Gerard Micael R.

Oro
Taxation Law 1 – A
Xavier University – College of Law
Judge Gil Bollozos

ASSIGNMENT

1. MAMBULAO: Why did the Supreme Court not set off in Mambulao?

In this case, appellant Mambulao Company sought that the Supreme Court rule to have the sum of
P9,127.50 paid by them as reforestation charges be used to compensate the company’s indebtedness to
government in the sum of P4,802.37 as forest charges, as if to set off the two with one another.

The Court explained that the appellant and appellee are not mutually creditors and debtors of one
another. As a result, the Court ruled that the law on compensation cannot be applied.

Also, the Supreme Court did not allow a set off in the case of Mambulao is because it highlighted that the
paying of taxes is not a result of the nature of contracts between parties, but is a duty to the government
which does not require the consent of taxpayer.

2. Why was it allowed to set off in Garlitos?

The Supreme Court allowed a set off in the case of Garlitos because here, the claim of the estate against
the Government was actually acknowledged, and an amount was already appropriated for it by virtue of a
law. Since the claim of the Government for inheritance taxes and the services rendered by intestate
estate of Walter Scott Price were both overdue and demandable as well as fully liquidated, compensation
takes place by operation of law to extinguish both debts.

3. Why was there no set off in Francia?

While Francia sought to have his tax delinquency be extinguished by legal compensation, the Court
reiterated previous rulings in Republic v. Mambulao (4 SCRA 622) and Cordero v. Gonda (18 SCRA
331) clarifying that internal revenue taxes cannot be subject to compensation as it is not a debt that can
be set off. Also, the Court found that a sum of P4,116.00 was deposited into Francia’s account by the
government in payment of a piece of land he owned which was subjected to expropriation. Francia did not
make any effort to withdraw the amount of P2,400.00 from his account in order to pay his tax obligation to
the government. He had enough to pay his taxes, but completely neglected to do so. He could have just
used the money he had to fulfill his duty to the government.

4. Why was it that in pineda the Supreme Court upheld the collection of unpaid tax from Atty.
Pineda alone?

The Court determined that the Government can require Mr. Pineda to pay the full amount of the taxes
assessed because he is an heir and a holder-transferee of the property belonging to the estate/taxpayer.
While as an heir, he is only liable for the tax proportionate to his share, but as a holder of property
belonging to the estate, he is liable for the tax up to the amount of the property in his possession.

Here the Government has a lien on the P2500.00 received by Pineda to satisfy the income tax
assessment which is a deficiency amounting to P760.68. The Court clarified however, that after such
payment, Pineda would still have the right to collect the contribution from his co-heirs subject to the
appropriate shares that is due to each of them.