TAX LAW REVIEWER

TAX EXEMPTIONS
How are laws granting tax exemptions construed? Laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The law does not look with favor on
tax exemptions and that he who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be misinterpreted.

Even for real properties owned by the national government, exemption from real property
taxes would not apply if their beneficial use has been granted to a taxable person because
it is the beneficial use that determines taxability of real property.

G.R. No. 122605 April 30, 2001

SEA-LAND SERVICE, INC., petitioner,
vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE,
respondents.

PARDO, J.:

FACTS: Sea-Land Service Incorporated (SEA-LAND), an American international

shipping company licensed by the Securities and Exchange Commission to do
business in the Philippines entered into a contract with the United States
Government to transport military household goods and effects of U.S. military
personnel assigned to the Subic Naval Base.

From the income derived aforesaid contract, SEA-LAND paid the income tax due
thereon of 1.5% as required in Section 25 (a)(2) of the National Internal Revenue
Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to
P870,093.12.

Claiming that it paid the aforementioned income tax by mistake, a written claim for
refund was filed with the BIR on 15 April 1987. However, before the said claim for
refund could be acted upon by public respondent Commissioner of Internal
Revenue, petitioner-appellant filed a petition for review with the CTA docketed as
CTA Case No. 4149, to judicially pursue its claim for refund and to stop the running
of the two-year prescriptive period under the then Section 243 of the NIRC.

On 21 February 1995, CTA rendered its decision denying SEA-LAND’s claim for
refund of the income tax it paid in 1984.

On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to
the Court of Appeals.
After due proceedings, on October 26, 1995, the Court of Appeals promulgated its
decision dismissing the appeal and affirming in toto the decision of the Court of Tax
Appeals.
Hence, this petition.
ISSUE: The issue raised is whether or not the income that petitioner derived from
services in transporting the household goods and effects of U.S. military personnel
falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US
Military Bases Agreement.

HELD: Laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception." The law "does not look with favor on tax exemptions
and that he who would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted."
 Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine
Government agreed to exempt from payment of Philippine income tax nationals of
the United States, or corporations organized under the laws of the United States,
residents in the United States in respect of any profit derived under a contract made
in the United States with the Government of the United States in connection with
the construction, maintenance, operation and defense of the bases.

It is obvious that the transport or shipment of household goods and effects of U.S.
military personnel is not included in the term "construction, maintenance, operation
and defense of the bases." Neither could the performance of this service to the U.S.
government be interpreted as directly related to the defense and security of the
Philippine territories. "When the law speaks in clear and categorical language, there
is no reason for interpretation or construction, but only for application." Any
interpretation that would give it an expansive construction to encompass petitioner’s
exemption from taxation would be unwarranted.

The avowed purpose of tax exemption "is some public benefit or interest, which the
lawmaking body considers sufficient to offset the monetary loss entailed in the grant
of the exemption." The hauling or transport of household goods and personal
effects of U. S. military personnel would not directly contribute to the defense and
security of the Philippines.

TAX AMNESTY
What is a Tax Amnesty? Tax amnesty is a general pardon to taxpayers who want to start a
clean tax slate. It also gives the government a chance to collect uncollected tax from tax
evaders without having to go through the tedious process of a tax case. To avail of a tax
amnesty granted by the government, and to be immune from suit on its delinquencies, the
taxpayer must have voluntarily disclosed his previously untaxed income and must have
paid the corresponding tax on such previously untaxed income.

A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.

However, when a law declaring a tax amnesty on unpaid income taxes contained no
limitation whatsoever delimiting its applicability to assessments made prior to its effectivity,
rather, it merely provided for general statement covering all tax liabilities incurred for certain
years, then, it has been designed to be in the nature of a general grant of tax amnesty
subject only to cases specifically excepted by it.

G.R. No. 102967 February 10, 2000

BIBIANO V. BAÑAS, JR., petitioner,
vs.
COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND
PROCOPIO TALON, respondents.

QUISUMBING, J.:

FACTS: On February 20, 1976, petitioner Bañas sold to AYALA a parcel of land for
P2,308,770.00. The Deed of Sale provided that upon the signing of the contract
AYALA shall pay P461,754.00. The balance was to be paid in four equal
consecutive annual installments, with twelve (12%) percent interest per annum on
the outstanding balance. AYALA issued one promissory note covering four equal
annual installments.

The same day, petitioner discounted the promissory note with AYALA, for its face
value. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976,
drawn against BPI to the uniform amount of P205,224.00.
In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as
income from disposition of capital asset. In the succeeding years, until 1979,
petitioner reported a uniform income of, P230,877.00 as gain from sale of capital
asset.

On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners
to examine the books and records of petitioner for the year 1976. They discovered
that petitioner had no outstanding receivable from the 1976 land sale to AYALA and
concluded that the sale was cash and the entire profit should have been taxable in
1976 since the income was wholly derived in 1976. The examiners recommended
deficiency tax assessment for P2,473,673.00.

After reviewing the examiners' report, the tax due was only fifty (50%) percent of the
total gain from sale of the property held by the taxpayer beyond twelve months
pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). The
deficiency tax assessment was P936,598.50.

On June 27, 1980, respondent Larin sent a letter to petitioner informing of the
income tax deficiency that must be settled him immediately.

On September 26, 1980, petitioner acknowledged receipt of the letter but insisted
that the sale of his land to AYALA was on installment.

On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch
of the National Office of the BIR. The Chief of the Tax Fraud Unit recommended the
prosecution of a criminal case for conspiring to file false and fraudulent returns, in
violation of Section 51 of the Tax Code against petitioner.

On June 17, 1981, a criminal complaint for tax evasion against the petitioner.

On July 2, 1981, petitioner filed an Amnesty Tax Return under P.D. 1740. On
November 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840.
In both, petitioner did not recognize that his sale of land to AYALA was on cash
basis.

Petitioner maintains that the proceeds of he promissory notes, not yet due, which
he discounted to AYALA should not be included as income realized in 1976.

ISSUES: (1) Does mere filing of tax amnesty return under P.D. 1740 and 1840 ipso
facto shield a taxpayer from immunity against tax suits? (2) Should petitioner’s
income from the sale of the land be declared as a cash transaction in his tax return
because the buyer discounted the promissory note issued to the seller on the same
day of the sale?

HELD: (1) NO. The petitioner is not entitled to the benefits of P.D. Nos. 1740 and
1840. He did not meet the twin requirements of said tax amnesty laws, to wit,
declaration of his untaxed income and full payment of tax due thereon. His
disclosure did not include the income from his sale of land to AYALA on cash basis.
Instead he insisted that such sale was on installment. He did not amend his income
tax return. He did not pay the tax which was considerably increased by the income
derived from the discounting.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It
also gives the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case. To avail of a tax
amnesty granted by the government, and to be immune from suit on its
delinquencies, the tax payer must have voluntarily disclosed his previously untaxed
income and must have paid the corresponding tax on such previously untaxed
income.

It also bears noting that a tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty like that of
 a tax exemption must be construed strictly against the taxpayer and liberally in favor
of the taxing authority.

(2) YES. As a general rule, the whole profit accruing from a sale of property is
taxable as income in the year the sale is made. But, if not all of the sale price is
received during such year, and a statute provides that income shall be taxable in
the year in which it is "received," the profit from an installment sale is to be
apportioned between or among the years in which such installments are paid and
received.

In the present case, although the proceeds of a discounted promissory note is not
considered initial payment, still it must be included as taxable income on the year it
was converted to cash. When petitioner had the promissory notes covering the
succeeding installment payments of the land issued by AYALA, discounted by
AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a
sale on installment since, a taxable disposition resulted and petitioner was required
by law to report in his returns the income derived from the discounting. What
petitioner did is tantamount to an attempt to circumvent the rule on payment of
income taxes gained from the sale of the land to AYALA for the year 1976.

TAX ADMINISTRATIVE REGULATIONS

What is the purpose of a Tax Ordinance? A municipal tax ordinance empowers a local
government unit (LGU) to impose taxes. The power to tax is the most effective instrument
to raise needed revenues to finance and support the myriad activities of LGUs for the
delivery of basic services essential to the promotion of the general welfare. Consequently,
any delay in implementing tax measures would be to the detriment of the public. It is for
this reason that protests over tax ordinances are required to be done within certain time
frames. The period for appeal provided in the law is clearly given for compliance as a
prerequisite before seeking redress in a competent court, therefore, mandatory.

G.R. No. 132269 April 27, 2000

HARRISON MOTORS CORPORATION, petitioner,
vs.
RACHEL A. NAVARRO, respondent.

BELLOSILLO, J.

FACTS: Sometime in June of 1987 Harrison Motors Corporation through its

president, Renato Claros, sold two (2) Isuzu Elf trucks to private respondent Rachel
Navarro, owner of RN Freight Lines. Prior to the sale, Renato Claros represented to
private respondent that all the BIR taxes and customs duties for the parts used on
the two (2) trucks had been paid for.

On 10 September 1987, the BIR and the LTO entered into a Memorandum of
Agreement (MOA) which provided that prior to registration in the LTO of any
assembled or re-assembled motor vehicle which used imported parts, a Certificate
of Payment should first be obtained from the BIR to prove payment of all taxes
required under existing laws.

In December of 1988 government agents seized and detained the two (2) Elf trucks
of respondent after discovering that there were still unpaid BIR taxes and customs
duties thereon. The BIR and the BOC ordered private respondent to pay the proper
assessments or her trucks would be impounded. Private respondent went to Claros
to ask for the receipts evidencing payment of BIR taxes and customs duties;
however, Claros refused to comply. Private respondent then demanded from Claros
that he pay the assessed taxes and warned him that he would have to reimburse
her should she be forced to pay for the assessments herself. Her demands were
again ignored.
 Private respondent paid the assessed BIR taxes and customs duties.
Consequently, she returned to petitioner's office to ask for reimbursement, but
petitioner again refused, prompting her to send a demand letter through her lawyer.
When petitioner still ignored her letter, she filed a complaint for a sum of money on
24 September 1990 with the Regional Trial Court of Makati.

Petitioner argues that it was no longer obliged to pay for the additional taxes and
customs duties imposed on the imported component parts by the Memorandum
Orders and the two (2) Memoranda of Agreement since such administrative
regulations only took effect after the execution of its contract of sale with private
respondent. Holding it liable for payment of the taxes specified in the administrative
regulations, which have the force and effect of laws, would not only violate the non-
impairment clause of the Constitution but also the principle of non-retroactivity of
laws provided in Art. 4 of the Civil Code. Petitioner further claimed that private
respondent should be the one to pay the taxes and duties because when the
restrictions took effect, he was no longer the owner of the trucks.

ISSUES: (1) Did the administrative regulations impose additional taxes that impair
the obligations of contracts and violate the principles of non-retroactivity? (2) Is the
importer-assembler/manufacturer liable to pay the BIR taxes and custom duties,
which the administrative regulations sought to enforce?

HELD: (1) NO. What Sec. 10, Art. III, of the Constitution prohibits is the passage of
a law which enlarges, abridges or in any manner changes the intention of the
contracting parties. The Memorandum Orders and the two (2) Memoranda of
Agreement do not impose any additional taxes which would unduly impair the
contract of sale between petitioner and private respondent. Instead, these
administrative regulations were passed to enforce payment of existing BIR taxes
and customs duties at the time of importation. While it is true that administrative
rulings and regulations are generally prospective in nature, an inspection of the
MOA, however, demonstrates that their intent is to enforce payment of taxes on
assemblers who import component arts without paying the correct assessments.

(2) YES. although private respondent is the one required by the administrative
regulations to secure the Certificate of Payment for the purpose of registration,
petitioner as the importer and the assembler/manufacturer of the two (2) Elf trucks
is still the one liable for payment of revenue taxes and customs duties. Petitioner's
obligation to pay does not arise from the administrative regulations but from the tax
laws existing at the time of importation. Hence, even if private respondent already
owned the two (2) trucks when the Memorandum Orders and Memoranda of
Agreement took effect, the fact remains that petitioner was still the one duty-bound
to pay for the BIR taxes and customs duties.

It is also quite obvious that as between petitioner, who is the importer-

assembler/manufacturer, and private respondent, who is merely the buyer, it is
petitioner which has the obligation to pay taxes to the BIR and the BOC. Petitioner
would be unjustly enriched if private respondent should be denied reimbursement.
It would inequitably amass profits from selling assembled trucks even if it did not
pay the taxes due on its imported spare parts. Imposing the tax burden on private
respondent would only encourage the proliferation of smugglers who scheme to
evade taxes by passing on their tax obligations to their unsuspecting buyers.

TAX REFUND
How does a corporation exercise its tax refund? A corporation entitled to a refund may opt
either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year.
When such claimant suffered a net loss in a particular year, as shown in the Returns, then
it incurred no tax liability to which the tax credit could be applied. Thus, it could not have
applied the amount of excess creditable withholding tax paid for the previous year as a tax
credit.
G.R. No. 122480 April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF
INTERNAL REVENUE, respondents.

PANGANIBAN, J.:

FACTS: The petitioner had excess withholding taxes for the year 1989 and was
thus entitled to a refund amounting to P112,491. It indicated in its 1989 Income Tax
Return that it would apply the said amount as a tax credit for the succeeding
taxable year, 1990. Subsequently, petitioner informed the Bureau of Internal
Revenue (BIR) that it would claim the amount as a tax refund, instead of applying it
as a tax credit. Petitioner averred that it did not apply the total refundable amount to
its 1990 Annual ITR or other tax liabilities due to alleged business losses it incurred
for the same year. When no action from the BIR was forthcoming, petitioner filed its
claim with the CTA. However, the CTA denied its claim for refund. Said decision
was affirmed in toto by the respondent Court of Appeals.

The respondent court ruled that thee is no basis to grant the claim for refund due to
petitioner’s failure to show proof that it has not credited to its 1990 ITR the total
refundable amount it previously declared to be applied as a tax credit in 1990.
Since tax refunds are in the nature of tax exemptions, they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. In other words, the burden of proof rests
upon the taxpayer to establish by sufficient and competent evidence its entitlement
to the claim for refund.

The petitioner maintained that it suffered a net loss in 1990 and that it could not
have applied the amount claimed as tax credits.

ISSUE: Did the petitioner fail to prove that it has not credited to its 1990 ITR the
total refundable amount it previously declared to be applied as tax credit for the
same year?

HELD: NO. Petitioner presented evidence to prove its claim that it did not apply the
amount as a tax credit. Petitioner also presented quarterly returns for the first two
quarters of 1990. More importantly, a copy of the Final Adjustment Return for 1990
was attached to petitioner's Motion for Reconsideration filed before the CTA. A final
adjustment return shows whether a corporation incurred a loss or gained a profit
during the taxable year. In this case, that Return clearly showed that petitioner
incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the
amount in dispute as a tax credit.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In
fact, it presented no evidence at all. Because it ought to know the tax records of all
taxpayers, the CIR could have easily disproved petitioner's claim. To repeat, it did
not do so.

True, strict procedural rules generally frown upon the submission of the Return after
the trial. The law creating the Court of Tax Appeals, however, specifically provides
that proceedings before it "shall not be governed strictly by the technical rules of
evidence." The paramount consideration remains the ascertainment of truth. Verily,
the quest for orderly presentation of issues is not an absolute. It should not bar
courts from considering undisputed facts to arrive at a just determination of a
controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly
showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA
and the CTA, petitioner could not have applied the amount as a tax credit. In failing
to consider the said Return, as well as the other documentary evidence presented
during the trial, the appellate court committed a reversible error.
 It should be stressed that the rationale of the rules of procedure is to secure a just
determination of every action. They are tools designed to facilitate the attainment of
justice. But there can be no just determination of the present action if we ignore, on
grounds of strict technicality, the Return submitted before the CTA and even before
this Court. To repeat, the undisputed fact is that petitioner suffered a net loss in
1990; accordingly, it incurred no tax liability to which the tax credit could be applied.
Consequently, there is no reason for the BIR and this Court to withhold the tax
refund which rightfully belongs to the petitioner.

INCOME TAXATION
Securities Becoming Worthless; Capital Loss Not Deductible From Gross Income

Is an equity investment a capital or ordinary asset? An equity investment is capital, not

ordinary, asset of the investor the sale or exchange of which results in either a capital gain
or a capital loss. When the shares held by such investor become worthless, the loss is
deemed to be a loss from the sale or exchange of capital assets.

Capital Loss Not Deductible From Gross Income. Capital losses are allowed to be
deducted only to the extent of capital gains and not from any other income of the taxpayer.

G.R. No. 125508. July 19, 2000

CHINA BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and COURT
OF TAX APPEALS, respondents.

VITUG; J.:

FACTS: Sometime in 1980, petitioner China Banking Corporation made a 53%

equity investment in the First CBC Capital (Asia) Ltd., a Hong Kong subsidiary
engaged in financing and investment with "deposit-taking" function. The investment
amounted to P16,227,851.80, consisting of 106,000 shares with a par Value of
P100 per share.

In the course of the regular examination of the financial books and investment
portfolios of petitioner conducted by Bangko Sentral in 1986, it was shown that First
CBC Capital (Asia), Ltd., has become insolvent. With the approval of Bangko
Sentral, petitioner wrote-off as being worthless its investment in First CBC Capital
(Asia), Ltd., in its 1987 Income Tax Return and treated it as a bad debt or as an
ordinary loss deductible from its gross income.

Respondent Commissioner of Internal Revenue disallowed the deduction and

assessed petitioner for income tax deficiency in the amount of P8,533,328.04,
inclusive of surcharge, interest and compromise penalty. The disallowance of the
deduction was made on the ground that the investment should not be classified as
being worthless.

Petitioner contested the ruling of respondent Commissioner before the CTA. The
tax court sustained the Commissioner, holding that the securities had not indeed
become worthless and ordered petitioner to pay its deficiency income tax for 1987
of P8,533,328.04 plus 20% interest per annum until fully paid. When the decision
was appealed to the Court of Appeals, the latter upheld the CTA. In its instant
petition for review on certiorari, petitioner bank assails the CA decision.

ISSUE: Is the investment that had become worthless deductible from gross income
as a ordinary loss (bad debt)?
 HELD: NO. The claim of petitioner that the shares of stock in question have
become worthless is based on a Profit and Loss Account for the Year-End 31
December 1987, and the recommendation of Bangko Sentral that the equity
investment be written-off due to the insolvency of the subsidiary. While the matter
may not be indubitable (considering that certain classes of intangibles, like
franchises and goodwill, are not always given corresponding values in financial
statements) there may really be no need, however, to go of length into this issue
since, even to assume the worthlessness of the shares, the deductibility thereof
would still be nil in this particular case. At all events, the Court is not prepared to
hold that both the tax court and the appellate court are utterly devoid of substantial
basis for their own factual findings.

An equity investment is a capital, not ordinary, asset of the investor the sale or
exchange of which results in either a capital gain or a capital loss. The gain or the
loss is ordinary when the property sold or exchanged is not a capital asset. When
the shares held by such investor become worthless, the loss is deemed to be a loss
from the sale or exchange of capital assets. The loss sustained by the holder of the
securities, which are capital assets (to him), is to be treated as a capital loss as if
incurred from a sale or exchange transaction. A capital gain or a capital loss
normally requires the concurrence of two conditions for it to result: (1) There is a
sale or exchange; and (2) the thing sold or exchanged is a capital asset. When
securities become worthless, there is strictly no sale or exchange but the law deems
the loss anyway to be "a loss from the sale or exchange of capital assets.

Capital losses are allowed to be deducted only to the extent of capital gains, i.e.,
gains derived from the sale or exchange of capital assets, and not from any other
income of the taxpayer.

In the case at bar, First CBC Capital (Asia), Ltd., the investee corporation, is a
subsidiary corporation of petitioner bank whose shares in said investee corporation
are not intended for purchase or sale but as an investment. Unquestionably then,
any loss therefrom would be a capital loss, not an ordinary loss, to the investor.

Improperly Accumulated Earnings Tax

Burden of Proof. If the CIR determined that the corporation avoided the tax on
shareholders by permitting earnings or profits to accumulate, and the taxpayer contested
such a determination, the burden of proof is on the taxpayer. And in order to determine
whether profits are accumulated for the reasonable needs of the business to avoid the
surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is
manifested at the time of accumulation, not intentions declared subsequently, which are
mere afterthoughts. Furthermore, the accumulated profits must be used within a
reasonable time after the close of the taxable years.

G.R. No. 108067 January 20, 2000

CYANAMID PHILIPPINES, INC., petitioner,

vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondent.

QUISUMBING, J.:

FACTS: Petitioner, Cyanamid Philippines, Inc., is engaged in the manufacture of

pharmaceutical products and chemicals, a wholesaler of imported finished goods,
and an importer/indentor. On February 7, 1985, the CIR sent an assessment letter
to petitioner and demanded the payment of deficiency income tax. Petitioner
protested the assessments particularly, (1) the 25% Surtax Assessment; (2) 1981
Deficiency Income Assessment; and 1981 Deficiency Percentage Assessment.
Petitioner claimed, among others, that the surtax for the undue accumulation of
earnings was not proper because the said profits were retained to increase
petitioner's working capital and it would be used for reasonable business needs of
 the company. On October 20, 1987, the CIR refused to allow the cancellation of the
assessment notices.

Petitioner appealed to the Court of Tax Appeals. During the pendency of the case,
however, both parties agreed to compromise the 1981 deficiency income tax
assessment. However, the surtax on improperly accumulated profits remained
unresolved.

ISSUE: Is a manufacturing company liable for the accumulated earnings tax,

despite its claim that earnings were accumulated to increase working capital and to
be used for its reasonable needs, if it fails to present evidence to prove such
allegations?

HELD: YES. The respondent court correctly decided that the petitioner is liable for
the improperly accumulated earnings tax for the year 1981 based on the following
grounds:

1) The amendatory provision of Section 25 of the 1977 NIRC, which was PD 1739,
enumerated the corporations exempt from the imposition of improperly accumulated
tax: (a) banks; (b) non-bank financial intermediaries; (c) insurance companies; and
(d) corporations organized primarily and authorized by the Central Bank of the
Philippines to hold shares of stocks of banks. Petitioner does not fall among those
exempt classes.
Besides, the rule on enumeration is that the express mention of one person, thing,
act, or consequence is construed to exclude all others. Laws granting exemption
from tax are construed strictissimi juris against the taxpayer and liberally in favor of
the taxing power. Taxation is the rule and exemption is the exception. The burden
of proof rests upon the party claiming exemption to prove that it is, in fact, covered
by the exemption so claimed, a burden which petitioner here has failed to
discharge.

2) If the CIR determined that the corporation avoided the tax on shareholders by
permitting earnings or profits to accumulate, and the taxpayer contested such a
determination, the burden of proving the determination wrong, together with the
corresponding burden of first going forward with evidence, is on the taxpayer. This
applies even if the corporation is not a mere holding or investment company and
does not have an unreasonable accumulation of earnings or profits.

In order to determine whether profits are accumulated for the reasonable needs to
avoid the surtax upon shareholders, it must be shown that the controlling intention
of the taxpayer is manifest at the time of accumulation, not intentions declared
subsequently, which are mere afterthoughts. Furthermore, the accumulated profits
must be used within a reasonable time after the close of the taxable year. In the
instant case, petitioner did not establish, by clear and convincing evidence, that
such accumulation of profit was for the immediate needs of the business.

3) In the present case, the Tax Court opted to determine the working capital
sufficiency by using the ratio between current assets to current liabilities. The
working capital needs of a business depend upon nature of the business, its credit
policies, the amount of inventories, the rate of the turnover, the amount of accounts
receivable, the collection rate, the availability of credit to the business, and similar
factors. Petitioner, by adhering to the "Bardahl" formula, failed to impress the tax
court with the required definiteness envisioned by the statute. We agree with the tax
court that the burden of proof to establish that the profits accumulated were not
beyond the reasonable needs of the company, remained on the taxpayer. Hence,
this Court will not set aside lightly the conclusion reached by the Court of Tax
Appeals which, by the very nature of its function, is dedicated exclusively to the
consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority.

Disposition of Capital Asset on Cash Basis vs. On Installment

The general rule is that the whole profit accruing from a sale of property is taxable as
income in the year the sale is made. But, if not all of the selling price is received during
such year, income shall be taxable in the year in which it is “received”, the profit from an
installment sale is to be apportioned between or among the years in which such
installments are paid and received.

Proceeds in the discounting of promissory notes covering the succeeding installment

payments are not considered initial payment. However, the amount received must be
included as taxable income the year the promissory notes were discounted or converted to
cash. (Bilbiano Banas vs. Court of Appeals, et al. supra)

Accrual Basis Method of Accounting

State the nature of an Accrual Basis Method of Accounting? Under the accrual basis
method of accounting, income is reported when all events have occurred that fix the
taxpayer’s right to receive the income, and the amount can be determined with reasonable
accuracy. Thus, it is the right to receive income, and not the actual receipt that determines
when to include the amount in the gross income. Gleanable from this notion are the
following requisites of accrual method of accounting, to wit: (1) that the right to receive the
amount must be valid, unconditional and enforceable; (2) the amount must be reasonably
susceptible of accurate estimate; and (3) there must be a reasonable expectation that the
amount it will be paid in due course.

When does the Liability to Withhold Income Tax Arise? The liability to withhold tax at
source on income payments to non-resident foreign corporation arises upon accrual
thereof, and not upon actual remittance of the amounts due to the foreign creditors. The
withholding agent who adopts the accrual method of accounting in reporting its income and
expenses is liable to withhold the tax from payments in favor of the creditor even before the
latter’s actual receipt thereof.

G.R. Nos. 118498 & 124377 October 12, 1999

FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.

PURISIMA, J.:

FACTS: Filipinas Synthetic Fiber Corporation, a domestic corporation received on

December 27, 1979 a letter of demand from the Commissioner of Internal Revenue
assessing it for deficiency withholding tax at source for the period from the fourth quarter of
1974 to the fourth quarter of 1975. The bulk of the deficiency withholding tax assessment,
however, consisted of interest and compromise penalties for alleged late payment of
withholding taxes due on interest loans, royalties and guarantee fees paid by the petitioner to
non-resident corporations. The assessment was seasonably protested by the petitioner.
Respondent denied the protest on the following ground: For Philippine internal revenue tax
purposes, the liability to withhold and pay income tax withheld at source from certain
payments due to a foreign corporation is at the time of accrual and not at the time of actual
payment or remittance thereof.

ISSUE: Does the liability to withhold tax at source on income payments to non-resident
foreign corporation arise upon accrual thereof and not upon remittance of the amounts due to
the foreign creditors?
HELD: YES. On the other hand, "under the accrual basis method of accounting,
income is reportable when all the events have occurred that fix the taxpayer's right
to receive the income, and the amount can be determined with reasonable
accuracy. Thus, it is the right to receive income, and not the actual receipt, that
determines when to include the amount in gross income." Gleanable from this
notion are the following requisites of accrual method of accounting, to wit: "(1) that
the right to receive the amount must be valid, unconditional and enforceable, i.e.,
not contingent upon future time; (2) the amount must be reasonably susceptible of
 accurate estimate; and (3) there must be a reasonable expectation that the amount
will be paid in due course."

In the case at bar, after a careful examination of pertinent records, the Court
concurred in the finding by the Court of Appeals in CA GR. SP No. 32922 "that
there was a definite liability, a clear and imminent certainty that at the maturity of
the loan contracts, the foreign corporation was going to earn income in an
ascertained amount, so much so that petitioner already deducted as business
expense the said amount as interests due to the foreign corporation. This is allowed
under the law, petitioner having adopted the "accrual method" of accounting in
reporting its incomes."

All things studiedly considered, the Court is of the opinion, and holds, that the Court
of Appeals erred not in ruling that:

. . . Petitioner cannot now claim that there is no duty to withhold and remit income
taxes as yet because the loan contract was not yet due and demandable. Having
"written-off" the amounts as business expense in its books, it had taken advantage of
the benefit provided in the law allowing for deductions from gross income. Moreover,
it had represented to the BIR that the amounts so deducted were incurred as a
business expense in the form of interest and royalties paid to the foreign
corporations. It is estopped from claiming otherwise now.

ESTATE TAXATION
What does administration expenses include? Judicial expenses are expenses of
administration. Administration Expenses, as an allowable deduction from the gross estate
of the decedent to arrive at the value of the net estate, have been construed to include all
expenses essential to the collection of the assets, payment of debts or the distribution of
the property to the persons entitled to it. In other words, the expenses must be essential to
the proper settlement of the estate.

G.R. No. 123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR,
as Administratrix of the Estate of Pedro P. Pajonar, respondents.

GONZAGA-REYES, J.:

FACTS: Pedro Pajonar, was a part of the infamous Death March by reason of which
he suffered shock and became insane. His sister Josefina became his guardian,
while his property was placed under the guardianship of PNB. When Pedro died on
January 10, 1988, PNB filed an accounting of the decedent’s property under
guardianship valued at P3,037,672.09, however, it did not file an estate tax return,
instead it advised Pedro’s heirs to execute an extrajudicial settlement and pay the
taxes on his estate. The estate of Pedro paid taxes in the amount of P2,557.

Pursuant to a second assessment by the BIR for deficiency estate tax, Josefina
Pajonar, filed a protest on January 11, 1989 with the BIR praying that the estate tax
payment or at least some portion of it, be returned to the heirs.

However, without waiting for her protest to be resolved by the BIR, Josefina Pajonar
filed a petition for review with the Court of Tax Appeals (CTA), praying for the
refund of erroneously paid estate tax.

On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund
Josefina Pajonar the amount of P252,585.59, representing erroneously paid estate
tax for the year 1988. Among the deductions from the gross estate allowed by the
 CTA were the amounts of P60,753 representing the notarial fee for the Extrajudicial
Settlement and attorney's fees in Special Proceedings No. 1254 for guardianship.
On June 15, 1993, the CIR filed a motion for reconsideration asserting, among
others, that the notarial fee for the Extrajudicial Settlement and the attorney's fees
in the guardianship proceedings are not deductible expenses.

On June 7, 1994, the CTA issued the assailed Resolution ordering the
Commissioner of Internal Revenue to refund Josefina Pajonar, as administratrix of
the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously
paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction
of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the
guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of
Appeals a petition for review of the CTA's May 6, 1993 Decision and its June 7,
1994 Resolution, questioning the validity of the abovementioned deductions. On
December 21, 1995, the Court of Appeals denied the Commissioner's petition.

Hence, the present appeal by the Commissioner of Internal Revenue.

ISSUE: Whether or not the notarial fee paid for the extrajudicial settlement and the
attorney's fees in the guardianship proceedings are allowed as deductions from the
gross estate of decedent in order to arrive at the value of the net estate.

HELD: We answer this question in the affirmative.

Judicial expenses are expenses of administration. Administration expenses, as an

allowable deduction from the gross estate of the decedent for purposes of arriving
at the value of the net estate, have been construed to include all expenses
essential to the collection of the assets, payment of debts or the distribution of the
property to the persons entitled to it. In other words, the expenses must be
essential to the proper settlement of the estate.

Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed
accounting of decedent's property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate.

VALUE ADDED TAX

State the nature of VAT? VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, on the performance
of services (and on the importation of goods), even in the absence of profit attributable
thereto.

The phrase “in the course of trade or business” means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, ay any
person regardless of whether or not the person engaged therein is a non-stock, non-profit
organization or government entity.

G.R. No. 125355 March 30, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents.

PARDO, J.:
 FACTS: On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for deficiency value-added tax
(VAT) for taxable year 1988. COMASERCO asserted that the services it rendered
to Philamlife and its affiliates, relating to collections, consultative and other technical
assistance, including functioning as an internal auditor, were on a "no-profit,
reimbursement-of-cost-only" basis. It 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. In fact, it did not
generate profit but suffered a net loss in taxable year 1988. COMASERCO averred
that since it was not engaged in business, it was not liable to pay VAT. Petitioner
avers that to "engage in business" and to "engage in the sale of services" are two
different things. Petitioner maintains 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.

ISSUE: Is COMASERCO engaged in the sale of services, and thus liable to pay
VAT thereon?

HELD: YES. Sec. 99 of the National Internal Revenue Code of 1986, as amended
by Executive Order (E. O.) No. 273 in 1988, provides that:

“Sec. 99. Persons liable. — 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 value-added
tax (VAT) imposed in Sections 100 to 102 of this Code. “

Contrary to COMASERCO's contention the above provision 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" 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.

VAT ZERO-RATING

G.R. No. 134467 November 17, 1999

ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

PANGANIBAN, J.:

FACTS: Petitioner is engaged in the business of mining, production and sale of

various mineral products, consisting principally of copper concentrates and gold and
duly registered with the BIR as a VAT enterprise. Respondent [BIR] duly approved
petitioner's application for VAT zero-rating of the following sales:

a. Gold to the Central Bank (CB)

b. Copper concentrates to the PASAR; and
 c. Pyrite Philphos.

The BIR's approval of sales to CB and PASAR was dated April 21, 1988 while zero-
rating of sales to PHILPHOS was approved effective June 1, 1988.
On April 20, 1990, petitioner filed a VAT return with the BIR for the first quarter of
1990 whereby it declared its sales to the CB, PASAR and Philphos, as zero-rated
sales and therefore not subject to any output VAT.

On or about July 24, 1990, petitioner filed a claim with respondent for refund/credit
of VAT input taxes on its purchase of goods and services for the first quarter of
1990.
On or about September 2, 1992, petitioner filed an Amended Application for tax
credit/refund in the amount of P 35,522,056.58.

On September 9, 1992, respondent resolved petitioner's claim for VAT refund/credit

by allowing only P2,518,122.32 as refundable/creditable while disallowing the rest.

However, after the BIR examiners submitted a supplemental report of investigation

the allowable input tax credit was increased from P2,518,122.32 to
P12,101,569.11.

The parties further stipulated that the issues to be resolved are: (1) the applicability
of 10% VAT rating with regard to the above mentioned sales; and (2) applicability of
Rev. Regulation 2-88 in that it requires the purchaser to export more than 70% of its
total sales for the supplier to be zero-rated.

The Ca held that the parties were bound by the Joint Stipulation of Facts and that
the petitioner is registered with the BIR as a VAT enterprise effective August 15,
1990. It upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be
imposed on VAT-registered entities, explaining that the "zero-percent rating" of BOI-
registered enterprises shall be set in proportion to the amount of its actual exports;
and that EPZA and BOI registrations were by themselves not enough for zero-rating
to apply.

ISSUES:

1) Was the petitioner VAT-registered for the 1st quarter of 1990 despite clear
evidence showing the date of effectivity of petitioner's VAT registration to be
January 1, 1988.

2) Should the totality of sales to EPZA-registered enterprises be zero-rated, not

merely apportioned to the actual exports enterprise?

3) Is Sec. 21 of Revenue Regulations No. 5-87 invalid insofar as it went beyond the
law by disallowing input VAT for purchases not covered by VAT invoices?

HELD:

1) YES. As a rule, a judicial admission, such as that made by petitioner in the Joint
Stipulation of Facts, is binding on the declarant. However, such rule does not
apply when there is a showing that (1) the admission was made through a
"palpable mistake," or that (2) "no such admission was made." (Section 4 of
Rule 129 of the Rules of Court) In the present case, we are convinced that a
"palpable mistake" was committed. True, petitioner was VAT-registered under
Registration No. 32-A-6-00224, as indicated in the Stipulation and became
effective August 15, 1990. But the actual VAT Registration Certificate, which
petitioner mentioned in the stipulation, is numbered 32-A-6-002224 and became
effective on January 1, 1988, thereby showing that petitioner had been VAT-
registered even prior to the first quarter of 1990. Clearly, there exists a
discrepancy, since the VAT registration number stated in the joint stipulation is
NOT the one mentioned in the actual Certificate attached to the BIR Records.
The foregoing simply indicates that petitioner made a "palpable mistake" either
in referring to the wrong BIR record, which was evident, or in attaching the
 wrong VAT Registration Certificate. The Court of Appeals should have corrected
the unintended clerical oversight. In any event, the indelible fact is: the petitioner
was VAT-registered as of January 1, 1988.

However, we believe that petitioner should be taxed only for such amount and
under such circumstances as are true, fair and equitable. After all, even the
respondent commissioner, as shown in the other provisions of the joint
stipulation, has granted it VAT exemption for the period even prior to the first
quarter of 1990; that is, as early as January 1, 1988. In view of the foregoing,
we stress that a litigation is neither a game of technicalities nor a battle of wits
and legalisms. Rather, it is an abiding search for truth, fairness and justice. We
believe, and so hold, that substantial justice is on the side of petitioner on this
issue.

2) YES. An examination of Section 4.100.2 of Revenue Regulation 7-95 14 in

relation to Section 102 (b) of the Tax Code shows that sales to an export-
oriented enterprise whose export sales exceed 70 percent of its annual
production are to be zero-rated, provided the seller complies with other
requirements, like registration with the BOI and the EPZA. The said Regulation
does not even hint, much less expressly mention, that only a percentage of the
sales would be zero-rated. (Phrased elsewise, the totality of sales to an expert-
oriented enterprise whose export sales exceed 70% of its annual production are
to be zero rated, not merely the proportion of such sales to actual exports of
said enterprise.)

3) NO. It is clear that a VAT invoice can be used only for the sale of goods and
services that are subject to VAT. The corresponding taxes thereon shall be
allowed as input tax credits for those subject to VAT. Section 21 of Revenue
Regulation 5-87 is not invalid, as it simply prescribes the penalty for failure to
comply with the accounting and invoicing requirements laid down in Section
108, a penalty similar to that found in Sections 111 and 263. In short, Section
108 provides the guidelines and necessary requirements for VAT invoices;
Sections 111 and 263 of the Tax Code provide penalties for different types of
violations of Section 108; and Section 21 of Revenue Regulation 5-87 specifies
the penalty for a specific violation of Section 108.

PERCENTAGE TAXES

AMUSEMENT TAXES

The "proprietor, lessee or operator of . . . professional basketball games" is required to pay

an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the
Bureau of Internal Revenue, which payment is a national tax. For the purpose of the
amusement tax, the term gross receipts' embraces all the receipts of the proprietor, lessee
or operator of the amusement place. The foregoing definition of gross receipts is broad
enough to embrace the cession of advertising and streamer spaces as the same embraces
all the receipts of the proprietor, lessee or operator of the amusement place. The law being
clear, there is no need for an extended interpretation.

G.R. No. 119122 August 8, 2000

PHILIPPINE BASKETBALL ASSOCIATION, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER OF
INTERNAL REVENUE, respondents.

PURISIMA, J.:

FACTS: On June 21, 1989, the petitioner received an assessment letter from the
Commissioner of Internal Revenue (respondent Commissioner) for the payment of
deficiency amusement tax. Petitioner contested the assessment by filing a protest
with respondent Commissioner who denied the same on November 6, 1989. Its
protest was, however, denied in an order dated November 6, 1989. On January 8,
1990, petitioner filed a petition for review but the same was dismissed for lack of
merit. Petitioner presented a motion for reconsideration 4 of the said decision but the
same was denied by respondent CTA. The Court of Appeals affirmed the decision
of the CTA and dismissed petitioner's appeal. Petitioner filed a Motion for
Reconsideration of said decision but to no avail. Hence, this petition.

Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973,
transferred the power and authority to levy and collect amusement taxes from the
sale of admission tickets to places of amusement from the national government to
the local governments. Petitioner cited BIR Memorandum Circular No. 49-73
providing that the power to levy and collect amusement tax on admission tickets
was transferred to the local governments by virtue of the Local Tax Code; and BIR
Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross
receipts from admission tickets to places of amusement was transferred to local
governments under P.D. No. 231, as amended.

ISSUES:

1) Is the amusement tax on admission tickets to PBA games a national or local

tax? Otherwise put, who between the national government and local
government should petitioner pay amusement taxes?

2) Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc.

(VEI) subject to the payment of amusement tax?

HELD:

1) The amusement tax is payable to the national government. The laws on the
matter are succinct and clear and need no elaborate disquisition. Section 13 of
the Local Tax Code provides:

"SECTION 13. Amusement tax on admission. — The province shall impose

a tax on admission to be collected from the proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses and other
places of amusement . . ."

The foregoing provision of law in point indicates that the province can only
impose a tax on admission from the proprietors, lessees, or operators of
theaters, cinematographs, concert halls, circuses and other places of
amusement. The authority to tax professional basketball games is not therein
included, as the same is expressly embraced in PD 1959, which amended PD
1456 thus:

"SECTION 44. Section 268 of this Code, as amended, is hereby further

amended to read as follows:

'Sec. 268. Amusement taxes. — There shall be collected from the

proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai,
race tracks and bowling alleys xxx” (Now Sec. 125, NIRC with certain
changes)

2) YES. It is clear that the "proprietor, lessee or operator of . . . professional

basketball games" is required to pay an amusement tax equivalent to fifteen per
centum (15%) of their gross receipts to the Bureau of Internal Revenue, which
payment is a national tax. The payment of said payment of amusement tax is in
lieu of all other percentage taxes of whatever nature and description. For the
purpose of the amusement tax, the term gross receipts' embraces all the
receipts of the proprietor, lessee or operator of the amusement place. The
foregoing definition of gross receipts is broad enough to embrace the cession of
 advertising and streamer spaces as the same embraces all the receipts of the
proprietor, lessee or operator of the amusement place. The law being clear,
there is no need for an extended interpretation.

GROSS RECEIPTS

The term "gross receipts" means all amounts received by the prime or principal
contractor as the total price, undiminished by the amount paid to the subcontractor
under a subcontract arrangement. Hence, gross receipts could not be diminished by
employer's SSS, SIF and Medicare contributions. Furthermore, it has been
consistently ruled by the BIR that the salaries paid to security guards should form
part of the gross receipts, subject to tax.

G.R. No. 118176 April 12, 2000

PROTECTOR'S SERVICES, INC., petitioner,

vs.
COURT OF APPEALS AND COMMISSIONER OF INTERNAL REVENUE,
respondents.

QUISUMBING, J.

FACTS: Petitioner PSI was assessed for deficiency percentage taxes including
surcharges, penalties and interests thereon for the years 1983, 1984 and 1985.
Petitioner sent a protest letter dated January 02, 1988, to the BIR claiming that its
gross receipts subject to percentage taxes should exclude the salaries of the
security guards as well as the corresponding employer's share of Social Security
System (SSS), State Insurance Fund (SIF) and Medicare contributions. On
November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to the
petitioner which denied with finality the latter's protest against the subject
assessments, holding that the salaries paid to the security guards form part of your
taxable gross receipts in the determination of the 3% and 4% contractor's tax. On
December 5, 1990, petitioner filed a petition for review before the CTA but the same
was denied for lack of merit. After its motion for reconsideration was denied,
petitioner appealed to the Court of Appeals. The Court of Appeals affirmed the
decision of the CTA. Hence, the petitioner filed with the Supreme Court a petition
for review on certiorari.

ISSUE: Does the term “gross receipts” of a contractor (which) is subject to

percentage tax, include the salaries paid to its employees, (as well as their) SSS,
SIR and Medicare contributions?

HELD: YES. Contractor's tax on gross receipts imposed on business agents

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

“. . . This Office has consistently ruled that salaries of security guards form
part of the taxable gross receipts of a security agency for purposes of the
4% [formerly 3%] contractors tax under Section 205 of the Tax Code, as
amended. The reason is that the salaries of the security guards are actually
the liability of the agency and that the guards are considered their
employees; hence, for percentage tax purposes, the salaries of the security
guards are includible in its gross receipts. (BIR Ruling No.271-81 citing BIR
Ruling No. 69-002).”
 These rulings were made by the CIR in the exercise of his power to "make
judgments or opinions in connection with the implementation of the provisions of the
internal revenue code." The opinions and rulings of officials of the government
called upon to execute or implement administrative laws, command respect and
weight. We see no compelling reason in this case to rule otherwise.

TAX ADMINISTRATION AND ENFORCEMENT

Forfeiture Proceedings in the Bureau of Customs

Jurisdiction. An action for annulment of the act of the Collector of Customs falls within the
jurisdiction of the Commissioner of Customs whose decision is appealable to the Court of
Tax Appeals. The Regional Trial Courts are precluded from assuming cognizance over
such matters even through petitions for certiorari, prohibition or mandamus.

G.R. No. 94996 January 26, 2001

ALEMAR'S (SIBAL & SONS), INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, RAMON FAROLAN, ET AL.

PARDO, J.:

FACTS: In September 1983, petitioner Alemars imported various books, office

supplies and equipment which, on November 29, 1983, arrived in Manila,
addressed to RPB, as consignee. After a year or on November 27, 1984, Alemars
applied with the Bureau of Customs for an Import Entry and Permit to Deliver
Goods which was denied on the ground that the imported articles subject thereof
had been declared abandoned under the Omnibus Notice and Declaration of
Abandonment in Abandonment Proceedings No. 84-1643 of the Bureau of
Customs. Alemars, on December 12, 1984, filed with the Law Division, Bureau of
Customs a letter expressly manifesting that it has no intention of abandoning
subject shipment. Nevertheless, the auction sale proceeded with Luis Cua as the
highest bidder. To prevent the delivery of the subject goods to Luis Cua and to
obviate its subsequent sale and disposition which would render whatever claims it
has over said goods ineffective, RPB filed on January 22, 1985, with the Regional
Trial Court, Manila, a petition for prohibition with preliminary prohibitory injunction
and/or restraining order against respondents to enjoin them from releasing and
delivering subject goods to Luis Cua. The petition was subsequently amended to
include Alemars as petitioner. The trial court issued a TRO enjoining respondents
from releasing and delivering to Luis Cua subject importation, but later on dismissed
the petition for want of jurisdiction. The Court of Appeals likewise dismissed the
petition.

ISSUE: Does the Regional Trial Court have jurisdiction over the subject matter of
the petition filed by Alemars and RPB to enjoin the auction sale of subject goods
imported by petitioners declared by customs authorities as abandoned.

HELD: NO. Petitioner primarily seeks the annulment of the act of the Collector of
Customs declaring the subject importation abandoned and ordering it sold at public
auction, claiming that the abandonment proceeding held by the Collector of
Customs was irregular since the latter did not give notice to petitioner of the
abandonment before declaring the importation abandoned.

If petitioner was not satisfied with the action of the Collector of Customs, it may
avail itself of the administrative remedies provided for in the Tariff and Customs
Code.
However, petitioner sought recourse in the trial court. Such recourse was fatal to
petitioner's cause as the proper remedy was to elevate the case to the
 Commissioner of Customs whose decision was appealable to the Court of Tax
Appeals. "The Regional Trial Courts are precluded from assuming cognizance over
such matters even through petitions of certiorari, prohibition or mandamus.

Jurisdiction. The Collector of Customs sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions touching on the seizure and
forfeiture of dutiable goods. Regional Trial Courts have no review powers over such
proceedings is anchored upon the policy of placing no unnecessary hindrance on the
government's drive, not only to prevent smuggling and other frauds upon Customs, but
more importantly, to render effective and efficient the collection of import and export duties
due the State, which enables the government to carry out the functions it has been
instituted to perform.

G.R. No. 138081 March 30, 2000

THE BUREAU OF CUSTOMS (BOC) and THE ECONOMIC INTELLIGENCE AND

INVESTIGATION BUREAU (EIIB), petitioners,
vs.
NELSON OGARIO and MARK MONTELIBANO, respondents.

MENDOZA, J.:

FACTS: On December 9, 1998, Felipe A. Bartolome, District Collector of Customs

of Cebu, issued a Warrant of Seizure and Detention 1 of 25,000 bags of rice illegally
imported. The report stated that the rice was landed in Palawan by a foreign vessel
and then placed in sacks marked "SNOWMAN," Milled in Palawan." It was then
shipped to Cebu City on board the vessel M/V "Alberto." Forfeiture proceedings
were started in the customs office in Cebu, docketed as Cebu Seizure Identification
Case No. 17-98. On December 10, 1998, respondent Mark Montelibano, the
consignee of the sacks of rice, and his buyer, respondent Elson Ogario, filed a
complaint for injunction (Civil Case No. CEB-23077) in the Regional Trial Court of
Cebu City. The petitioners sought the dismissal of the complaint on the ground that
the RTC had no jurisdiction, but their motions were denied.

ISSUE: Does RTC have jurisdiction to enjoin the forfeiture proceedings in the
Bureau of Customs?

HELD: NO. There is no question that Regional Trial Courts are devoid of any
competence to pass upon the validity or regularity of seizure and forfeiture
proceedings conducted by the Bureau of Customs and to enjoin or otherwise
interfere with these proceedings.

The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive
jurisdiction to hear and determine all questions touching on the seizure and
forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming
cognizance over such matters even through petitions of certiorari, prohibition or
mandamus.

It is likewise well-settled that the provisions of the Tariff and Customs Code and that
of Republic Act No. 1125, as amended, otherwise known as "An Act Creating the
Court of Tax Appeals," specify the proper fora and procedure for the ventilation of
any legal objections or issues raised concerning these proceedings. Thus, actions
of the Collector of Customs are appealable to the Commissioner of Customs, whose
decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals and from there to the Court of Appeals.

Back Taxes

Liability for Payment of Back Taxes. It is an accepted principle in taxation that taxes are
paid by the person obliged to declare the same for taxation purposes. Under the Real
Property Tax Code, the duty to declare the true value of real property for taxation purposes
is imposed upon the owner, or administrator, or their duly authorized representatives. They
are thus the taxpayers. When these persons fail or refuse to make a declaration of the true
value of their real property within the prescribed period, the provincial or city assessor shall
declare then property in the name of the defaulting owner and assess the property for
taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative, liable to pay back taxes.

G.R. No. 114231 May 18, 2001

MANILA ELECTRIC COMPANY, petitioner,

vs.
NELIA A. BARLIS, in her capacity as Officer-in-Charge/Acting Municipal Treasurer
of Muntinlupa, substituting EDUARDO A. ALON, former Municipal Treasurer of
Muntinlupa, Metro Manila, respondent.

DE LEON, JR., J.:

FACTS: From 1975 to 1978 MERALCO paid the real property taxes on the its
properties on the basis of their assessed value as stated in the tax declarations. On
29 December 1978 MERALCO sold all the power-generating plants including the
landsite to the National Power Corporation (NAPOCOR), a corporation fully owned
and controlled by the Philippine government.

In 1985, the Municipal Treasurer of Muntinlupa discovered, among others, that

MERALCO, for the period beginning 1 January 1976 to 29 December 1978,
misdeclared and/or failed to declare for taxation purposes a number of real
properties, consisting of several equipment and machineries, found in the said
power plants. A review of the Deed of Sale which MERALCO executed in favor of
NAPOCOR when it sold the power plants to the latter convinced the municipal
government of Muntinlupa of the misdeclaration/non-declaration of the true value of
the said machineries and equipment.

The Municipal Assessor of Muntinlupa then declared and assessed the subject real
properties for taxation purposes and issued several collection notices to
MERALCO, ordering it to pay the deficiency in the real property taxes covering the
machineries and equipment found in the said power plants. Still MERALCO did not
pay the tax assessed.

The Municipality of Muntinlupa sought the assistance of the Bureau of Local

Government Finance-Department of Finance (BLGF-DOF). The BLGF-DOF issued
a Letter-Endorsement declaring MERALCO liable to pay the deficiency or
delinquent real property taxes.

The Municipal Treasurer then issued warrants of garnishment, copies of which were
served on MERALCO on 10 October 1990, ordering the attachment of the bank
deposits of MERALCO to the extent of its unpaid real property taxes.

Immediately, MERALCO filed before the Regional Trial Court (RTC) of Makati,
Metro Manila a Petition for Prohibition with Prayer for Writ of Preliminary Mandatory
Injunction and/or Temporary Restraining order (TRO) to enjoin the Municipal
Treasurer of Muntinlupa from enforcing the warrants of garnishment.

For its part, the Municipal Treasurer filed a Motion to Dismiss on the grounds of: (1)
lack of jurisdiction since, under Sec. 64 of the Real Property Tax Code, courts are
prohibited from entertaining any suit assailing the validity of a tax assessed
thereunder until the taxpayer shall gave paid, under protest, the tax assessed
against him; and (2) lack of cause of action by reason of MERALCO's failure to
question the notice of assessment issued to it by the Municipality of Muntinlupa
before the Local Board of Assessment Appeals. In its 17 June 1991 Order the trial
court denied the said motion.
On a Petition for Certiorari filed before the Supreme Court, later endorsed to the
Court of Appeals, the Municipal Treasurer of Muntinlupa assailed the order of 17
June 1991 of the RTC. On 11 August 1993 the Court of Appeals in its Decision
granted the petition declaring the assailed order "void and without life in law, having
been issued without jurisdiction, on a petition that further does not state a sufficient
cause of action, filed by a party who had not exhausted available administrative
remedies," MERALCO moved for a reconsideration of the Decision, but was denied
for lack of merit in a Resolution dated 28 February 1994.

ISSUES:

1) Do trials courts have jurisdiction to entertain petition for prohibition absent

payment under protest of tax assessed?
2) Is the former owner of property subsequently sold liable for payment of back
taxes incurred prior to the sale?
3) Since the real property tax constitutes a lien on the property subject to tax, is
the local government constrained only in proceeding against the real property
itself or any personal property located therein?

HELD:

1) NO. The trial court has no jurisdiction to entertain a Petition for Prohibition
absent petitioner's payment, under protest, of the tax assessed as required by
Sec. 64 of the RPTC. Payment of the tax assessed under protest, is a condition
sine qua non before the trial court could assume jurisdiction over the petition
and failure to do so, the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a
prior payment, under protest, of the taxes assessed is consistent with the
doctrine that taxes are the lifeblood of the nation and as such their collection
cannot be curtailed by injunction or any like action; otherwise, the state or, in
this case, the local government unit, shall be crippled in dispensing the needed
services to the people, and its machinery gravely disabled.

2) YES. Petitioner is begging the question when it asserts that it is not the taxpayer
contemplated under Sec. 64 of the RPTC. It is an accepted principle in taxation
that taxes are paid by the person obliged to declare the same for taxation
purposes. Under the Real Property Tax Code, the duty to declare the true value
of real property for taxation purposes is imposed upon the owner, or
administrator, or their duly authorized representatives. They are thus the
taxpayers. When these persons fail or refuse to make a declaration of the true
value of their real property within the prescribed period, the provincial or city
assessor shall declare then property in the name of the defaulting owner and
assess the property for taxation. In this wise, the taxpayer assumes the
character of a defaulting owner, or defaulting administrator, or defaulting
authorized representative, liable to pay back taxes.

Respondent Municipal Treasurer claims that petitioner MERALCO misdeclared

and/or failed to declare the true value of the Sucat power plant machineries and
equipment during the taxable years 1976-1978 when it was still the owner
thereof, and that it is the deficiency in the realty tax on the real property's
reassessed value which it seeks to collect. Based on the foregoing, the notice of
assessment and collection was directed to petitioner, not because it is still the
present owner of the subject real property including the machineries and
equipment thereon, but because it is the defaulting owner thereof who has
failed to make proper tax declaration and the proper tax payment thereon. Thus,
petitioner is the taxpayer contemplated under Sec. 64 of the RPTC, and
payment under protest of the tax assessed is necessary for the trial court to
acquire jurisdiction over its petition.

3) NO. the Real Property Tax Code, as amended, affords local government units
three (3) concurrent and simultaneous remedies to enforce the Code's
provisions, namely; (a) distraint of personal property, (b) sale of delinquent real
property, and (c) collection of real property tax through ordinary court action.
From the foregoing, respondent argues that it is not limited to the enforcement
of tax lien but is also authorized to proceed against the personal properties of
the defaulting taxpayer unless it could be shown that the personal properties
 being subject to distraint are exempt from attachment, which the bank deposits
are not.

The remedy of levy can be pursued by putting up for sale the real property
subject of tax, i.e., the delinquent property upon which the tax lien attaches,
regardless of the present owner or possessor thereof. The remedy of distraint
and levy of personal property meanwhile allows the taxing authority to subject
any personal property of the taxpayer to execution, save certain exceptions as
enumerated under Sec. 69 of the RPTC, bank deposits are not among those
exceptions.

TAX REMEDIES
Sale of Real Estate Property Due to Tax Delinquency

Notice to Non-registered Owner. For purposes of real property taxation, the registered
owner of a property is deemed the taxpayer and, hence, the only one entitled to a notice
of tax delinquency and the resultant proceedings relative to an auction sale.

G.R. No. 133698 April 4, 2001

ANTONIO TALUSAN and CELIA TALUSAN, petitioners,

vs.
HERMINIGILDO* TAYAG and JUAN HERNANDEZ, respondents.

PANGANIBAN, J.:

FACTS: Petitioners bought the subject property covered by Condominium

Certificate of Title No. 651, from its former owner, Elias Imperial, as evidenced by a
Deed of Absolute Sale. Elias Imperial and his entire family emigrated to Australia in
1974. On October 15, 1985, respondent Juan D. Hernandez in his capacity as City
Treasurer of Baguio City, wrote a letter to the former owner Elias at his old address
in Cubao, Quezon City. Imperial informing him that the above described property
would be sold at public auction on December 9, 1985, to satisfy the delinquent real
estate taxes, penalties and cost of sale, and demanded payment of the sum of
P4,039.80, representing total taxes due and penalties thereon. Thereafter,
respondent Hernandez sold the above-described property to Tayag for P4,400.00
‘without any notice to the former owner thereof, [or] to [petitioners], and without
compliance with the provisions of PD No. 464, as evidenced by the Certificate of
Sale. Petitioners a complaint against the Treasurer of Baguio and Tayag to nullify
the sale and Tayag’s title on the ground of irregularities, inadequate price, and non-
compliance with statutory requirements, particularly those relative to notice,
publication and posting. The trial court dismissed the complaint, which was affirmed
by the Court of Appeals.

ISSUE: Is a non-registered owner of a real property entitled to notice of tax

delinquency?

HELD: NO. For purposes of the real property tax, the registered owner of the
property is deemed the taxpayer. Hence, only the registered owner is entitled to a
notice of tax delinquency and other proceedings relative to the tax sale. Not being
registered owners of the property, petitioners cannot claim to have been deprived of
such notice. In fact, they were not entitled to it.

In the present case, the notice of delinquency was sent by registered mail to the
permanent address of the registered owner in Manila. In that notice, the city
treasurer of Baguio City directed him to settle the charges immediately and to
protect his interest in the property. Under the circumstances, we hold that the notice
sent by registered mail adequately protected the rights of the taxpayer, who was the
registered owner of the condominium unit.
Protest Payment

The trial court has no jurisdiction to entertain a Petition for Prohibition absent petitioner's
payment, under protest, of the tax assessed as required by Sec. 64 of the RPTC. Payment
of the tax assessed under protest, is a condition sine qua non before the trial court could
assume jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to
entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are
the lifeblood of the nation and as such their collection cannot be curtailed by injunction or
any like action; otherwise, the state or, in this case, the local government unit, shall be
crippled in dispensing the needed services to the people, and its machinery gravely
disabled.

Prescription

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 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 deficiency tax. The offense was committed only after the finality of the
assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted
period. Thus, the five (5) year prescriptive period shall start to run when the assessment
became final and unappealable.

G.R. No. 127777 October 1, 1999

PETRONILA C. TUPAZ, petitioner,

vs.
HONORABLE BENEDICTO B. ULEP Presiding Judge of RTC Quezon City, Branch
105, and PEOPLE OF THE PHILIPPINES, respondents.

PARDO, J.:

FACTS: Petitioner was charged with nonpayment of deficiency corporate income

tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the
Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner
contends that applying the 3-year period provided under BP 700 which amended
the 1977 NIRC, the said assessment was made out of time. The Solicitor General
on the other had, asserts that the provision of BP 700 applies to assessments and
collections beginning taxable year 1984.

Petitioner also contends that the offense charged has already prescribed. Petitioner
invokes Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides that
violations of any provision of the Code prescribe in five (5) years. Petitioner asserts
that in this case, it began to run in 1979, when she failed to pay the correct
corporate tax due during that taxable year. Hence, when the BIR instituted criminal
proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code with
the Department of Justice for preliminary investigation it was beyond the
prescriptive period of five (5) years. At most, the BIR had until 1984 to institute
criminal proceedings.

ISSUE: (1) Is the 3-year period of assessment provided under BP700 applicable to
this case? (2) Does the 5-year prescriptive period (for filing complaints for failure to
pay deficiency taxes) commence to run from filing of the income tax return?

HELD:
1) NO. he shortened period of three (3) years prescribed under B.P. Blg. 700 is not
applicable to petitioner. B.P. Blg. 700, effective April 5, 1984, 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 on or after April 5, 1984 are governed by the five-year period if the taxes
assessed cover taxable years prior to January 1,

1984. The deficiency income tax under consideration is for taxable year 1979.
Thus, the period of assessment is still five (5) years, under the old law. The
income tax return was filed in April 1980. Hence, the July 16, 1984 tax
assessment was issued within the prescribed period of five (5) years, from the
last day of filing the return, or from the date the return is filed, whichever comes
later.

2) NO. 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 taxpayer's 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 thirty (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
August 16, 1984. Consequently, when the complaint for preliminary
investigation was filed with the Department of Justice on June 8, 1989, the
criminal action was instituted within the five (5) year prescriptive period.