955

REYES, J.B L., J.:

FACTS:
Appelant in this case Walter Lutz in his capacity as the
Judicial Administrator of the intestate of the deceased Antonio
Jayme Ledesma, seeks to recover from the Collector of the
Internal Revenue the total sum of fourteen thousand six hundred
sixty six and forty cents (P 14, 666.40) paid by the estate as
taxes, under section 3 of Commonwealth Act No. 567, also known
as the Sugar Adjustment Act, for the crop years 1948-1949 and
1949-1950. Commonwealth Act. 567 Section 2 provides for an
increase of the existing tax on the manufacture of sugar on a
graduated basis, on each picul of sugar manufacturer; while
section 3 levies on the owners or persons in control of the land
devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the
difference between the money value of the rental or
consideration collected and the amount representing 12 per
centum of the assessed value of such land. It was alleged that
such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may
be constitutionally levied. The action was dismissed by the CFI
thus the plaintiff appealed directly to the Supreme Court.

ISSUE:
Whether or not the tax imposition in the Commonwealth Act No.
567 are unconstitutional.

RULING:
Yes, the Supreme Court held that the fact that sugar production
is one of the greatest industry of our nation, sugar occupying a
leading position among its export products; that it gives
employment to thousands of laborers in the fields and factories;
that it is a great source of the state's wealth, is one of the
important source of foreign exchange needed by our government
and is thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the
general welfare demanded that the sugar industry be stabilized
in turn; and in the wide field of its police power, the law-
making body could provide that the distribution of benefits
therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to
sustain.

The subject tax is levied with a regulatory purpose, to provide

means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily a valid
exercise of police power.
Gomez vs. Palomar
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to
the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635
otherwise known as the Anti-TB Stamp law is violative of
the equal protection clause because it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants exemptions. The law in question requires an additional 5 centavo stamp
for every mail being posted, and no mail shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the
field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The reason for this is that traditionally, classification has been a device for fitting
tax programs to local needs and usages in order to achieve an equitable distribution of the tax
burden.The classification of mail users is based on the ability to pay, the enjoyment of a privilege
and on administrative convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
PUNSALAN VS. MUNICIPAL BOARD OF MANILA [95 PHIL 46; NO.L-4817; 26 MAY 1954]
Saturday, January 31, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law

Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398
together with the law authorizing it (Section 18 of the Revised Charter of the City of
Manila). The ordinance imposes a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment of the same. The law
authorizing said ordinance empowers the Municipal Board of the city to impose a
municipal occupation tax on persons engaged in various professions. Petitioners,
having already paid their occupation tax under section 201 of the National Internal
Revenue Code, paid the tax under protest as imposed by Ordinance No. 3398. The
lower court declared the ordinance invalid and affirmed the validity of the law
authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute class
legislation, and authorize what amounts to double taxation.

Held: The Legislature may, in its discretion, select what occupations shall be taxed,
and in its discretion may tax all, or select classes of occupation for taxation, and
leave others untaxed. It is not for the courts to judge which cities or municipalities
should be empowered to impose occupation taxes aside from that imposed by the
National Government. That matter is within the domain of political departments.
The argument against double taxation may not be invoked if one tax is imposed by
the state and the other is imposed by the city. It is widely recognized that there is
nothing inherently terrible in the requirement that taxes be exacted with respect to
the same occupation by both the state and the political subdivisions thereof.
Judgment of the lower court is reversed with regards to the ordinance and affirmed
as to the law authorizing it.
CIR v. PINEDA
GR No. L-22734, September 15, 1967
21 SCRA 105

FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate
was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, 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. Thereupon, the representative of the Collector of Internal Revenue filed
said returns for the estate issued an assessment and charged the full amount to the inheritance
due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the
inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes
assessed.
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 inheritance, for unpaid income taxes for which said estate is liable. By virtue of
such lien, the Government has the right to subject the property in Pineda's possession to satisfy
the income tax assessment. After such payment, Pineda will have a right of contribution from his
co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received; and second, 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. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the
Tax Code above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.