FIRST DIVISION

[G.R. No. 215801. January 15, 2020.]

IN THE MATTER OF DECLARATORY RELIEF

ON THE VALIDITY OF BIR REVENUE
MEMORANDUM CIRCULAR NO. 65-2012
"CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES
AND OTHER ASSESSMENTS/CHARGES
COLLECTED BY CONDOMINIUM
CORPORATIONS"

BUREAU OF INTERNAL REVENUE (BIR), as

herein represented by its COMMISSIONER
KIM S. JACINTO-HENARES and REVENUE
DISTRICT OFFICER (RDO) RICARDO B.
ESPIRITU, petitioner, vs. FIRST E-BANK
TOWER CONDOMINIUM CORP., respondent.

[G.R. No. 218924. January 15, 2020.]

IN THE MATTER OF DECLARATORY RELIEF

ON THE VALIDITY OF BIR REVENUE
MEMORANDUM CIRCULAR NO. 65-2012
"CLARIFYING THE TAXABILITY OF
ASSOCIATION DUES, MEMBERSHIP FEES
AND OTHER ASSESSMENTS/CHARGES
COLLECTED BY CONDOMINIUM
CORPORATIONS"

FIRST E-BANK TOWER CONDOMINIUM

CORP., petitioner, vs. BUREAU OF INTERNAL
REVENUE (BIR), as herein represented by its
COMMISSIONER KIM S. JACINTO-
HENARES, * respondent.

DECISION

LAZARO-JAVIER, J  :p
Association and membership dues collected by condo
corp. but TRAIN already pvd that condo corpo and HOA
are exmepted na mn but nonetheless further made the
point that not subject to income and VAT.

The Cases

These twin cases refer to the: 1) Petition for Review

filed by the Bureau of Internal Revenue (BIR) (G.R.
No. 215801); and 2) Special Civil Action
for Certiorari initiated by the First E-Bank Tower
Condominium Corp. (First E-Bank) (G.R. No. 218924). Both
cases assail the following dispositions of the Court of
Appeals in CA-G.R. CV No. 102266 entitled "In the Matter of
Declaratory Relief on the Validity of BIR Revenue
Memoandum Circular No. 65-2012 'Clarifying the Taxability
of Association Dues, Membership Fees and Other
Assessments/Charges Collected by Condominium
Corporations,' First E-Bank Tower Condominium Corp. v.
Bureau of Internal Revenue (BIR) represented by its
Commissioner Kim S. Jacinto-Henares, et al.:"
1) Resolution 1 dated June 26, 2014 dismissing for
alleged lack of jurisdiction the respective
appeals of the First E-Bank and the BIR, et
al., viz.:
It appearing from the records that the
subject matter of the instant appeal is the
Resolution dated 05 September 2013 of the
RTC-Branch 146, Makati City, declaring "to
have been invalidly issued" BIR Revenue
Memorandum Circular No. 65-2012 dated 31
October 2012 which imposed 12% value
added tax and 32% income tax on
association dues/membership fees and other
charges collected by condominium
corporation from its members and tenants,
taking into account Section 7 (a) of Republic
Act No. 9282 (which took effect on 23 April
2004) which expressly provides that the
Court of Tax Appeals has exclusive appellate
jurisdiction over "Decisions, orders or
resolutions of the Regional Trial Courts in
local tax cases originally decided or resolved
by them in the exercise of their original or
 appellate jurisdiction," considering that the
Court of Tax Appeals is a highly specialized
body specifically created for the purpose of
reviewing tax cases and resolving tax
problems, the instant appeal is
hereby DISMISSED outright for lack of
jurisdiction over the nature and subject
matter of the action.
The Compliance/Manifestation dated
16 May 2014 of RTC Judge Encarnacion Jaja
G. Moya and Branch Clerk of Court Therese
Lynn R. Bandong, Manifestations dated 29
May 2014 and 30 May 2014 of First E-Bank
Tower Condominium Corporation and the
Manifestation dated 02 June 2014 of the
Republic of the Philippines are NOTED.
Let the instant appeal be
considered CLOSED and TERMINATED.
Let the original records be returned to
the trial court.
SO ORDERED.
2) Resolution 2 dated November 27, 2014 denying the
parties' respective motions for reconsideration.

The Facts

The First E-Bank filed the petition below for

declaratory relief seeking to declare as invalid Revenue
Memorandum Circular No. 65-2012 (RMC No. 65-2012)
dated October 31, 2012. 3 The case was raffled to the
Regional Trial Court, Branch 146, Makati City.
RMC No. 65-2012 entitled "Clarifying the Taxability of
Association Dues, Membership Fees and Other
Assessments/Charges Collected by Condominium
Corporations" relevantly reads:
xxx xxx xxx
CLARIFICATION
The taxability of association dues,
membership fees, and other assessments/charges
collected by a condominium corporation from its
members, tenants and other entities are discussed
hereunder.
 I. Income Tax — The amounts paid in as
dues or fees by members and tenants of a
condominium corporation form part of the gross
income of the latter subject to income tax. This is
because a condominium corporation furnishes its
members and tenants with benefits, advantages,
and privileges in return for such payments. For tax
purposes, the association dues, membership fees,
and other assessments/charges collected by a
condominium corporation constitute income
payments or compensation for beneficial services it
provides to its members and tenants. The previous
interpretation that the assessment dues are funds
which are merely held in trust by a condominium
corporation lacks legal basis and is hereby
abandoned.
Moreover, since a condominium corporation
is subject to income tax, income payments made to
it are subject to applicable withholding taxes under
existing regulations.
II. Value-Added Tax (VAT) — Association
dues, membership fees, and other
assessments/charges collected by a condominium
corporation are subject to VAT since they constitute
income payment or compensation for the beneficial
services it provides to its members and tenants.
Section 105 of the National Internal Revenue
Code of 1997, as amended, provides:
"SECTION 105. Persons Liable. —
Any person who, in the course of trade
or business, sells, barters, exchanges,
leases goods or properties, renders
services, and any person who imports
goods shall be subject to the value-
added tax (VAT) imposed in Sections
106 to 108 of this Code.
xxx xxx xxx
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, by any
person regardless of whether or not
the person engaged therein is a
 nonstock, nonprofit private
organization (irrespective of the
disposition of its net income and
whether or not it sells exclusively to
members or their guests), or
government entity." (Emphasis
supplied)
The above provision is clear — even a non-
stock, non-profit organization or government entity
is liable to pay VAT on the sale of goods or
services. This conclusion was affirmed by
the Supreme Court in Commissioner of Internal
Revenue v. Court of Appeals and Commonwealth
Management and Services Corporation, G.R. No.
125355, March 30, 2000. In this case, the Supreme
Court held:
"(E)ven a non-stock, non-profit
organization or government entity, is
liable to pay VAT on the sale of goods
or services. VAT is a tax on
transactions, imposed at every stage
of the distribution process on the sale,
barter, exchange of goods or property,
and on the performance of services,
even in the absence of profit
attributable thereto. The term "in the
course of trade or business" requires
the regular conduct or pursuit of a
commercial or an economic activity,
regardless of whether or not the entity
is profit-oriented.
The definition of the term "in the
course of trade or business"
incorporated in the present law applies
to all transactions even to those made
prior to its enactment. Executive Order
No. 273 stated that any person who, in
the course of trade or business, sells,
barters or exchanges goods and
services, was already liable to pay
VAT. The present law merely stresses
that even a nonstock, nonprofit
organization or government entity is
liable to pay VAT for the sale of goods
and services.
 Section 108 of the National
Internal Revenue Code of 1997
defines the phrase "sale of services"
as the "performance of all kinds of
services for others for a fee,
remuneration or consideration." It
includes "the supply of technical
advice, assistance or services
rendered in connection with technical
management or administration of any
scientific, industrial or commercial
undertaking or project."
On February 5, 1998, the
Commissioner of Internal Revenue
issued BIR Ruling No. 010-98
emphasizing that a domestic
corporation that provided technical,
research, management and technical
assistance to its affiliated companies
and received payments on a
reimbursement-of-cost basis, without
any intention of realizing profit, was
subject to VAT on services rendered.
In fact, even if such corporation was
organized without any intention of
realizing profit, any income or profit
generated by the entity in the conduct
of its activities was subject to income
tax.
Hence, it is immaterial
whether the primary purpose of a
corporation indicates that it
receives payments for services
rendered to its affiliates on a
reimbursement-on-cost basis only,
without realizing profit, for
purposes of determining liability for
VAT on services rendered. As long
as the entity provides service for a
fee, remuneration or consideration,
then the service rendered is subject
to VAT."
Accordingly, the gross receipts of
condominium corporations including association
dues, membership fees, and other
 assessments/charges are subject to VAT, income
tax and income payments made to it are subject to
applicable withholding taxes under existing
regulations. 4
xxx xxx xxx
The First E-Bank's Allegations
In its Petition dated December 20, 2012, the First E-
Bank essentially alleged: It was a non-stock non-profit
condominium corporation. It owned and possessed, through
its members, a condominium office building. RMC No. 65-
2012 imposed on it two (2) tax liabilities: 1) value-added tax
(VAT) of P118,971.53 to be paid on December 2012 and
every month thereafter; and b) income tax of P665,904.12 to
be paid on or before April 15, 2013 and every year
thereafter. 5
RMC No. 65-2012 burdened the owners of the
condominium units with income tax and VAT on their own
money which they exclusively used for the maintenance and
preservation of the building and its premises. RMC No. 65-
2012 was oppressive and confiscatory because it required
condominium unit owners to produce additional amounts for
the thirty-two percent (32%) income tax and twelve percent
(12%) VAT. 6
Through the Makati Commercial Estate Association,
Inc., it sent a Letter dated December 5, 2012 to the BIR
Commissioner requesting deferment of RMC No. 65-2012. A
Letter dated December 19, 2012 was likewise sent to Makati
City Revenue District Officer Ricardo B. Espiritu informing
him of the continuous judicial consignation of the income tax
and VAT payments due under RMC No. 65-2012. 7
The BIR, et al.'s Comments
Under Comment dated February 11, 2013, the BIR
and RDO Espiritu through the Office of the Solicitor General
(OSG) riposted that declaratory relief was no longer proper
here considering that RMC No. 65-2012 already took effect
on October 31, 2012. The alleged injury which the First E-
Bank sought to prevent had already arisen as of that date. 8
By its separate comment, * the BIR's Litigation Division
argued that the petition should be dismissed for violation of
the principle of primary jurisdiction. Several condominium
corporations had already referred the issue to the BIR Law
Division for further clarification. Ultimately, only the Secretary
of Finance had primary jurisdiction over the issue raised
here. Too, a petition for declaratory relief will not prosper if
the questioned statute had already been breached, as in this
case. RMC No. 65-2012 was only a clarificatory issuance on
pertinent laws, specifically the National Internal Revenue
Code (NIRC). It was merely a restatement of the BIR's
prevailing position on the issue of taxation. 9
The First E-Bank's Reply
The First E-Bank replied that judicial consignation of
its tax payments under protest was necessary. 10

The Trial Court's Ruling

By Resolution 11 dated September 5, 2013, the trial

court ruled that the First E-Bank correctly resorted to a
petition for declaratory relief for the purpose of invalidating
RMC No. 65-2012. On this score, the trial court declared as
invalid RMC No. 65-2012 for it purportedly expanded the
law, created an additional tax burden on condominium
corporations, and was issued without the requisite notice
and hearing, thus:
As to the validity of the Memorandum Circular
issued, it is respondent's contention that it merely
clarified and was simply issued to restate and clarify
the prevailing position and ruling of the BIR. It was a
mere interpretation of an existing law which has
already been in effect and which was not set to be
amended. However, the same appears to be not
true as it goes beyond its objective to clarify the
existing statute. The assailed Revenue
Memorandum Circular not merely interpreted or
clarified the existing BIR Ruling but in fact legislated
or introduced a new legislation under the mantle of
its quasi-legislative authority. The BIR
Commissioner, under the guise of clarifying income
tax on association dues, made Revenue
Memorandum Circular effective immediately. In so
doing, the passage contravenes the constitutional
mandate of due process of law. 12
xxx xxx xxx
The above cited portion of the Memorandum
Circular failed to show what particular law it clarified.
Instead it shows that it merely departed from the
several rulings of the Bureau exempting from
income tax the assessments/charges collected by
condominium corporations from its members, on the
ground that the collection of association dues and
other assessments/charges are merely held in trust
to be used solely for administrative expenses in
implementing its purpose. The new circular in effect
made its own legislation abandoning the previous
rulings of the BIR which became the practice of the
condominium corporations including herein
petitioner. The Revenue Circular changed and
departed from the long standing ruling of the BIR
that association dues and other fees and charges
collected from members are tax exempt. In so
doing, it abruptly charges from taxpayer an
imposition which was then not existing, and worse
made it immediately effective which is prejudicial to
the rights of the petitioner. It did not merely interpret
or clarify but changed altogether the long standing
rules of the Bureau of Internal Revenue. 13
xxx xxx xxx
Moreover, it is already the common business
practice of petitioner that the association dues,
membership fees and the like are not included as
part of its income and therefore of the VAT. The
advent of the Memorandum Circular 65-2012 issued
by the Commissioner changes the tax liability of
petitioner in the sense that it is now subject to tax. It
created a new tax burden upon petitioner. Petitioner
then could not be faulted to consign judicially as
they claim, the [VAT] amount pending resolution of
the petition for declaratory relief herein filed.
Respondent BIR Commissioner should have
accorded petitioner the opportunity to be heard,
which was the bone of contention of the letter sent
to the Honorable Commissioner which was not
acted upon.
The Revenue Memorandum Circular did not
only clarify an existing law, but changes its import
and interpretation that in so doing it prejudices the
right of the petitioner as a tax payer. 14
xxx xxx xxx
Since the BIR in passing the subject
memorandum circular failed to accord respondent or
those similarly situated as a tax payer due notice
 and opportunity to be heard, before issuing said
circular it is this court's opinion that the issuance
was arbitrarily and in violation of the due process
clause of the constitution. The respondent in
imposing additional tax burden on petitioner violated
the latter's constitutional right to due notice and
hearing. 15
xxx xxx xxx
In another vein, the trial court noted the absence of
proof that the First E-Bank actually made a judicial
consignation of its purported tax payments. 16
The BIR, et al., moved for reconsideration. It argued
that the petition was premature, RMC No. 65-2012 was
valid, and the petition for declaratory relief should be
dismissed for violating the principle of primary jurisdiction.
For its part, the First E-Bank moved for partial
reconsideration, praying that the consignated funds be
released. 17
By Order 18 dated December 18, 2013, the trial court
denied the parties' respective motions for reconsideration. It
reiterated that the First E-Bank properly resorted to a petition
for declaratory relief for the purpose of invalidating RMC No.
65-2012. It also noted that the First E-Bank appeared to
have judicially consignated the funds only on November 17,
2013, following the resolution of the case on September 5,
2013. For sure, this judicial consignation, which was
belatedly done, cannot justify a modification of the aforesaid
resolution. The trial court, nonetheless, pronounced that the
First E-Bank was not precluded from filing the proper motion
to withdraw the consignated amounts upon the finality of the
ruling on the validity of RMC 65-2012.

The Proceedings before the Court of Appeals

Aggrieved, both parties appealed to the Court of

Appeals. On one hand, the BIR, et al., challenged the trial
court's ruling insofar as it: a) decreed that the First E-Bank
correctly availed of the petition for declaratory relief when it
sought to nullify RMC No. 65-2012; and b) declared the
same as invalid. On the other hand, the First E-Bank
assailed the trial court's ruling insofar as it declined to order
the release of the judicially consignated amounts.
 The Court of Appeals' Dispositions

By its first assailed Resolution dated June 26, 2014,

the Court of Appeals dismissed the appeal of the First E-
Bank and the joint appeal of the BIR, et al., on ground of lack
of jurisdiction. It emphasized that jurisdiction over the case
was exclusively vested in the Court of Tax Appeals since the
trial court's impugned resolution involved a tax matter.
Both the First E-Bank and the BIR, et al., moved for
reconsideration. They commonly asserted that the Court of
Appeals had appellate jurisdiction over their respective
appeals emanating from a petition for declaratory relief
which sought to invalidate RMC No. 65-2012. 19
By its second assailed Resolution 20 dated November
27, 2014, the Court of Appeals denied the motions for
reconsideration and stressed anew that the Court of Tax
Appeals had exclusive jurisdiction over the appeals.

The Present Petitions

In G.R. No. 218924, the First E-Bank initiated, on

alleged ground of grave abuse of discretion, a Special Civil
Action for Certiorari 21 to nullify the assailed dispositions of
the Court of Appeals. According to the First E-Bank, the
Court of Appeals, not the Court of Tax Appeals, has
jurisdiction over its appeal since the subject matter of the
case is not local tax or taxes per se but a petition to declare
as invalid RMC No. 65-2012. The Court of Appeals
purportedly based its rulings on conjectures and surmises,
not on established facts and law.
In G.R. No. 215801, 22 the BIR, et al., availed of Rule
45 of the Revised Rules of Court. They plead the same legal
issue pertaining to which court has jurisdiction over the trial
court's decision.

Issues

First: Is a petition for declaratory relief proper for the

purpose of invalidating RMC No. 65-2012? No prohibition
mn
Second: Did the Court of Appeals validly dismiss the
twin appeals on ground of lack of jurisdiction?
 Third: Is RMC No. 65-2012 valid?
a) Is a condominium corporation engaged in trade or
business?
b) Are association dues, membership fees, and other
assessments/charges subject to income tax,
value-added tax, and withholding tax?
Fourth: Is the First E-Bank entitled to the release of its
judicially consignated tax payments?

Ruling

A petition for declaratory

relief is not the proper
remedy to seek the invalidation
of RMC No. 65-2012
An action for declaratory relief is governed by Section
1, Rule 63 of the Revised Rules of Court, thus:
Section 1. Who may file petition. — Any
person interested under a deed, will, contract or
other written instrument, or whose rights are
affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation
may, before breach or violation thereof bring an
action in the appropriate Regional Trial Court to
determine any question of construction or validity
arising, and for a declaration of his rights or duties,
thereunder.
Declaratory relief requires the following elements: (1)
the subject matter of the controversy must be a deed, will,
contract or other written instrument, statute, executive order
or regulation, or ordinance; (2) the terms of said documents
and the validity thereof are doubtful and require judicial
construction; (3) there must have been no breach of the
documents in question; (4) there must be an actual
justiciable controversy or the "ripening seeds" of one
between persons whose interests are adverse; (5) the issue
must be ripe for judicial determination; and (6) adequate
relief is not available through other means or other forms of
action or proceeding. 23
The Court rules that certiorari or prohibition, not
declaratory relief, is the proper remedy to assail the validity
or constitutionality of executive issuances. DOTR v.
PPSTA 24 is apropos:
The Petition for Declaratory Relief is not the
proper remedy
One of the requisites for an action for
declaratory relief is that it must be filed before any
breach or violation of an obligation. Section 1, Rule
63 of the Rules of Court states, thus:
xxx xxx xxx
Thus, there is no actual case involved in a
Petition for Declaratory Relief. It cannot,
therefore, be the proper vehicle to invoke the
judicial review powers to declare a statute
unconstitutional.
It is elementary that before this Court can
rule on a constitutional issue, there must first be a
justiciable controversy. A justiciable controversy
refers to an existing case or controversy that is
appropriate or ripe for judicial determination, not one
that is conjectural or merely anticipatory. As We
emphasized in Angara v. Electoral Commission, any
attempt at abstraction could only lead to dialectics
and barren legal questions and to sterile
conclusions unrelated to actualities.
To question the constitutionality of the
subject issuances, respondents should have
invoked the expanded certiorari jurisdiction
under Section 1 of Article VIII of the 1987
Constitution. The adverted section defines
judicial power as the power not only "to settle
actual controversies involving rights which are
legally demandable and enforceable," but also
"to determine whether or not there has been a
grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch
or instrumentality of the Government."
There is a grave abuse of discretion when
there is patent violation of the Constitution, the law,
or existing jurisprudence. On this score, it has been
ruled that "the remedies of certiorari and prohibition
are necessarily broader in scope and reach, and the
writ of certiorari or prohibition may be issued to
correct errors of jurisdiction committed not only by a
 tribunal, corporation, board or officer exercising
judicial, quasi-judicial or ministerial functions, but
also to set right, undo[,] and restrain any act of
grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or
instrumentality of the Government, even if the latter
does not exercise judicial, quasi-judicial or
ministerial functions." Thus, petitions
for certiorari and prohibition are the proper
remedies where an action of the legislative
branch is seriously alleged to have infringed the
Constitution. (Emphasis supplied)
In Diaz v. The Secretary of Finance, et al., 25 the
Court, nonetheless, held that a petition for declaratory relief
may be treated as one for prohibition if the case has far-
reaching implications and raises questions that need to be
resolved for the public good; or if the assailed act or acts of
executive officials are alleged to have usurped legislative
authority, thus:
On August 24, 2010 the Court issued a
resolution, treating the petition as one for prohibition
rather than one for declaratory relief, the
characterization that petitioners Diaz and Timbol
gave their action. The government has sought
reconsideration of the Court's resolution, however,
arguing that petitioners' allegations clearly made out
a case for declaratory relief, an action over which
the Court has no original jurisdiction. The
government adds, moreover, that the petition does
not meet the requirements of Rule 65 for actions for
prohibition since the BIR did not exercise judicial,
quasi-judicial, or ministerial functions when it sought
to impose VAT on toll fees. Besides, petitioners
Diaz and Timbol has a plain, speedy, and adequate
remedy in the ordinary course of law against the
BIR action in the form of an appeal to the Secretary
of Finance.
But there are precedents for treating a
petition for declaratory relief as one for
prohibition if the case has far-reaching
implications and raises questions that need to
be resolved for the public good. The Court has
also held that a petition for prohibition is a
proper remedy to prohibit or nullify acts of
 executive officials that amount to usurpation of
legislative authority.
Here, the imposition of VAT on toll fees has
far-reaching implications. Its imposition would
impact, not only on the more than half a million
motorists who use the tollways everyday, but more
so on the government's effort to raise revenue for
funding various projects and for reducing budgetary
deficits. (Emphasis supplied)
Here, RMC No. 65-2012 has far-reaching ramifications
among condominium corporations which have proliferated
throughout the country. For numerous Filipino families,
professionals, and students have, for quite sometime
now, opted for condominium living as their new way of life.
The matter of whether indeed the contributions of unit
owners solely intended for maintenance and upkeep of the
common areas of the condominium building are taxable is
imbued with public interest. Suffice it to state that taxes,
being the lifeblood of the government, occupy a high place in
the hierarchy of State priorities, hence, all questions
pertaining to their validity must be promptly addressed with
the least procedural obstruction.
Notably, the issue at hand has already pended for six
(6) years now, first with the trial court, then with the Court of
Appeals, and now with this Court. Hence, to forestall any
further delay, instead of remanding the cases to the Court of
Appeals, we here and now write finis to these cases once
and for all, Diaz enunciated:
To dismiss the petition and resolve the issues
later, after the challenged VAT has been imposed,
could cause more mischief both to the tax-paying
public and the government. A belated declaration of
nullity of the BIR action would make any attempt to
refund to the motorists what they paid an
administrative nightmare with no solution.
Consequently, it is not only the right, but the duty of
the Court to take cognizance of and resolve the
issues that the petition raises.
Although the petition does not strictly comply
with the requirements of Rule 65, the Court has
ample power to waive such technical requirements
when the legal questions to be resolved are of great
importance to the public. The same may be said of
 the requirement of locus standi which is a mere
procedural requisite.
G.R. No. 218924
The First E-Bank faults the Court of Appeals with
grave abuse of discretion amounting to lack or excess of
jurisdiction when the latter dismissed the former's appeal
from the trial court's Resolution dated September 5, 2013
and Order dated December 18, 2013.
A petition for certiorari is proper where the impugned
dispositions, as in this case, are tainted with grave abuse of
discretion amounting to lack or excess of jurisdiction. 26 More
so where a petition for review on certiorari does not appear
to be a plain, speedy, and adequate remedy to address the
First E-Bank's urgent concerns on its accumulated supposed
tax liabilities which will never get halted until the validity of
RMC No. 65-2012 is finally resolved, and considerations of
public welfare and public policy compel the speedy
resolution of the cases through the extraordinary remedy
of certiorari.
The Court, in some instances, allowed a petition
for certiorari to prosper notwithstanding the availability of
appeal. Mallari v. Banco Filipino Savings & Mortgage
Bank 27 enumerates these instances, viz.:
Indeed, the Court in some instances has
allowed a petition for certiorari to prosper
notwithstanding the availability of an appeal, such
as, (a) when public welfare and the advancement of
public policy dictate it; (b) when the broader interest
of justice so requires; (c) when the writs issued are
null; and (d) when the questioned order amounts to
an oppressive exercise of judicial authority.
So must it be.
G.R. No. 215801
On the part of the BIR, et al., they opted to pursue the
regular route under Rule 45 of the Revised Rules of Court.
Surely, being the beneficiary of the taxes paid by the First E-
Bank, the State has no compelling need to avail of the
extraordinary remedy under Rule 65. At any rate, Rule 45 is
undoubtedly an available remedy in the ordinary course of
law.
The parties' resort to the Court of
Appeals was proper in light of the
then prevailing jurisprudence
We now resolve the issue of jurisdiction.
Section 7 of Republic Act No. 9282 (RA
9282) 28 outlines the appellate jurisdiction of the Court of Tax
Appeals, viz.:
Sec. 7. Jurisdiction. — The CTA shall
exercise:
a. Exclusive appellate jurisdiction to
review by appeal, as herein provided:
1. Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relation thereto,
or other matters arising under the
National Internal Revenue or other
laws administered by the Bureau of
Internal Revenue;
2. Inaction by the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relations thereto,
or other matters arising under the
National Internal Revenue Code or
other laws administered by the Bureau
of Internal Revenue, where the
National Internal Revenue Code
provides a specific period of action, in
which case the inaction shall be
deemed a denial;
3. Decisions, orders or resolutions of
the Regional Trial Courts in local tax
cases originally decided or resolved by
them in the exercise of their original or
appellate jurisdiction;
4. Decisions of the Commissioner of
Customs in cases involving liability for
customs duties, fees or other money
charges, seizure, detention or release
of property affected, fines, forfeitures
 or other penalties in relation thereto, or
other matters arising under the
Customs Law or other laws
administered by the Bureau of
Customs;
5. Decisions of the Central Board of
Assessment Appeals in the exercise of
its appellate jurisdiction over cases
involving the assessment and taxation
of real property originally decided by
the provincial or city board of
assessment appeals;
6. Decisions of the Secretary of
Finance on customs cases elevated to
him automatically for review from
decisions of the Commissioner of
Customs which are adverse to the
Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade
and Industry, in the case of non-
agricultural product, commodity or
article, and the Secretary of
Agriculture in the case of agricultural
product, commodity or article,
involving dumping and countervailing
duties under Sections 301 and 302,
respectively, of the Tariff and Customs
Code, and safeguard measures under
Republic Act No. 8800, where either
party may appeal the decision to
impose or not to impose said duties.
On August 30, 2008, the Court en banc decreed
in British American Tobacco v. Camacho, et al., 29 that
the Court of Tax Appeals did not have jurisdiction to pass
upon the constitutionality or validity of a law or rule, thus:
While the above statute confers on the CTA
jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of
a law or rule is challenged. Where what is assailed
is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative
agency in the performance of its quasi-
legislative function, the regular courts have
 jurisdiction to pass upon the same. The
determination of whether a specific rule or set of
rules issued by an administrative agency
contravenes the law or the constitution is within
the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review
or the power to declare a law, treaty,
international or executive agreement,
presidential decree, order, instruction,
ordinance, or regulation in the courts, including
the regional trial courts. This is within the scope of
judicial power, which includes the authority of the
courts to determine in an appropriate action the
validity of the acts of the political departments.
Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights
which are legally demandable and enforceable, and
to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis
supplied)
The prevailing dictum then was only regular courts
had jurisdiction to pass upon the constitutionality or validity
of tax laws and regulations.
On February 4, 2014, the Court en banc recognized
that the Court of Tax Appeals possessed all such implied,
inherent, and incidental powers necessary to the full and
effective exercise of its appellate jurisdiction over tax
cases. City of Manila v. Judge Grecia-Cuerdo 30 is
relevant, thus:
A grant of appellate jurisdiction implies that
there is included in it the power necessary to
exercise it effectively, to make all orders that will
preserve the subject of the action, and to give effect
to the final determination of the appeal. It carries
with it the power to protect that jurisdiction and to
make the decisions of the court thereunder
effective. The court, in aid of its appellate
jurisdiction, has authority to control all auxiliary and
incidental matters necessary to the efficient and
proper exercise of that jurisdiction. For this purpose,
it may, when necessary, prohibit or restrain the
performance of any act which might interfere with
the proper exercise of its rightful jurisdiction in cases
pending before it.
Lastly, it would not be amiss to point out that
a court which is endowed with a particular
jurisdiction should have powers which are
necessary to enable it to act effectively within such
jurisdiction. These should be regarded as powers
which are inherent in its jurisdiction and the court
must possess them in order to enforce its rules of
practice and to suppress any abuses of its process
and to defeat any attempted thwarting of such
process.
In this regard, Section 1 of RA 9282 states
that the CTA shall be of the same level as the CA
and shall possess all the inherent powers of a
court of justice.
Indeed, courts possess certain inherent
powers which may be said to be implied from a
general grant of jurisdiction, in addition to those
expressly conferred on them. These inherent
powers are such powers as are necessary for
the ordinary and efficient exercise of
jurisdiction; or are essential to the existence,
dignity and functions of the courts, as well as to
the due administration of justice; or are directly
appropriate, convenient and suitable to the
execution of their granted powers; and include
the power to maintain the court's jurisdiction
and render it effective in behalf of the litigants.
Thus, this Court has held that "while a
court may be expressly granted the incidental
powers necessary to effectuate its jurisdiction, a
grant of jurisdiction, in the absence of
prohibitive legislation, implies the necessary
and usual incidental powers essential to
effectuate it, and, subject to existing laws and
constitutional provisions, every regularly
constituted court has power to do all things that
are reasonably necessary for the administration
of justice within the scope of its jurisdiction and
for the enforcement of its judgments and
mandates." Hence, demands, matters or
questions ancillary or incidental to, or growing
out of, the main action, and coming within the
 above principles, may be taken cognizance of by
the court and determined, since such
jurisdiction is in aid of its authority over the
principal matter, even though the court may thus
be called on to consider and decide matters
which, as original causes of action, would not be
within its cognizance. (Emphasis supplied)
Consequently, the Court held that the authority of the
Court of Tax Appeals to take cognizance of petitions
for certiorari against interlocutory orders of the RTC in local
tax cases was deemed included in the authority or
jurisdiction granted it by law.
The Court underscored that the grant of appellate
jurisdiction to the Court of Tax Appeals included such power
necessary to exercise it effectively. Besides, a split
jurisdiction between the Court of Tax Appeals and the Court
of Appeals is anathema to the orderly administration of
justice. "The Court cannot accept that such was the
legislative motive, especially considering that the law
expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role
of judicial review over local tax cases without mention of any
other court that may exercise such power." 31
On August 16, 2016, in Banco de Oro v. Republic of
the Phils., et al., 32 the Court en banc pronounced in no
uncertain terms that the Court of Tax Appeals had
jurisdiction to rule on the constitutionality or validity of a tax
law or regulation or administrative issuance, viz.:
The Court of Tax Appeals has undoubted
jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by
the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund.
It is only in the lawful exercise of its power to
pass upon all maters brought before it, as
sanctioned by Section 7 of Republic Act No.
1125, as amended.
This Court, however, declares that the
Court of Tax Appeals may likewise take
cognizance of cases directly challenging the
constitutionality or validity of a tax law or
regulation or administrative issuance (revenue
orders, revenue memorandum circulars,
rulings).
 Section 7 of Republic Act No. 1125, as
amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial
agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance,
Central Board of Assessment Appeals, Secretary of
Trade and Industry) on tax-related problems must
be brought exclusively to the Court of Tax Appeals.
In other words, within the judicial system,
the law intends the Court of Tax Appeals to have
exclusive jurisdiction to resolve all tax
problems. Petitions for writs of certiorari against
the acts and omissions of the said quasi-judicial
agencies should, thus, be filed before the Court
of Tax Appeals.
Republic Act No. 9282, a special and later
law than Batas Pambansa Blg. 129 provides an
exception to the original jurisdiction of the
Regional Trial Courts over actions questioning
the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions
directly challenging the constitutionality or
validity of a tax law or regulation or
administrative issuance may be filed directly
before the Court of Tax Appeals.
Furthermore, with respect to administrative
issuances (revenue orders, revenue memorandum
circulars, or rulings), these are issued by the
Commissioner under its power to make rulings or
opinions in connection with the implementation of
the provisions of internal revenue laws. Tax rulings,
on the other hand, are official positions of the
Bureau on inquiries of taxpayers who request
clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their
implementing regulations. Hence, the determination
of the validity of these issuances clearly falls within
the exclusive appellate jurisdiction of the Court of
Tax Appeals under Section 7(1) of Republic Act No.
1125, as amended, subject to prior review by the
Secretary of Finance, as required under Republic
Act No. 8424. (Emphasis supplied)
 Banco de Oro further stressed that such undoubted
jurisdiction is exclusively vested in the Court of Tax Appeals
whether it is raised by the taxpayer directly or as a defense.
Here, following the trial court's denial of their
respective motions for reconsideration, the parties appealed
to the Court of Appeals. On June 26, 2014, the Court of
Appeals dismissed the appeals, and on November 27, 2014,
denied the parties' motions for reconsideration. 33
Based on this sequence of events, the whole time the
case was ongoing below, the prevailing doctrine had
been British American Tobacco ordaining that the Court of
Tax Appeals did not have jurisdiction to decide the validity or
constitutionality of laws or rules. Consequently, the parties
correctly elevated the trial court's resolution to the Court of
Appeals, which should have taken cognizance of, and
resolved, the appeals on the merits.
RMC No. 65-2012 is
invalid
We now turn to the substantive issue: Is RMC No. 65-
2012 valid?
a) A condominium corporation is not engaged in
trade or business
The issue on whether association dues, membership
fees, and other assessments/charges collected by a
condominium corporation in the usual course of trade or
business is not novel. Yamane v. BA Lepanto
Condominium Corp., 34 positively resolved it, viz.:
Obviously, none of these stated corporate
purposes are geared towards maintaining a
livelihood or the obtention of profit. Even though
the Corporation is empowered to levy
assessments or dues from the unit owners,
these amounts collected are not intended for the
incurrence of profit by the Corporation or its
members, but to shoulder the multitude of
necessary expenses that arise from the
maintenance of the Condominium Project. Just
as much is confirmed by Section 1, Article V of
the Amended By-Laws, which enumerate the
particular expenses to be defrayed by the
regular assessments collected from the unit
owners. These would include the salaries of the
employees of the Corporation, and the cost of
maintenance and ordinary repairs of the
common areas.
The City Treasurer nonetheless
contends that the collection of these
assessments and dues are "with the
end view of getting full appreciative
living values" for the condominium
units, and as a result, profit is obtained
once these units are sold at higher
prices. The Court cites with approval
the two counterpoints raised by the
Court of Appeals in rejecting this
contention. First, if any profit is
obtained by the sale of the units, it
accrues not to the corporation but to
the unit owner. Second, if the unit
owner does obtain profit from the sale
of the corporation, the owner is
already required to pay capital gains
tax on the appreciated value of the
condominium unit.
Moreover, the logic on this point
of the City Treasurer is baffling. By this
rationale, every Makati City car owner
may be considered as being engaged
in business, since the repairs or
improvements on the car may be
deemed oriented towards appreciating
the value of the car upon
resale. There is an evident
distinction between persons who
spend on repairs and improvements
on their personal and real property
for the purpose of increasing its
resale value, and those who defray
such expenses for the purpose of
preserving the property. The vast
majority of persons fall under the
second category, and it would be
highly specious to subject these
persons to local business taxes.
The profit motive in such cases is
hardly the driving factor behind
such improvements, if it were
contemplated at all. Any profit that
would be derived under such
circumstances would merely be
incidental, if not accidental.
Besides, we shudder at the
thought of upholding tax liability on the
basis of the standard of "full
appreciative living values," a phrase
that defies statutory explication,
commonsensical meaning, the English
language, or even definition from
Google. The exercise of the power
of taxation constitutes a deprivation
of property under the due process
clause, and the taxpayer's right to
due process is violated when
arbitrary or oppressive methods are
used in assessing and collecting
taxes. The fact that the Corporation
did not fall within the enumerated
classes of taxable businesses
under either the Local Government
Code or the Makati Revenue Code
already forewarns that a clear
demonstration is essential on the
part of the City Treasurer on why
the Corporation should be taxed
anyway. "Full appreciative living
values" is nothing but blather in search
of meaning, and to impose a tax
hinged on that standard is both
arbitrary and oppressive.
xxx xxx xxx
Again, whatever capacity the
Corporation may have pursuant to
its power to exercise acts of
ownership over personal and real
property is limited by its stated
corporate purposes, which are by
themselves further limited by the
Condominium Act. A condominium
corporation, while enjoying such
powers of ownership, is prohibited
by law from transacting its
properties for the purpose of
gainful profit. (Emphasis supplied)
 xxx xxx xxx
Yamane did emphasize that a corporation
condominium is not designed to engage in activities that
generate income or profit. A discussion on the nature of a
condominium corporation is, indubitably, in order.
The creation of the condominium corporation is
sanctioned by Republic Act No. 4726 (RA 4726) 35 (The
Condominium Act). Under the law, a condominium is an
interest in real property consisting of a separate interest in a
unit in a residential, industrial or commercial building and an
undivided interest in common, directly or indirectly, in the
land on which it is located and in other common areas of the
building. To enable the orderly administration over these
common areas which the unit owners jointly own, RA 4726
permits the creation of a condominium corporation for the
purpose of holding title to the common areas. The unit
owners shall in proportion to the appurtenant interests of
their respective units automatically be members or
shareholders of the condominium corporation to the
exclusion of others. 36
Sections 10 and 22 of RA 4726 focus on the non-profit
purpose of a condominium corporation. Under Section
10, 37 the corporate purposes of a condominium corporation
are limited to holding the common areas, either in ownership
or any other interest in real property recognized by law;
management of the project; and to such other purposes
necessary, incidental, or convenient to the accomplishment
of these purposes. Additionally, Section 10 prohibits the
articles of incorporation or by-laws of the condominium
corporation from containing any provisions contrary to the
provisions of RA 4726, the enabling or master deed, or the
declaration of restrictions of the condominium project. 38
Also, under Section 22, 39 the condominium
corporation, as the management body, may only act for the
benefit of the condominium owners in disposing tangible and
intangible personal property by sale or otherwise in
proportion to the condominium owners' respective interests
in the common areas.
Further, Section 9 40 allows a condominium
corporation to provide for the means by which it should be
managed. Specifically, it authorizes a condominium
corporation to collect association dues, membership fees,
and other assessments/charges for: a) maintenance of
insurance policies; b) maintenance, utility, gardening and
other services benefiting the common areas, for the
employment of personnel necessary for the operation of the
building, and legal, accounting and other professional and
technical services; c) purchase of materials, supplies and the
like needed by the common areas; d) reconstruction of any
portion or portions of any damage to or destruction of the
project; and e) reasonable assessments to meet authorized
expenditures.
In fine, the collection of association dues, membership
fees, and other assessments/charges is purely for the
benefit of the condominium owners. It is a necessary
incident to the purpose to effectively oversee, maintain, or
even improve the common areas of the condominium as well
as its governance.
As held in Yamane, "[t]he profit motive in such cases
is hardly the driving factor behind such improvements, if it
were contemplated at all. Any profit that would be derived
under such circumstances would merely be incidental, if not
accidental." More, a condominium corporation is especially
formed for the purpose of holding title to the common area
and exists only for the benefit of the condominium owners.
Nothing more.
RMC No. 65-2012, sharply departs from Yamane and
the law on condominium corporations. It invalidly declares
that the amounts paid as dues or fees by members and
tenants of a condominium corporation form part of the gross
income of the latter, thus, subject to income tax, value-added
tax, and withholding tax. The reason given — a
condominium corporation furnishes its members and tenants
with benefits, advantages, and privileges in return for such
payments, consequently, these payments constitute taxable
income or compensation for beneficial services it provides to
its members and tenants, hence, subject to income tax,
value-added tax, and withholding tax.
We cannot agree.
b) Association dues, membership fees, and other
assessments/charges are not subject to
income tax, value-added tax and withholding
tax.
First. Capital is a fund or property existing at one
distinct point in time while income denotes a flow of wealth
during a definite period of time. Income is gain derived and
severed from capital. 41 Republic Act No. 8424 (RA
8424) 42 or the Tax Reform Act of 1997 was in effect when
 RMC No. 65-2012 was issued on October 31, 2012. In
defining taxable income, Section 31 of RA 8424 states:
Section 31. Taxable Income Defined. — The term
taxable income means the pertinent items of gross
income specified in this Code, less the deductions
and/or personal and additional exemptions, if any,
authorized for such types of income by this Code or
other special laws.
Gross income means income derived from whatever
source, including compensation for services; the conduct of
trade or business or the exercise of a profession; dealings in
property; interests; rents; royalties; dividends; annuities;
prizes and winnings; pensions; and a partner's distributive
share in the net income of a general professional
partnership, 43 among others.
On December 19, 2017, Section 31 was amended by
Republic Act No. 10963 (RA 10963 ) 44 (The TRAIN Law).
The provision now reads:
Sec. 31. Taxable Income Defined. — The term
"taxable income" means the pertinent items of gross
income specified in this Code, less deductions if
any, authorized for such types of income by this
Code or other special laws.
There is no substantial difference between the original
definition under RA 8424 and the subsequent definition
under the TRAIN Law. The only difference is that the phrase
"and/or personal and additional exemptions" was deleted.
Still, both the former and current definitions are consistent —
'taxable income' refers to "the pertinent items of gross
income specified in this Code." A comparison of RA 8424
and the TRAIN Law shows the items under gross income
insofar as they are relevant to the present case, viz.:
 
RA 8424 45 RA 10963
(the law in effect when RMC No. 65- (signed into law on December 19, 2017
2012 was issued on October 31, 2012) and took effect on January 1, 2018)
Section 32. Gross Income. — Section 32. Gross Income. —
(A) General Definition. — Except (A) General Definition. — Except when
when otherwise provided in this Title, otherwise provided in this Title, gross
gross income means all income derived income means all income derived from
from whatever source, including (but whatever source, including (but not limited
not limited to) the following items: to) the following items:
(1) Compensation for services in (1) Compensation for services in
whatever form paid, including, but whatever form paid, including, but not
not limited to fees, salaries, wages, limited to fees, salaries, wages,
commissions, and similar items; commissions, and similar items;
(2) Gross income derived from the (2) Gross income derived from the
conduct of trade or business or the conduct of trade or business or the
exercise of a profession; exercise of a profession;
xxx xxx xxx xxx xxx xxx
 
Section 32 of RA 8424 does not include association
dues, membership fees, and other assessments/charges
collected by condominium corporations as sources of gross
income. The subsequent amendment under the TRAIN Law
substantially replicates the old Section 32.
Clearly, RMC No. 65-2012 expanded, if not altered,
the list of taxable items in the law. RMC No. 65-2012,
therefore, is void. Besides, where the basic law and a rule or
regulation are in conflict, the basic law prevails. 46
As established in Yamane, the expenditures incurred
by condominium corporations on behalf of the condominium
owners are not intended to generate revenue nor equate to
the cost of doing business.
In the very recent case of ANPC v. BIR, 47 the Court
pronounced that membership fees, assessment dues, and
other fees collected by recreational clubs are not subject to
income tax, thus:
As correctly argued by ANPC, membership
fees, assessment dues, and other fees of similar
nature only constitute contributions to and/or
replenishment of the funds for the maintenance
and operations of the facilities offered by
recreational clubs to their exclusive members.
They represent funds "held in trust" by these
clubs to defray their operating and general costs
and hence, only constitute infusion of capital.
Case law provides that in order to constitute
"income," there must be realized "gain." Clearly,
because of the nature of membership fees and
assessment dues as funds inherently dedicated for
the maintenance, preservation, and upkeep of the
clubs' general operations and facilities, nothing is to
be gained from their collection. This stands in
contrast to the fees received by recreational clubs
coming from their income-generating facilities, such
as bars, restaurants, and food concessionaires, or
from income-generating activities, like the renting
 out of sports equipment, services, and other
accommodations: In these latter examples,
regardless of the purpose of the fees' eventual use,
gain is already realized from the moment they are
collected because capital maintenance,
preservation, or upkeep is not their pre-determined
purpose. As such, recreational clubs are generally
free to use these fees for whatever purpose they
desire and thus, considered as unencumbered
"fruits" coming from a business transaction.
Further, given these recreational clubs'
non-profit nature, membership fees and
assessment dues cannot be considered as
funds that would represent these clubs' interest
or profit from any investment. In fact, these fees
are paid by the clubs' members without any
expectation of any yield or gain (unlike in stock
subscriptions), but only for the above-stated
purposes and in order to retain their
membership therein.
In fine, for as long as these membership
fees, assessment dues, and the like are treated
as collections by recreational clubs from their
members as an inherent consequence of their
membership, and are, by nature, intended for the
maintenance, preservation, and upkeep of the
clubs' general operations and facilities, then
these fees cannot be classified as "the income
of recreational clubs from whatever source" that
are "subject to income tax. Instead, they only
form part of capital from which no income tax
may be collected or imposed. (Emphasis
supplied)
Similarly, therefore, association dues, membership
fees, and other assessments/charges are not subject to
income tax because they do not constitute profit or gain. To
repeat, they are collected purely for the benefit of the
condominium owners and are the incidental consequence of
a condominium corporation's responsibility to effectively
oversee, maintain, or even improve the common areas of the
condominium as well as its governance.
Second. Association dues, membership fees, and
other assessments/charges do not arise from transactions
involving the sale, barter, or exchange of goods or property.
Nor are they generated by the performance of services. As
such, they are not subject to value-added tax per Section
105 of RA 8424, viz.:
Section 105. Persons Liable. — Any person
who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties,
renders services, and any person who imports
goods shall be subject to the value-added tax (VAT)
imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and
the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply
to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of
Republic Act No. 7716.
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, by any
person regardless of whether or not the person
engaged therein is a non-stock, non-profit
private organization (irrespective of the
disposition of its net income and whether or not
it sells exclusively to members or their guests),
or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being course of
trade or business. (Emphasis supplied)
The value-added tax is a burden 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, so much so that even a non-stock, non-
profit organization or government entity, is liable to pay
value-added tax on the sale of goods or services. 48
Section 106 of RA 8424 imposes value-added tax on
the sale of goods and properties. The term 'goods' or
'properties' shall mean all tangible and intangible objects
which are capable of pecuniary estimation. These 'goods' or
'properties' include real property, intellectual property,
equipment, and rights over motion picture films. 49 Section
106 of RA 8424 likewise imposes value-added tax on
transactions such as transfer of goods, properties, profits, or
inventories. 50
Section 108 of RA 8424 further imposes value-added
tax on sale of services and use or lease of properties. It
defines "sale or exchange of services," as follows:
The phrase 'sale or exchange of
services' 51 means the performance of all kinds of
services in the Philippines for others for a fee,
remuneration or consideration, including those
performed or rendered by construction and service
contractors; stock, real estate, commercial, customs
and immigration brokers; lessors of property,
whether personal or real; warehousing services;
lessors or distributors of cinematographic films;
persons engaged in milling, processing,
manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels,
rest-houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment
parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending
investors; transportation contractors on their
transport of goods or cargoes, including persons
who transport goods or cargoes for hire and other
domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by
air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines
to another place in the Philippines; sales of
electricity by generation companies, transmission,
and distribution companies; services of franchise
grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all
other franchise grantees except those under Section
119 of this Code and non-life insurance companies
(except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and
similar services regardless of whether or not the
performance thereof calls for the exercise or use of
the physical or mental faculties. x x x
The phrase 'sale or exchange of services' shall include
the use of intellectual property, use of certain types of
equipment, supplying certain types of knowledge or
information, lease of motion picture films, and use of
transmission or air time.
Both under RA 8424 (Sections 106, 107, 52 and 108)
and the TRAIN Law, there, too, is no mention of association
dues, membership fees, and other assessments/charges
collected by condominium corporations being subject to
VAT. And rightly so. For when a condominium corporation
manages, maintains, and preserves the common areas in
the building, it does so only for the benefit of the
condominium owners. It cannot be said to be engaged in
trade or business, thus, the collection of association dues,
membership fees, and other assessments/charges is not a
result of the regular conduct or pursuit of a commercial or an
economic activity, or any transactions incidental thereto.
Neither can it be said that a condominium corporation
is rendering services to the unit owners for a fee,
remuneration or consideration. Association dues,
membership fees, and other assessments/charges form part
of a pool from which a condominium corporation must draw
funds in order to bear the costs for maintenance, repair,
improvement, reconstruction expenses and other
administrative expenses.
Indisputably, the nature and purpose of a
condominium corporation negates the carte
blanche application of our value-added tax provisions on its
transactions and activities. CIR v. Magsaysay Lines,
Inc., 53 stated:
Yet VAT is not a singular-minded tax on
every transactional level. Its assessment bears
direct relevance to the taxpayer's role or link in the
production chain. Hence, as affirmed by Section 99
of the Tax Code and its subsequent
incarnations, the tax is levied only on the sale,
barter or exchange of goods or services by
persons who engage in such activities, in the
course of trade or business. These transactions
outside the course of trade or business may
invariably contribute to the production chain,
but they do so only as a matter of accident or
incident. As the sales of goods or services do
not occur within the course of trade or business,
the providers of such goods or services would
hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against
 their own accumulated VAT collections since the
accumulation of output VAT arises in the first
place only through the ordinary course of trade
or business. (Emphasis supplied)
Too, ANPC 54 held that membership fees, assessment
dues, and the like collected by recreational clubs are not
subject to value-added tax "because in collecting such fees,
the club is not selling its service to the members.
Conversely, the members are not buying services from the
club when dues are paid; hence, there is no economic or
commercial activity to speak of as these dues are devoted
for the operations/maintenance of the facilities of the
organization. As such, there could be no 'sale, barter or
exchange of goods or properties, or sale of a service' to
speak of, which would then be subject to VAT under the
1997 NIRC." This principle equally applies to condominium
corporations which are similarly situated with recreational
clubs insofar as membership fees, assessment dues, and
other fees of similar nature collected from condominium
owners are devoted to the operations and maintenance of
the facilities of the condominium. In sum, RMC No. 65-2012
illegally imposes value-added tax on association dues,
membership fees, and other assessments/charges collected
and received by condominium corporations.
Third. The withholding tax system was devised for
three (3) primary reasons, i.e., — (1) to provide taxpayers a
convenient manner to meet their probable income tax
liability; (2) to ensure the collection of income tax which can
otherwise be lost or substantially reduced through failure to
file the corresponding returns; and (3) to improve the
government's cash flow. This results in administrative
savings, prompt and efficient collection of taxes, prevention
of delinquencies and reduction of governmental effort to
collect taxes through more complicated means and
remedies. 55 Succinctly put, withholding tax is intended to
facilitate the collection of income tax. And if there is no
income tax, withholding tax cannot be collected.
Section 57 of RA 8424 directs that only income, be it
active or passive, earned by a payor-corporation can be
subject to withholding tax, viz.:
Section 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. —
Subject to rules and regulations the Secretary of
Finance may promulgate, upon the recommendation
 of the Commissioner, requiring the filing of income
tax return by certain income payees, the tax
imposed or prescribed by Sections 24(B)(1), 24(B)
(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E), 27(D)(1), 27(D)(2), 27(D)(3),
27(D)(5), 28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)
(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)
(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and
282 of this Code on specified items of income shall
be withheld by payor-corporation and/or person and
paid in the same manner and subject to the same
conditions as provided in Section 58 of this Code.
(B) Withholding of Creditable Tax at Source. — The
Secretary of Finance may, upon the
recommendation of the Commissioner, require the
withholding of a tax on the items of income payable
to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent
(32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable
year.
xxx xxx xxx
Although Section 57 (B) was later amended by the
TRAIN Law, it still decrees that the withholding of tax covers
only the income payable to natural or juridical persons, thus:
Sec. 57. Withholding of Tax at Source. —
(A) x x x —
(B) Withholding of Creditable Tax at Source. — The
Secretary of Finance may, upon the
recommendation of the Commissioner, require the
withholding of a tax on the items of income payable
to natural or juridical persons, residing in the
Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent
(32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable
year: Provided, That, beginning January 1, 2019,
the rate of withholding shall not be less than one
percent (1%) but not more than fifteen percent
(15%) of the income payment.
 xxx xxx xxx
Yamane aptly stated "[e]ven though the Corporation is
empowered to levy assessments or dues from the unit
owners, these amounts collected are not intended for the
incurrence of profit by the Corporation or its members, but to
shoulder the multitude of necessary expenses that arise
from the maintenance of the Condominium Project."
Fourth. Section 4 of RA 8424 empowers the BIR
Commissioner to interpret tax laws and to decide tax cases:
SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. — The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or
other matters arising under this Code or other laws
or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals.
But the BIR Commissioner cannot, in the exercise of
such power, issue administrative rulings or circulars
inconsistent with the law to be implemented. Administrative
issuances must not override, supplant, or modify the law,
they must remain consistent with the law intended to carry
out. Surely, courts will not countenance administrative
issuances that override, instead of remaining consistent and
in harmony with the law they seek to apply and implement. 56
As shown, the BIR Commissioner expanded or
modified the law when she declared that association dues,
membership fees, and other assessments/charges are
subject to income tax, value-added tax, and withholding tax.
In doing so, she committed grave abuse of discretion
amounting to lack or excess of jurisdiction. As to what
constitutes 'grave abuse of discretion' and when a
government branch, agency, or instrumentality is deemed to
have committed it, Kilusang Mayo Uno v. Aquino
III 57 instructs:
Grave abuse of discretion denotes a
"capricious, arbitrary[,] and whimsical exercise of
 power. The abuse of discretion must be patent and
gross as to amount to an evasion of positive duty or
to a virtual refusal to perform a duty enjoined by law,
as not to act at all in contemplation of law, or where
the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility."
Any act of a government branch, agency, or
instrumentality that violates a statute or a treaty is
grave abuse of discretion. However, grave abuse
of discretion pertains to acts of discretion
exercised in areas outside an agency's granted
authority and, thus, abusing the power granted
to it. Moreover, it is the agency's exercise of its
power that is examined and adjudged, not whether
its application of the law is correct. (Emphasis
supplied)
In sum, the BIR Commissioner is empowered to
interpret our tax laws but not expand or alter them. In the
case of RMC No. 65-2012, however, the BIR Commissioner
went beyond, if not, gravely abused such authority.
If proper, the First E-Bank may
recover the consignated amounts,
through a separate action or proceeding
The general rule is that a void law or administrative act
cannot be the source of legal rights or duties. Article 7 of the
Civil Code enunciates this general rule, as well as its
exception: "Laws are repealed only by subsequent ones,
and their violation or non-observance shall not be excused
by disuse, or custom or practice to the contrary. When the
courts declared a law to be inconsistent with the
Constitution, the former shall be void and the latter shall
govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to
the laws or the Constitution." 58 Jurisprudence is replete with
instances when this Court had directed the refund of taxes
that were paid under invalid tax measures, thus:
1) In Icard v. The City Council of Baguio, 59 this
Court held that the City of Baguio's ordinances,
namely, Ordinance No. 6-V (which imposed an
amusement tax of 0.20 for each person entering
a night club) and Ordinance No. 11-V (which
provides for a property tax on motor vehicles)
were ultra vires. As a consequence, this Court
ordered the City of Baguio to refund to
 petitioner-appellee in that case the sum of
P254.80 which he paid as amusement tax.
2) In Matalin Coconut Co., Inc. v. The Municipal
Council of Malabang 60 the Court agreed with
the trial court's finding that the Municipality of
Malabang's Municipal Ordinance No. 45-66,
imposing a "police inspection fee" of P0.30 per
sack of cassava starch or flour was an invalid
act of taxation. The trial court's directive to the
municipal treasurer "to refund to the petitioner
the payments it made under the said ordinance
from September 27, 1966 to May 2, 1967,
amounting to P25,500.00, as well as all
payments made subsequently thereafter" was
likewise affirmed by this Court.
3) In Cagayan Electric Power and Light, Co. Inc. v.
City of Cagayan de Oro, 61 this Court directed
the City of Cagayan de Oro to refund to
CEPALCO the tax payments made by the latter
"on the lease or rental of electric and/or
telecommunication posts, poles or towers by
pole owners to other pole users at ten percent
(10%) of the annual rental income derived from
such lease or rental" after the city's tax
Ordinance No. 9503-2005 was declared invalid.
Petitioner resorted to judicial consignation of its
alleged tax payments in the court, thus, reckons with the
requirements of judicial consignation, viz.: (1) a debt due; (2)
the creditor to whom tender of payment was made refused
without just cause to accept the payment, or the creditor was
absent, unknown or incapacitated, or several persons
claimed the same right to collect, or the title of the obligation
was lost; (3) the person interested in the performance of the
obligation was given notice before consignation was made;
(4) the amount was placed at the disposal of the court; and
(5) the person interested in the performance of the obligation
was given notice after the consignation was made. 62
Here, it is imperative to determine whether the First E-
Bank actually complied with the requirements for judicial
consignation. This is a question of fact which by this Court,
not being a trial court cannot pass upon. The trial court,
therefore, thus correctly held that the First E-Bank may
initiate the appropriate motion for the release of the
consignated funds, upon finality of the judicial determination
on the validity of RMC No. 65-2012 and only after it has
determined the presence of the requirements for judicial
consignation.
A final word
RMC No. 65-2012 is invalid for ordaining that "gross
receipts of condominium corporations including association
dues, membership, fees, and other assessments/charges
are subject to VAT, income tax and income payments made
to it are subject to applicable withholding taxes." A law will
not be construed as imposing a tax unless it does so clearly
and expressly. In case of doubt, tax laws must be construed
strictly against the government and in favor of the
taxpayer. 63 Taxes, as burdens that must be endured by the
taxpayer, should not be presumed to go beyond what the
law expressly and clearly declares. 64
ACCORDINGLY, the Court RESOLVES:
1) To REVERSE and SET ASIDE the assailed
Resolutions dated June 26, 2014 and
November 27, 2014 of the Court of Appeals in
CA-G.R. CV No. 102266;
2) To DENY the Petition for Review dated February
17, 2015 in G.R. No. 215801 and the Special
Civil Action for Certiorari dated February 12,
2015 in G.R. No. 218924; and
3) To AFFIRM the Resolution dated September 5,
2013 and Order dated December 18, 2013 of
the Regional Trial Court, Branch 146, Makati
City in Special Civil Action No. 12-1236.
SO ORDERED.
Peralta, C.J., Caguioa, J.C. Reyes, Jr. and Lopez, JJ.,
concur.
 
Footnotes

* Petitioner First E-Bank Tower Condominium Corp. sought to change

the caption of its petition in order to include the Court of Appeals
as public respondent but its motion to amend the title was denied
under Resolution dated October 12, 2015 in G.R. No. 218924.
1. Penned by Associate Justice Ramon M. Bato, Jr., with the
concurrence of Associate Justices Rodil V. Zalameda (now a
member of this Court) and Agnes Reyes-Carpio, all members of
 the Special Seventeenth Division, G.R. No. 218924, rollo, pp. 37-
38.
2. Penned by Associate Justice Ramon M. Bato, Jr. with the concurrence
of Associate Justices Rodil V. Zalameda (now a member of this
Court) and Agnes Reyes-Carpio, all members of the Former
Special Seventeenth Division, id. at 12-16.
3. Id. at 50-51.
4. Bureau of Internal Revenue, Revenue Memorandum Circular No. 65-
2012 https://www.bir.gov.ph/images/bir_files/old_files/pdf/66019R
MC%20No%2065-2012.pdf (Accessed on July 24, 2019).
5. G.R. No. 218924, rollo, p. 51.
6. Id.
7. Id.
8. Id. at 52.
* date unknown.
9. Id.
10. Id. at 54.
11. Id. at 50-63.
12. Id. at 57-58.
13. Id. at 59.
14. Id. at 60-61.
15. Id. at 62.
16. G.R. No. 218924, Id. at 62.
17. Id. at 45-46.
18. Id. at 45-48.
19. Id. at 12-16.
20. Id. at 16.
21. Id. at 2-11.
22. G.R. No. 215801, rollo, pp. 23-39.
23. CIR v. Standard Insurance Co., Inc., G.R. No. 219340, November 07,
2018.
24. G.R. No. 230107, July 24, 2018.
25. G.R. No. 193007, 669 Phil. 371, 382-383 (2011).
26. See Rural Bank of Calinog (Iloilo), Inc. v. Court of Appeals, G.R. No.
146519, August 08, 2005.
27. G.R. No. 157660, 585 Phil. 657, 662 (2008).
28. AN ACT EXPANDING THE JURISDICTION OF THE COURT OF
TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL
OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION
AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE
PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125,
AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING
THE COURT OF TAX APPEALS, AND FOR OTHER
PURPOSES.
29. 584 Phil. 489, 511 (2008).
30. 726 Phil. 9, 26-27 (2014).
31. Id.
32. 793 Phil. 97, 124-125 (2016).
33. G.R. No. 215801, rollo, pp. 26-27.
34. 510 Phil. 750, 775-777 (2005).
35. AN ACT TO DEFINE CONDOMINIUM, ESTABLISH
REQUIREMENTS FOR ITS CREATION, AND GOVERN ITS
INCIDENTS.
36. Section 2, RA 8424 (The Condominium Act).
37. Sec. 10. Whenever the common areas in a condominium project are
held by a condominium corporation, such corporation shall
constitute the management body of the project. The corporate
purposes of such a corporation shall be limited to the holding of
the common areas, either in ownership or any other interest in real
property recognized by law, to the management of the project, and
to such other purposes as may be necessary, incidental or
convenient to the accomplishment of said purposes. The articles
of incorporation or by-laws of the corporation shall not contain any
provision contrary to or inconsistent with the provisions of this Act,
the enabling or master deed, or the declaration of restrictions of
the project. Membership in a condominium corporation, regardless
of whether it is a stock or non-stock corporation, shall not be
transferable separately from the condominium unit of which it is an
appurtenance. When a member or stockholder ceases to own a
unit in the project in which the condominium corporation owns or
holds the common areas, he shall automatically cease to be a
member or stockholder of the condominium corporation.
38. Yamane v. BA Lepanto Condominium Corp., 510 Phil. 750, 773-774
(2005).
39. Sec. 22. Unless otherwise provided for by the declaration of
restrictions, the management body, provided for herein, may
acquire and hold, for the benefit of the condominium owners,
tangible and intangible personal property and may dispose of the
same by sale or otherwise; and the beneficial interest in such
personal property shall be owned by the condominium owners in
the same proportion as their respective interests in the common
areas. A transfer of a condominium shall transfer to the transferee
ownership of the transferor's beneficial interest in such personal
property.
40. Sec. 9. The owner of a project shall, prior to the conveyance of any
condominium therein, register a declaration of restrictions relating
to such project, which restrictions shall constitute a lien upon each
condominium in the project, and shall insure to and bind all
condominium owners in the project. Such liens, unless otherwise
provided, may be enforced by any condominium owner in the
project or by the management body of such project. The Register
of Deeds shall enter and annotate the declaration of restrictions
upon the certificate of title covering the land included within the
project, if the land is patented or registered under the Land
Registration or Cadastral Acts.
The declaration of restrictions shall provide for the management of
the project by anyone of the following management bodies: a
condominium corporation, an association of the condominium
owners, a board of governors elected by condominium owners, or
a management agent elected by the owners or by the board
named in the declaration. It shall also provide for voting
majorities quorums, notices, meeting date, and other rules
governing such body or bodies.
Such declaration of restrictions, among other things, may also
provide:
(a) As to any such management body;
(1) For the powers thereof, including power to enforce the
provisions of the declarations of restrictions;
(2) For maintenance of insurance policies, insuring condominium
owners against loss by fire, casualty, liability, workmen's
compensation and other insurable risks, and for bonding of the
members of any management body;
(3) Provisions for maintenance, utility, gardening and other
services benefiting the common areas, for the employment of
personnel necessary for the operation of the building, and legal,
accounting and other professional and technical services;
(4) For purchase of materials, supplies and the like needed by the
common areas;
(5) For payment of taxes and special assessments which would be
a lien upon the entire project or common areas, and for discharge
of any lien or encumbrance levied against the entire project or the
common areas;
(6) For reconstruction of any portion or portions of any damage to
or destruction of the project;
(7) The manner for delegation of its powers;
(8) For entry by its officers and agents into any unit when
necessary in connection with the maintenance or construction for
which such body is responsible;
(9) For a power of attorney to the management body to sell the
entire project for the benefit of all of the owners thereof when
partition of the project may be authorized under Section 8 of this
Act, which said power shall be binding upon all of the
condominium owners regardless of whether they assume the
obligations of the restrictions or not.
(b) The manner and procedure for amending such restrictions:
Provided, That the vote of not less than a majority in interest of the
owners is obtained.
(c) For independent audit of the accounts of the management
body;
(d) For reasonable assessments to meet authorized expenditures,
each condominium unit to be assessed separately for its share of
such expenses in proportion (unless otherwise provided) to its
owners fractional interest in any common areas;
(e) For the subordination of the liens securing such assessments
to other liens either generally or specifically described;
(f) For conditions, other than those provided for in Sections eight
and thirteen of this Act, upon which partition of the project and
dissolution of the condominium corporation may be made. Such
right to partition or dissolution may be conditioned upon failure of
the condominium owners to rebuild within a certain period or upon
specified inadequacy of insurance proceeds, or upon specified
percentage of damage to the building, or upon a decision of an
arbitrator, or upon any other reasonable condition.
41. Chamber of Real Estate and Builders' Assn., Inc. v. Hon. Executive
Sec. Romulo, et al., 562 Phil. 508, 530 (2010).
42. AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, AND FOR OTHER PURPOSES.
43. See CIR v. PAL, 535 Phil. 95, 106 (2006).
44. Tax Reform for Acceleration and Inclusion (TRAIN) Act.
45. As amended by Republic Act Nos. 8424, 9337, 9442, and 9504.
46. PAGCOR v. BIR, 660 Phil. 636, 664 (2011).
47. G.R. No. 228539, June 26, 2019.
48. CIR v. Negros Consolidated Farmers Multi-Purpose Cooperative,
G.R. No. 212735, December 05, 2018.
49. The term 'goods' or 'properties' shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall
include: a) real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business; b) the
right or the privilege to use patent, copyright, design or model,
plan, secret formula or process, goodwill, trademark, trade brand
or other like property or right; c) the right or the privilege to use in
the Philippines of any industrial, commercial or scientific
equipment;
d) the right or the privilege to use motion picture films, tapes and
discs; and e) radio, television, satellite transmission and cable
television time.
50. Section 106 of RA 8424 likewise imposes VAT on the following
transactions: 1) transfer, use or consumption not in the course of
business of goods or properties originally intended for sale or for
use in the course of business; 2) distribution or transfer to
shareholders or investors as share in the profits of the VAT-
registered persons; 3) distribution or transfer of profits of VAT-
registered persons to creditors in payment of debt; 4) consignment
of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned; and 5) retirement from or
cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
51. The phrase 'sale or exchange of services' shall likewise include: a)
the lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan secret formula or process,
goodwill, trademark, trade brand or other like property or right; 2)
the lease of the use of, or the right to use of any industrial,
commercial or scientific equipment; 3) the supply of scientific,
 technical, industrial or commercial knowledge or information; 4)
the supply of any assistance that is ancillary and subsidiary to and
is furnished as a means of enabling the application or enjoyment
of any such property, or right or any such knowledge or
information; 5) the supply of services by a non-resident person or
his employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident
person; 6) the supply of technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme; 7) the lease of motion
picture films, films, tapes and discs; and 8) the lease or the use of
or the right to use radio, television, satellite transmission and cable
television time.
52. x x x There shall be levied, assessed and collected on every
importation of goods a value-added tax x x x based on the total
value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax shall be
based on the landed cost plus excise taxes, if any, x x x.
53. 529 Phil. 64, 73 (2006).
54. Id.
55. COURAGE v. Commissioner, Bureau of Internal Revenue, G.R. No.
213446, July 03, 2018.
56. Id.
57. G.R. No. 210500, April 02, 2019.
58. CIR v. San Roque Power Corporation, 719 Phil. 137, 157 (2013).
59. 83 Phil. 870 (1949).
60. 227 Phil. 370 (1986).
61. 698 Phil. 788, 793 (2012).
62. Dalton v. FGR Realty and Dev't. Corp., 655 Phil. 93, 97-98 (2011).
63. See CIR v. SM Prime Holdings, Inc., 627 Phil. 581 (2010).
64. Philacor Credit Corporation v. CIR, 703 Phil. 26, 46 (2013).
 
|||  

FIRST DIVISION

[G.R. No. 222239. January 15, 2020.]

ASSOCIATION OF INTERNATIONAL SHIPPING

LINES, INC., APL CO. PTE. LTD., and
MAERSK-FILIPINAS,
 INC., petitioners, vs. SECRETARY OF FINANCE
and COMMISSIONER OF INTERNAL
REVENUE, respondents.

DECISION

QUESTION VALIDITY OF rmc WHICH CLARIFIED RMC ON SHIPPING CO

AND AGENTS IN TAX COLLECTION (demurrage and other taxes). RTC
decided in favor of shipping but 5 yrs after ra 10378, which the SOF
issued RR which covers the same subject which was initially
questioned, so they won sa RTC but then gi himo mn ug law then RMC
dayun. They said res judi na unta

LAZARO-JAVIER, J  : p

Antecedents
On July 1, 2005, Republic Act No. 9337 1 (RA 9337)
was enacted, amending select provisions of the 1997
National Internal Revenue Code (NIRC), namely, Sections
27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116,
117, 119, 121, 148, 151, 236, 237 and 288.
In relation to these amendments, then Commissioner
of Internal Revenue (CIR) Lilian Hefti issued Revenue
Memorandum Circular No. 31-2008 2 (RMC 31-2008) dated
January 30, 2008. It sought to "clarify certain provisions of
the National Internal Revenue Code of 1997, as amended
(Code), as it applies to shipping companies and their agents
as well as their suppliers to ensure that the law is properly
implemented and taxes are properly collected, in a manner
that aligns with acceptable business practices." Its relevant
portions read:
Q-3: Are on-line international sea carriers subject to
VAT?
A-3: No. On-line international sea carriers are not
subject to VAT they being subject to
percentage tax under Title V of the Tax Code.
They are liable to the three percent (3%)
percentage tax imposed on their gross receipts
 from outbound fares and freight, pursuant to
Section 118 of the Code.
However, if these on-line international sea
carriers engage in other transactions not
exempt under Section 119 of the Code, they
shall be liable to the twelve percent (12%) VAT
on these transactions.
Q-4: Are demurrage fees collected by on-line
international sea carriers due to delay by the
shipper in unloading their inbound cargoes
subject to tax?
A-4: Yes, Demurrage fees, which are in the nature of
rent for the use of property of the carrier in the
Philippines is considered income from
Philippine source and is subject to income tax
under the regular rate as the other types of
income of the on-line carrier. Said other line of
business may likewise be subject to VAT or
percentage tax applying the rule on threshold
discussed in the succeeding paragraph.
Q-5: Are detention fees and other charges collected
by international sea carriers subject to tax?
A-5: Detention fees and other charges relating to
outbound cargoes and inbound cargoes are all
considered Philippine-sourced income of the
international sea carriers they being collected
for the use of property or rendition of services
in the Philippines, and are subject to the
Philippine income tax under the regular rate,
and to the Value Added Tax, if the total annual
receipts from all the VAT-registered activities
exceeds one million five hundred thousand
pesos (P1,500,000.00). However, if the total
annual gross receipts do not exceed one
million five hundred thousand pesos, said
taxpayer is liable to pay the 3% percentage
tax.
xxx xxx xxx
Q-14: Are sales of goods, supplies, equipment, fuel
and services to persons engaged in
international shipping operations subject to
VAT?
A-14: The sale of goods, supplies, equipment, fuel
and services (including leases of property) to
the common carrier to be used in its
international sea transport operations is zero-
rated. Provided, that the same is limited to
goods, supplies, equipment, fuel and services
pertaining to or attributable to the transport of
goods and passengers from a port in the
Philippines directly to a foreign port without
docking or stopping at any other port in the
Philippines to unload passengers and/or
cargoes loaded in and from another domestic
port; Provided, further, that if any portion of
such fuel, equipment, goods or supplies and
services is used for purposes other than that
mentioned in this paragraph, such portion of
fuel, equipment, goods, supplies and services
shall be subject to 12% VAT.
xxx xxx xxx
Q-34: Are commission incomes received by the local
shipping agents from their foreign principals
subject to VAT?
A-34: The commission income or fees received by the
local shipping agents for outbound
freights/fares received by their foreign
principals which are on-line international sea
carriers (touching any port in the Philippines as
part of their operation) shall be zero-rated
pursuant to the provisions of Section 108(B)(4)
of the Code. Said provision does not require
that payments of the commission income or
fees for "services rendered to persons
engaged in international shipping operations,
including leases of property for use thereof," be
paid in acceptable foreign currency in order
that such transaction may be zero-rated. On
the other hand, commission income or fees
received by the local shipping agents
pertaining to inbound freights/fares received by
their foreign principals/on-line international sea
carriers or pertaining to freights/fares received
by off-line international sea carriers shall be
subject to VAT at 12%.
 Five (5) years after the enactment of RA 9337, on
December 6, 2010, petitioners Association of International
Shipping Lines, Inc. 3 (AISL), APL Co. Pte. Ltd. 4 (APL), and
Maersk-Filipinas, Inc. (Maersk) sought to nullify RMC 31-
2008 via a petition for declaratory relief entitled "Association
of International Shipping Lines, Inc. (AISL), APL Co. Pte.
Ltd. (APL), and Maersk-Filipinas, Inc. (Maersk) v.
Commissioner of Internal Revenue." The case was raffled to
RTC-Branch 98, Quezon City, and docketed as Civil Case
No. Q-09-64241. 5
Petitioners prayed that the trial court: 1) issue a writ of
preliminary injunction enjoining the then BIR Commissioner
and her representatives, agents, or those acting under her
instructions or on her behalf from implementing, enforcing, or
acting pursuant to or on the basis of the challenged
provisions of RMC 31-2008; and 2) render judgment
declaring these challenged provisions void. 6
According to petitioners, RMC 31-2008 was void
insofar as it imposed regular tax rate of thirty percent (30%)
and twelve percent (12%) VAT on the demurrage and
detention fees collected by international shipping carriers
from shippers or consignees for delay in the return of
containers, on the domestic portion of services to persons
engaged in international shipping operations, and on
commission income received by local shipping agents from
international shipping carriers or in connection with inbound
shipments.
By Order 7 dated May 18, 2012, Branch 98 held that
international carriers were not subject to income tax under
Section 28 (A) (1) (3b) 8 of the NIRC. Too, demurrage fees
were not considered income derived from other or separate
business of the international carrier. Being incidental to the
trade or business of the international carrier, demurrage fees
should instead form part of the Gross Philippine Billings
(GPB) subject to 2.5% tax under Section 28. Further the law
did not expressly impose 12% VAT on the domestic portion
of the services rendered by international carriers. 9 Thus:
WHEREFORE, premises considered, and
pursuant to Rule 35 of the 1997 Rules of Civil
Procedure, the Court grants the motion for summary
judgment and declares as INVALID, the pertinent
portions of Revenue Memorandum Circular No. 31-
2008, insofar as the latter subjects the: a)
demurrage and detention fees to the regular
 corporate income tax rate under Section 28(A)(1)
and 12% VAT; b) domestic portion of the services
rendered to persons engaged in international
shipping operation to 12% VAT; and c) commission
income or fees received by local shipping agents
from international shipping carriers for the latter's
inbound freights/fares to 12% VAT, for being
contrary to Section 28 (A)(1), and (3) and Section
108 (B)(4) of the National Internal Revenue Code of
1997, as amended.
SO ORDERED. 10
The Order became final and executory as of June 16,
2012. 11
On March 7, 2013, Republic Act No. 10378 12 (RA
10378) was enacted, amending Section 28 (A) (3) (a) of the
NIRC. The provision now reads:
SEC. 28. Rates of Income Tax on Foreign
Corporations. —
(A) Tax on Resident Foreign Corporations. —
(1) x x x
(2) x x x
(3) International Carrier. — An
international carrier doing business in
the Philippines shall pay a tax of two
and one-half percent (2 1/2%) on its
'Gross Philippine Billings' as defined
hereunder:
(a) International Air Carrier. — 'Gross
Philippine Billings' refers to the amount
of gross revenue derived from carriage
of persons, excess baggage, cargo,
and mail originating from the
Philippines in a continuous and
uninterrupted flight, irrespective of the
place of sale or issue and the place of
payment of the ticket or passage
document: Provided, That tickets
revalidated, exchanged and/or
indorsed to another international
airline form part of the Gross
Philippine Billings if the passenger
boards a plane in a port or point in the
 Philippines: Provided, further, That for
a flight which originates from the
Philippines, but transshipment of
passenger takes place at any part
outside the Philippines on another
airline, only the aliquot portion of the
cost of the ticket corresponding to the
leg flown from the Philippines to the
point of transshipment shall form part
of Gross Philippine Billings.
(b) International Shipping. — 'Gross
Philippine Billings' means gross
revenue whether for passenger, cargo
or mail originating from the Philippines
up to final destination, regardless of
the place of sale or payments of the
passage or freight documents.
Provided, That international
carriers doing business in the
Philippines may avail of a preferential
rate or exemption from the tax herein
imposed on their gross revenue
derived from the carriage of persons
and their excess baggage on the basis
of an applicable tax treaty or
international agreement to which the
Philippines is a signatory or on the
basis of reciprocity such that an
international carrier, whose home
country grants income tax exemption
to Philippine carriers, shall likewise be
exempt from the tax imposed under
this provision.
xxx xxx xxx.
The Secretary of Finance, thereafter, issued the
implementing rules under Revenue Regulations No. 15-
2013 13 (RR 15-2013), the validity of which is now the
subject of this petition.
The Proceedings Before the Trial Court
Over three (3) years later, on December 4, 2013,
petitioners initiated the present petition for declaratory
relief, 14 this time, challenging Section 4.4 of RR 15-2013
and impleading as respondents both the Secretary of
Finance and the CIR. Section 4.4 reads:
 4.4) Taxability of Income Other Than Income from
International Transport Services. — All items of
income derived by international carriers that do not
form part of Gross Philippine Billings as defined
under these Regulations shall be subject to tax
under the pertinent provisions of the NIRC, as
amended.
Demurrage fees, which are in the nature of
rent for the use of property of the carrier in the
Philippines, is considered income from
Philippine source and is subject to income tax
under the regular rate as the other types of
income of the on-line carrier.
Detention fees and other charges relating
to outbound cargoes and inbound cargoes are
all considered Philippine-sourced income of
international sea carriers they being collected
for the use of property or rendition of services in
the Philippines, and are subject to the Philippine
income tax under the regular rate. (Emphasis
supplied)
The case was raffled to RTC-Branch 77, Quezon City,
and docketed Special Civil Action No. R-QZN-13-05590-CV,
then presided by Acting Presiding Judge Cleto R. Villacorta
III.
Petitioners' Arguments
Petitioners argued that Section 4.4 of RR 15-2013
invalidly subjects demurrage and detention fees collected by
international shipping carriers to regular corporate income
tax rate. This very same imposition had been previously
declared invalid by Branch 98 through its final and executory
Order dated May 18, 2012. 15 Section 4.4 of RR 15-2013
should not, therefore, be given effect by reason of res
judicata. 16 The treatment of demurrage and detention fees
on the carriage of cargoes prior to and after the enactment of
RA 10378 did not change. There is nothing in RA 10378
which even touches on demurrage and detention fees, much
less, provides or even implies that they should be treated as
income subject to tax at the regular corporate income tax
rate. 17
In fact, RR 15-2013 unduly widens the scope of RA
10378 by imposing additional taxes on international shipping
carriers not authorized or provided by law. Besides,
demurrage and detentions fees are not income but penalties
imposed by the carrier on the charterer, shipper, consignee,
or receiver, as the case may be, to allow the carrier to
recover losses or expenses associated with or caused by the
undue delay in the loading and/or discharge of the latter's
shipments from the containers. 18 They are akin to
damages. 19 Assuming that demurrage and detention fees
may be treated as income, these fees are taxable only if they
form part of Gross Philippine Billings (GPB) and taxed at the
preferential rate of 2.5%. 20
Further, RR 15-2013 is invalid because it was
promulgated without public hearing as required by the
Revised Administrative Code and case law. Also, no copies
of RR 15-2013 were filed with the University of the
Philippines-Law Center, as required by the Revised
Administrative Code, thus, the same is deemed not to have
become effective. 21
Respondents' Arguments
By Comment 22 dated February 3, 2014, the Secretary
of Finance, through the Office of the Solicitor General
(OSG), countered that the Order dated May 18, 2012 in Civil
Case No. Q-09-64241 did not preclude the Secretary of
Finance from issuing Section 4.4 of RR 15-2013 because a)
the first case involves RMC 31-2008 which the CIR issued to
clarify matters involving common carriers by sea, in relation
to their transport of passengers, goods, and services, while
the second case involves RR 15-2013 which the Secretary
of Finance issued pursuant to his mandate under RA 10378;
b) RMC 31-2008 was issued based on the authority of the
CIR to interpret the provisions of the NIRC while RR 15-2013
was issued by virtue of the authority of the Secretary of
Finance under RA 10378; and c) the Secretary of Finance
was not impleaded as respondent in the first case, thus, he
is not bound by the finality of Order dated May 18, 2012.
Besides, the Secretary of Finance and the CIR are two (2)
distinct officials governing two (2) separate agencies.
According to respondents, RR 15-2013 does not
expand the provisions of RA 10378. It simply clarifies what
constitutes Gross Philippine Billings (GPB) such that
anything outside the definition of GPB is subject to the
regular income tax rate for resident foreign corporations.
Thus, the law need not specifically mention demurrage or
detention fees as among those falling outside the definition
of GPB. 23
 Respondents stress that demurrage and detention
fees are income. They not only serve as penalties for
consignees, they also serve as compensation for extended
use of containers. As resident foreign corporations, they are
covered by the provisions on the regular income tax rate and
not the preferential rate of 2.5% imposed on GPB. 24
Lastly, respondents argue that the absence of public
hearing prior to the publication of RR 15-2013 or non-
submission of copies thereof to the UP-Law Center did not
render it ineffective. An interpretative regulation such as RR
15-2013, to be effective, needs nothing further than its bare
issuance for it gives no real consequence more than what
the law itself already prescribes. It adds nothing to the law
and does not affect the substantial rights of any person. 25
In its Answer 26 dated January 27, 2014, the CIR,
through the BIR Litigation Department riposted that the trial
court had no jurisdiction over the petition for declaratory
relief because its subject matter involved a revenue
regulation. Under Commonwealth Act No. 55 27 (CA 55),
actions for declaratory relief do not apply to cases involving
tax liabilities under any law administered by the
BIR. 28 Further, res judicata does not apply to the case.
Petitioners' Omnibus Motion
Petitioners subsequently filed an Omnibus Motion 1)
for Judicial Notice; and 2) for Summary Judgment 29 dated
December 4, 2014.
Petitioners prayed that the trial court take judicial
notice of the following: 1) the existence of RMC 31-2008; 2)
the final and executory Order dated May 18, 2012 in Civil
Case No. Q-09-64241 and its Certificate of Finality dated
August 28, 2012; 3) the enactment of Republic Act No.
10378 30 (RA 10378), which recognized the principle of
reciprocity for grant of income tax exemptions to
international shipping carriers and rationalized the taxes
imposed thereon; and 4) the issuance of RR 15-2013.
Petitioners also filed a motion for summary judgment
on ground that there was no genuine issue as to any
material fact and/or the facts were undisputed and certain
based on the pleadings, admissions, and affidavits on
record.
The Ruling of the Trial Court
Following the parties' exchange of pleadings, the trial
court, then presided by Acting Presiding Judge Villacorta,
through its first assailed Order 31 dated September 15, 2015:
1) granted petitioners' motion for judicial notice of the
existence of RMC 31-2008, the issuance of Order dated May
18, 2012 in Civil Case No. Q-09-64241 and its
corresponding Certificate of Finality dated August 28, 2012,
and the enactment of RA 10378 — all these being the official
acts of different branches of government; 2) declared that it
had no jurisdiction over the petition for declaratory relief
pursuant to CA 55 which removed from regional trial courts
the authority to rule on cases involving one's liability for tax,
duty, or charge collectible under any law administered by the
Bureau of Customs or the BIR; 3) ruled against the
application of res judicata to the case because — first, res
judicata does not give rise to a cause of action for the
purpose of initiating a complaint, res judicata being a shield
not a sword and executive and legislative authorities have
the power to enact laws and rules to supersede judge-made
laws or rules, second, the enactment and implementation of
RA 10378 constituted a supervening event which negated
the application of res judicata, third, there is no similarity of
parties, subject matters, and causes of action between the
present case and Civil Case No. Q-09-64241; and 4) found
RR No. 15-2013 to be a reasonable tax regulation and an
interpretative issuance, the effectivity of which does not
require a public hearing, nay, prior registration with the UP
Law Center. Thus, the trial court decreed:
WHEREFORE:
(1) The Motion for Judicial Notice is granted.
This Court declares that the issuance of (i) RMC
31-2008, (ii) RTC-Branch 98 Order dated May 18,
2012 in Civil Case No. Q-09-64241, (iii) RTC-
Branch 98 Certification of the finality of the Order
dated May 18, 2012 in Civil Case No. Q-09-64241,
(iv) RA 10378, and (v) RR 15-2013, is an
established fact in this case.
(2) The Motion for Summary Judgment
is denied and as a result the instant petition for
declaratory relief is dismissed.
Costs de oficio.
SO ORDERED. 32
Petitioners' partial motion for reconsideration was
denied under Order dated January 8, 2016.
The Present Petition
 Petitioners now seek, on pure questions of law, the
Court's discretionary appellate jurisdiction to review and
reverse the assailed dispositions. They essentially reiterate
the arguments raised in their petition for declaratory
relief, i.e., a) res judicata and immutability of judgments
apply to this case and the enactment of RA 10378 is not a
supervening event which operates to negate the application
of the aforesaid principles; b) RR 15-2013 is invalid because
it erroneously subjects demurrage and detention fees
collected by international shipping carriers to regular income
tax rate, albeit these are not income; and c) RR 15-2013 is
not an interpretative issuance, thus, a public hearing and
prior registration with the UP Law Center are required for its
validity and effectivity.
Respondents Secretary of Finance and CIR, through
Senior State Solicitor Jonathan dela Vega, submits: Res
judicata does not apply here because there is no
commonality of parties between this case and Civil Case No.
Q-09-64241. The Secretary of Finance and the CIR are two
(2) distinct officials. 33 RR 15-2013 does not add to the
provisions of RA 10378. It simply clarifies how the GPB of
international sea carriers should be determined. Its issuance
is germane to the purpose of the law. 34 Lastly, RR 15-2013
is an interpretative regulation, thus, to be effective, it need
not be filed with the UP Law Center. 35
Petitioners' Reply 36 dated October 27, 2016 echoes
their previous arguments against RR 15-2013.
Issues
1. Does res judicata apply in this case?
2. Is a petition for declaratory relief proper for the
purpose of invalidating RR No. 15-2013?
3. Is RR 15-2013 a valid revenue regulation?
Ruling
Res judicata does not apply here
Res judicata applies in the concept of "bar by prior
judgment" if the following requisites concur: (1) the former
judgment or order must be final; (2) the judgment or order
must be on the merits; (3) the decision must have been
rendered by a court having jurisdiction over the subject
matter and the parties; and (4) there must be, between the
first and the second action, identity of parties, of subject
matter, and of causes of action. 37
 Here, we rule that there is no substantial identity of
parties and subject matter.
a) No substantial identity of parties
Tambunting, Jr. v. Sumabat 38 explains the nature of
a petition for declaratory relief, thus:
An action for declaratory relief should be filed
by a person interested under a deed, will, contract
or other written instrument, and whose rights are
affected by a statute, executive order, regulation or
ordinance before breach or violation thereof. The
purpose of the action is to secure an
authoritative statement of the rights and
obligations of the parties under a statute, deed,
contract, etc. for their guidance in its
enforcement or compliance and not to settle
issues arising from its alleged breach. It may be
entertained only before the breach or violation of the
statute, deed, contract, etc. to which it refers. Where
the law or contract has already been contravened
prior to the filing of an action for declaratory relief,
the court can no longer assume jurisdiction over the
action. In other words, a court has no more
jurisdiction over an action for declaratory relief if its
subject, i.e., the statute, deed, contract, etc., has
already been infringed or transgressed before the
institution of the action. Under such circumstances,
inasmuch as a cause of action has already accrued
in favor of one or the other party, there is nothing
more for the court to explain or clarify short of a
judgment or final order. (Emphasis supplied)
Thus, it is required that the parties to the action for
declaratory relief be those whose rights or interests are
affected by the contract or statute being
questioned. 39 Section 2 of Rule 63 of the Rules of Court
further underscores that a judgment in a petition for
declaratory relief binds only the impleaded parties:
Section 2. Parties. — All persons who have or claim
any interest which would be affected by the
declaration shall be made parties; and no
declaration shall, except as otherwise provided in
these Rules, prejudice the rights of persons not
parties to the action. (2a, R64)
Heirs of Marcelino Doronio v. Heirs of Fortunato
Doronio 40 further elucidates on this principle, thus:
 Petitioners cannot also use the finality of
the RTC decision in Petition Case No. U-920 as a
shield against the verification of the validity of
the deed of donation. According to petitioners,
the said final decision is one for quieting of title.
In other words, it is a case for declaratory relief
under Rule 64 (now Rule 63) of the Rules of
Court, which provides:
SECTION 1.  Who may file petition. —
Any person interested under a deed,
will, contract or other written
instrument, or whose rights are
affected by a statute, executive order
or regulation, or ordinance, may,
before breach or violation thereof,
bring an action to determine any
question of construction or validity
arising under the instrument or statute
and for a declaration of his rights or
duties thereunder.
An action for the reformation of an
instrument, to quiet title to real property or remove
clouds therefrom, or to consolidate ownership under
Article 1607 of the Civil Code, may be brought
under this rule.
SECTION 2.  Parties. — All persons
shall be made parties who have or
claim any interest which would be
affected by the declaration; and no
declaration shall, except as otherwise
provided in these rules, prejudice the
rights of persons not parties to the
action.
However, respondents were not made parties
in the said Petition Case No. U-920. Worse, instead
of issuing summons to interested parties, the RTC
merely allowed the posting of notices on the bulletin
boards of Barangay Cabalitaan, Municipalities of
Asingan and Lingayen, Pangasinan. As pointed out
by the CA, citing the ruling of the RTC:
x x x In the said case or Petition No.
U-920, notices were posted on the
bulletin boards
of barangay Cabalitaan, Municipalities
 of Asingan and Lingayen, Pangasinan,
so that there was a notice to the whole
world and during the initial hearing
and/or hearings, no one interposed
objection thereto.
Suits to quiet title are not technically suits in
rem, nor are they, strictly speaking, in personam,
but being against the person in respect of the res,
these proceedings are characterized as quasi in
rem. The judgment in such proceedings is
conclusive only between the parties. Thus,
respondents are not bound by the decision in
Petition Case No. U-920 as they were not made
parties in the said case. (Emphasis supplied)
Applying the foregoing principles here, we find that
there is no identity of parties between Civil Case No. Q-09-
64241 and this case.
The final and executory Order dated May 18, 2012 of
RTC-Branch 98 in Civil Case No. Q-09-64241 is only binding
on herein petitioners Association of International Shipping
Lines, Inc., APL Co. Pte. Ltd. and Maersk-Filipinas, Inc. and
the lone respondent in that case, the CIR. Meanwhile, in this
case, although the petitioners are the same, the respondents
include not only the CIR but the Secretary of Finance as
well. Note that the Secretary of Finance was not party in Civil
Case No. Q-09-64241. Consequently, the Secretary of
Finance is not bound by the final and executory judgment in
Civil Case No. Q-09-64241. Additionally, unlike in the said
case, it is the Secretary of Finance's issuance which is the
subject of the present challenge, not the CIR's.
The distinction between the CIR and the Secretary of
Finance, as respondents, is not hairsplitting. On one hand,
when BIR Commissioner Lilian B. Hefti issued RMC 31-2008
on January 30, 2008, she did so under the auspices of
Section 4 41 of the NIRC. On the other hand, when Secretary
Cesar Purisima issued RR 15-2013 on September 20, 2013,
he did so in obedience to the legislative directive under
Section 5 42 of RA 10378 and pursuant to his rule-making
power under Section 244 43 of the NIRC.
Verily, the Commissioner and the Secretary cannot be
considered as one, for when they issued their respective
revenue memoranda or regulation, they did so pursuant to
the separate powers and prerogatives granted by law.
b) No substantial identity of subject matter
 While it is true that RMC 31-2008, subject of Civil
Case No. Q-09-64241, on one hand, and RR 15-2013,
subject of the present case, on the other, both treat
demurrage and detention fees to be within the prism of
regular corporate income tax rate, each, however, differs
from the other with respect to the authority from which it
emanated.
In Civil Case No. Q-09-64241, what was challenged
was the CIR's authority to issue RMC 31-2008 pursuant to
Section 4 of the NIRC. On the other hand, what is being
challenged here is the Secretary of Finance's authority to
issue RR 15-2013 in accordance with Section 244 of the
NIRC and Section 5 of RA 10378. The CIR and the
Secretary of Finance derive their respective powers from two
(2) distinct sources, thus, their respective issuances, too, are
separate and independent of each other.
More, the supposed invalidity of the CIR's issuance in
Civil Case No. Q-09-64241 does not preclude the Secretary
of Finance from rendering his issuance on the same subject.
More important, the judgment in Civil Case No. Q-09-
64241 does not rise to a level of a judicial precedent to be
followed in subsequent cases by all courts in the land, since
the same was rendered by a regional trial court, and not by
this Court. Verily, the Order dated May 18, 2012 of RTC-
Branch 98, although binding on the CIR, cannot serve as a
judicial precedent for the purpose of precluding the
Secretary of Finance from promulgating a similar issuance
on the same subject.
A petition for declaratory
relief is not the proper remedy
to seek the invalidation of RR 15-2013;
petition is treated as one for prohibition
To begin with, the trial court dismissed the case
below, among others, for lack of jurisdiction pursuant to
Section 1 of CA 55, which reads:
Section 1. Section one of Act Numbered Thirty-
seven hundred and thirty-six is hereby amended so
as to read as follows:
"SECTION 1. Construction. — Any person
interested under a deed, contract or other written
instrument, or whose rights are affected by a
statute, may bring an action in a Court of First
Instance to determine any question of construction
 or validity arising under such deed, contract,
instrument or statute and for a declaration of his
rights or duties thereunder: Provided, however, That
the provisions of this Act shall not apply to
cases where a taxpayer questions his liability
for the payment of any tax, duty, or charge
collectible under any law administered by the
Bureau of Customs or the Bureau of Internal
Revenue." (Emphasis supplied)
In CJH Development Corp. v. BIR, 44 this Court
clarified that CA 55 is still good law, thus:
CJH alleges that CA No. 55 has already been
repealed by the Rules of Court; thus, the remedy of
declaratory relief against the assessment made by
the BOC is proper. It cited the commentaries of
Moran allegedly to the effect that declaratory relief
lies against assessments made by the BIR and
BOC. Yet in National Dental Supply Co. v. Meer,
this Court held that:
From the opinion of the former
Chief Justice Moran may be deduced
that the failure to incorporate the
above proviso [CA No. 55] in section
1, rule 66, [now Rule 64] is not due to
an intention to repeal it but rather to
the desire to leave its application to
the sound discretion of the court,
which is the sole arbiter to determine
whether a case is meritorious or not.
And even if it be desired to incorporate
it in rule 66, it is doubted if it could be
done under the rule-making power of
the Supreme Court considering that
the nature of said proviso is
substantive and not adjective, its
purpose being to lay down a policy
as to the right of a taxpayer to
contest the collection of taxes on
the part of a revenue officer or of
the Government. With the adoption of
said proviso, our law-making body has
asserted its policy on the matter, which
is to prohibit a taxpayer to question
his liability for the payment of any
tax that may be collected by the
 Bureau of Internal Revenue. As this
Court well said, quoting from several
American cases, "The Government
may fix the conditions upon which it
will consent to litigate the validity of its
original taxes. . ." "The power of
taxation being legislative, all incidents
are within the control of the
Legislature." In other words, it is our
considered opinion that the proviso
contained in Commonwealth Act No.
55 is still in full force and effect and
bars the plaintiff from filing the present
action.
As a substantive law that has not been
repealed by another statute, CA No. 55 is still in
effect and holds sway. Precisely, it has removed
from the courts' jurisdiction over petitions for
declaratory relief involving tax assessments.
The Court cannot repeal, modify or alter an act of
the Legislature. (Emphasis supplied)
CIR v. Standard Insurance, Co., Inc. 45 further
reinforced the rule that regional trial courts have no
jurisdiction over petitions for declaratory relief against the
imposition of tax liability or validity of tax assessments:
The more substantial reason that should
have impelled the RTC to desist from taking
cognizance of the respondent's petition for
declaratory relief except to dismiss the petition was
its lack of jurisdiction.
We start by reminding the respondent about
the inflexible policy that taxes, being the lifeblood of
the Government, should be collected promptly and
without hindrance or delay. Obeisance to this policy
is unquestionably dictated by law itself. Indeed,
Section 218 of the NIRC expressly provides that
"[n]o court shall have the authority to grant an
injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by th[e]
[NIRC]." Also, pursuant to Section 11[15] of R.A.
No. 1125, as amended, the decisions or rulings
of the Commissioner of Internal Revenue,
among others, assessing any tax, or levying, or
distraining, or selling any property of taxpayers
 for the satisfaction of their tax liabilities are
immediately executory, and their enforcement is
not to be suspended by any appeals thereof to
the Court of Tax Appeals unless "in the opinion
of the Court [of Tax Appeals] the collection by
the Bureau of Internal Revenue or the
Commissioner of Customs may jeopardize the
interest of the Government and/or the taxpayer,"
in which case the Court of Tax Appeals "at any
stage of the proceeding may suspend the said
collection and require the taxpayer either to
deposit the amount claimed or to file a surety
bond for not more than double the amount."
In view of the foregoing, the RTC not only
grossly erred in giving due course to the petition for
declaratory relief, and in ultimately deciding to
permanently enjoin the enforcement of the specified
provisions of the NIRC against the respondent, but
even worse acted without jurisdiction. (Emphasis
supplied)
Tambunting, Jr. v. Sumabat, 46 explained the nature
of a petition for declaratory relief, thus:
An action for declaratory relief should be filed
by a person interested under a deed, will, contract
or other written instrument, and whose rights are
affected by a statute, executive order, regulation or
ordinance before breach or violation thereof. The
purpose of the action is to secure an authoritative
statement of the rights and obligations of the parties
under a statute, deed, contract, etc. for their
guidance in its enforcement or compliance and not
to settle issues arising from its alleged breach. It
may be entertained only before the breach or
violation of the statute, deed, contract, etc. to which
it refers. Where the law or contract has already
been contravened prior to the filing of an action for
declaratory relief, the court can no longer assume
jurisdiction over the action. In other words, a court
has no more jurisdiction over an action for
declaratory relief if its subject, i.e., the statute, deed,
contract, etc., has already been infringed or
transgressed before the institution of the action.
Under such circumstances, inasmuch as a cause of
action has already accrued in favor of one or the
 other party, there is nothing more for the court to
explain or clarify short of a judgment or final order.
Verily, since there is no actual case involved in a
petition for declaratory relief, it cannot be the proper vehicle
to invoke the power of judicial review to declare a statute as
invalid or unconstitutional. As decreed in DOTR v.
PPSTA, 47 the proper remedy is certiorari or prohibition,
thus:
The Petition for Declaratory Relief is not
the proper remedy
One of the requisites for an action for
declaratory relief is that it must be filed before any
breach or violation of an obligation. Section 1, Rule
63 of the Rules of Court states, thus:
xxx xxx xxx
Thus, there is no actual case involved in a
Petition for Declaratory Relief. It cannot,
therefore, be the proper vehicle to invoke the
judicial review powers to declare a statute
unconstitutional.
It is elementary that before this Court can
rule on a constitutional issue, there must first be a
justiciable controversy. A justiciable controversy
refers to an existing case or controversy that is
appropriate or ripe for judicial determination, not one
that is conjectural or merely anticipatory. As We
emphasized in Angara v. Electoral Commission, any
attempt at abstraction could only lead to dialectics
and barren legal questions and to sterile
conclusions unrelated to actualities.
To question the constitutionality of the
subject issuances, respondents should have
invoked the expanded certiorari jurisdiction
under Section 1 of Article VIII of the 1987
Constitution. The adverted section defines
judicial power as the power not only "to settle
actual controversies involving rights which are
legally demandable and enforceable," but also
"to determine whether or not there has been a
grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch
or instrumentality of the Government."
 There is a grave abuse of discretion when
there is patent violation of the Constitution, the law,
or existing jurisprudence. On this score, it has been
ruled that "the remedies of certiorari and prohibition
are necessarily broader in scope and reach, and the
writ of certiorari or prohibition may be issued to
correct errors of jurisdiction committed not only by a
tribunal, corporation, board or officer exercising
judicial, quasi-judicial or ministerial functions, but
also to set right, undo[,] and restrain any act of
grave abuse of discretion amounting to lack or
excess of jurisdiction by any branch or
instrumentality of the Government, even if the latter
does not exercise judicial, quasi-judicial or
ministerial functions." Thus, petitions
for certiorari and prohibition are the proper
remedies where an action of the legislative
branch is seriously alleged to have infringed the
Constitution. (Emphasis supplied)
In Diaz, et al. v. Secretary of Finance, et al., 48 the
Court, nonetheless, held that a petition for declaratory relief
may be treated as one for prohibition if the case has far-
reaching implications and raises questions that need to be
resolved for the public good; or if the assailed act or acts of
executive officials are alleged to have usurped legislative
authority, thus:
On August 24, 2010 the Court issued a
resolution, treating the petition as one for prohibition
rather than one for declaratory relief, the
characterization that petitioners Diaz and Timbol
gave their action. The government has sought
reconsideration of the Court's resolution, however,
arguing that petitioners' allegations clearly made out
a case for declaratory relief, an action over which
the Court has no original jurisdiction. The
government adds, moreover, that the petition does
not meet the requirements of Rule 65 for actions for
prohibition since the BIR did not exercise judicial,
quasi-judicial, or ministerial functions when it sought
to impose VAT on toll fees. Besides, petitioners
Diaz and Timbol has a plain, speedy, and adequate
remedy in the ordinary course of law against the
BIR action in the form of an appeal to the Secretary
of Finance.
 But there are precedents for treating a
petition for declaratory relief as one for
prohibition if the case has far-reaching
implications and raises questions that need to
be resolved for the public good. The Court has
also held that a petition for prohibition is a
proper remedy to prohibit or nullify acts of
executive officials that amount to usurpation of
legislative authority.
Here, the imposition of VAT on toll fees has
far-reaching implications. Its imposition would
impact, not only on the more than half a million
motorists who use the tollways everyday, but more
so on the government's effort to raise revenue for
funding various projects and for reducing budgetary
deficits. (Emphasis supplied)
Here, RR 15-2013 greatly impacts the Philippine
maritime industry since it is considered "as more of the
'backbone' of the Philippines' burgeoning economy due to its
significance both for trade and transportation." 49 For this
reason and the fact that the issue at hand has already
pended since 2013 or for more than six (6) years now, first
with the trial court and now with this Court, we resolve to
treat the present case as one for certiorari or prohibition and
settle the controversy once and for all. Diaz aptly
enunciated:
Although the petition does not strictly
comply with the requirements of Rule 65, the
Court has ample power to waive such technical
requirements when the legal questions to be
resolved are of great importance to the public.
The same may be said of the requirement
of locus standi which is a mere procedural
requisite. (Emphasis supplied)
RR 15-2013 is a valid
issuance
In treating demurrage and detention fees as regular
income subject to regular income tax rate, the Secretary of
Finance relied on Section 28 (A) (I) (3a) of the NIRC, as
amended by RA 10378, viz.:
SEC. 28. Rates of Income Tax on Foreign
Corporations. —
(A) Tax on Resident Foreign Corporations. —
 (1) x x x
(2) x x x
(3). International Carrier. — An international
carrier doing business in the Philippines shall
pay a tax of two and one-half percent (2 1/2%) on
its 'Gross Philippine Billings' as defined
hereunder:
(c) International Air Carrier. — 'Gross Philippine
Billings' refers to the amount of gross revenue
derived from carriage of persons, excess baggage,
cargo, and mail originating from the Philippines in a
continuous and uninterrupted flight, irrespective of
the place of sale or issue and the place of payment
of the ticket or passage document: Provided, That
tickets revalidated, exchanged and/or indorsed to
another international airline form part of the Gross
Philippine Billings if the passenger boards a plane in
a port or point in the Philippines: Provided, further,
That for a flight which originates from the
Philippines, but transshipment of passenger takes
place at any part outside the Philippines on another
airline, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the
Philippines to the point of transshipment shall form
part of Gross Philippine Billings.
(d) International Shipping. — 'Gross Philippine
Billings' means gross revenue whether for
passenger, cargo or mail originating from the
Philippines up to final destination, regardless of
the place of sale or payments of the passage or
freight documents. Demurrage and penalties not
GPB so subject ot regular income tax
Provided, That international carriers doing
business in the Philippines may avail of a
preferential rate or exemption from the tax
herein imposed on their gross revenue derived
from the carriage of persons and their excess
baggage on the basis of an applicable tax treaty
or international agreement to which the
Philippines is a signatory or on the basis of
reciprocity such that an international carrier,
whose home country grants income tax
exemption to Philippine carriers, shall likewise
 be exempt from the tax imposed under this
provision. (Emphasis supplied)
xxx xxx xxx.
This provision is still in effect since it was not
amended by RA 10963 or the Tax Reform for Acceleration
and Inclusion law.
To determine whether demurrage and detention fees
are subject to the preferential 2.5% rate, we refer to the
definition of "Gross Philippine Billings" (GPB) under Section
28 (A) (I) (3a) of the NIRC, as amended by RA
10378, viz.: "gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final destination,
regardless of the place of sale or payments of the passage
or freight documents."
RR 15-2013 echoes this definition, thus:
B) Determination of Gross Philippine Billings of
International Sea Carriers. — In computing for
"Gross Philippine Billings" of international sea
carriers, there shall be included the total amount of
gross revenue whether for passenger, cargo, and/or
mail originating from the Philippines up to final
destination, regardless of the place of sale or
payments of the passage or freight documents.
xxx xxx xxx
Verily, the GPB covers gross revenue derived from
transportation of passengers, cargo and/or mail originating
from the Philippines up to the final destination. Any other
income, therefore, is subject to the regular income tax rate.
When the law is clear, there is no other recourse but to apply
it regardless of its perceived harshness. Dura lex sed lex. 50
Under RR 15-2013, demurrage and detention fees are
not deemed within the scope of GPB. For demurrage
fees "which are in the nature of rent for the use of property
of the carrier in the Philippines, is considered income from
Philippine source and is subject to income tax under the
regular rate as the other types of income of the on-line
carrier." On the other hand, detention fees and other
charges "relating to outbound cargoes and inbound cargoes
are all considered Philippine-sourced income of international
sea carriers they being collected for the use of property or
rendition of services in the Philippines, and are subject to
the Philippine income tax under the regular rate."
 Demurrage fee is the allowance or compensation due
to the master or owners of a ship, by the freighter, for the
time the vessel may have been detained beyond the time
specified or implied in the contract of affreightment or the
charter-party. It is only an extended freight or reward to the
vessel, in compensation for the earnings the carrier is
improperly caused to lose. 51
Detention occurs when the consignee holds on to the
carrier's container outside of the port, terminal, or depot
beyond the free time that is allotted. Detention fee is charged
when import containers have been picked up, but the
container (regardless if it is full or empty) is still in the
possession of the consignee and has not been returned
within the allotted time. Detention fee is also charged for
export containers in which the empty container has been
picked up for loading, and the loaded container is returned to
the steamship line after the allotted free time. 52
Indeed, the exclusion of demurrage and detention fees
from the preferential rate of 2.5% is proper since they are not
considered income derived from transportation of persons,
goods and/or mail, in accordance with the rule expressio
unios est exclusio alterius.
Demurrage and detention fees definitely form part of
an international sea carrier's gross income. For they are
acquired in the normal course of trade or business. 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, by any
person regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether
or not it sells exclusively to members or their guests), or
government entity. 53
Surely, gross income means income derived from
whatever source, including compensation for services; the
conduct of trade or business or the exercise of a profession;
dealings in property; interests; rents; royalties; dividends;
annuities; prizes and winnings; pensions; and a partner's
distributive share in the net income of a general professional
partnership, 54 among others. Demurrage and detention fees
fall within the definition of "gross income" — the former is
considered as rent payment for the vessel; and the latter,
compensation for use of a carrier's container.
RR 15-2013 is an
interpretative and internal issuance
An interpretative or implementing rule is defined under
Section 2 (2), Chapter 1, Book VIII of the Revised
Administrative Code, viz.:
Section 2. Definitions. — As used in this Book:
xxx xxx xxx
(2) "Rule" means any agency statement of general
applicability that implements or interprets a law,
fixes and describes the procedures in, or practice
requirements of, an agency, including its
regulations. The term includes memoranda or
statements concerning the internal administration or
management of an agency not affecting the rights
of, or procedure available to, the public.
Chapter 2 of Book VII of the same Code further
provides the manner by which administrative rules attain
effectivity:
Section 3. Filing. —
(1) Every agency shall file with the University of the
Philippines Law Center three (3) certified
copies of every rule adopted by it. Rules in
force on the date of effectivity of this Code
which are not filed within three (3) months from
that date shall not thereafter be the basis of
any sanction against any party or persons.
(2) The records officer of the agency, or his equivalent
functionary, shall carry out the requirements of
this section under pain of disciplinary action.
(3) A permanent register of all rules shall be kept by
the issuing agency and shall be open to public
inspection.
Section 4. Effectivity. — In addition to other
rule-making requirements provided by law
not inconsistent with this Book, each rule
shall become effective fifteen (15) days
from the date of filing as above provided
unless a different date is fixed by law, or
specified in the rule in cases of imminent
danger to public health, safety and welfare,
the existence of which must be expressed in
a statement accompanying the rule. The
 agency shall take appropriate measures to
make emergency rules known to persons
who may be affected by them.
SECTION 5.  Publication and Recording. —
The University of the Philippines Law Center
shall:
(1) Publish a quarterly bulletin setting forth the text of
rules filed with it during the preceding quarter;
and
(2) Keep an up-to-date codification of all rules thus
published and remaining in effect, together with
a complete index and appropriate tables.
SECTION 6.  Omission of Some Rules. — (1)
The University of the Philippines Law Center
may omit from the bulletin or the codification
any rule if its publication would be unduly
cumbersome, expensive or otherwise
inexpedient, but copies of that rule shall be
made available on application to the agency
which adopted it, and the bulletin shall
contain a notice stating the general subject
matter of the omitted rule and new copies
thereof may be obtained.
(2) Every rule establishing an offense or
defining an act which, pursuant to law is
punishable as a crime or subject to a penalty
shall in all cases be published in full text.
SECTION 7.  Distribution of Bulletin and
Codified Rules. — The University of the
Philippines Law Center shall furnish one (1)
free copy each of every issue of the bulletin
and of the codified rules or supplements to
the Office of the President, Congress, all
appellate courts and the National Library.
The bulletin and the codified rules shall be
made available free of charge to such public
officers or agencies as the Congress may
select, and to other persons at a price
sufficient to cover publication and mailing or
distribution costs.
SECTION 8.  Judicial Notice. — The court
shall take judicial notice of the certified copy
 of each rule duly filed or as published in the
bulletin or the codified rules.
SECTION 9. Public Participation. — (1) If
not otherwise required by law, an agency
shall, as far as practicable, publish or
circulate notices of proposed rules and
afford interested parties the opportunity
to submit their views prior to the adoption
of any rule.
(2) In the fixing of rates, no rule or final
order shall be valid unless the proposed
rates shall have been published in a
newspaper of general circulation at least
two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on
contested cases shall be
observed. (Emphasis supplied)
Excepted are interpretative regulations and those
merely internal in nature, which do not require filing with the
U.P. Law Center for their effectivity. On this score, ASTEC
v. ERC 55 is proper:
As interpretative regulations, the policy
guidelines of the ERC on the treatment of discounts
extended by power suppliers are also not required
to be filed with the U.P. Law Center in order to be
effective. Section 4, Chapter 2, Book VII of the
Administrative Code of 1987 requires every rule
adopted by an agency to be filed with the U.P. Law
Center to be effective. However, in Board of
Trustees of the Government Service Insurance
System v. Velasco, this Court pronounced
that "[n]ot all rules and regulations adopted by
every government agency are to be filed with the
UP Law Center." Interpretative regulations and
those merely internal in nature are not required
to be filed with the U.P. Law Center. Paragraph 9
(a) of the Guidelines for Receiving and Publication
of Rules and Regulations Filed with the U.P. Law
Center states:
9. Rules and Regulations which need
not be filed with the U.P. Law Center,
shall, among others, include but not be
limited to, the following:
 a. Those which are
interpretative regulations and
those merely internal in nature,
that is, regulating only the
personnel of the Administrative
agency and not the public.
(Emphasis supplied)
RR 15-2013 is an internal issuance for the guidance
of "all internal revenue officers and others concerned." It is
also an interpretative issuance vis-à-vis RA 10378, thus:
SECTION 2.  SCOPE. — Pursuant to Section 244
of the National Internal Revenue Code of 1997
(NIRC), as amended, and Section 5 of RA No.
10378, these Regulations are hereby promulgated
to implement RA No. 10378, amending Sections
28(A)(3)(a), 109, 118 and 236 of the NIRC.
RR 15-2013 merely sums up the rules by which
international carriers may avail of preferential rates or
exemption from income tax on their gross revenues derived
from the carriage of persons and their excess baggage
based on the principle of reciprocity or an applicable tax
treaty or international agreement to which the Philippines is
a signatory. Interpretative regulations are intended to
interpret, clarify or explain existing statutory regulations
under which the administrative body operates. Their purpose
or objective is merely to construe the statute being
administered and purport to do no more than interpret the
statute. Simply, they try to say what the statute means and
refer to no single person or party in particular but concern all
those belonging to the same class which may be covered by
the said rules. 56
Indeed, when an administrative rule is merely
interpretative in nature, its applicability needs nothing further
than its bare issuance, for it gives no real consequence more
than what the law itself has already prescribed. 57 As such,
RR 15-2013 need not pass through a public hearing or
consultation, get published, nay, registered with the U.P.
Law Center for its effectivity.
ACCORDINGLY, the petition is DENIED for lack of
merit. The Orders dated September 15, 2015 and January 8,
2016 of the Regional Trial Court, Branch 77, Quezon City, in
Special Civil Action No. R-QZN-13-05590-CV
are AFFIRMED.
SO ORDERED.
 Peralta, C.J., Caguioa, J.C. Reyes, Jr. and Lopez, JJ.,
concur.
 
Footnotes

1. AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110,
111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 AND
288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997,
AS AMENDED, AND FOR OTHER PURPOSES.
2. Clarification of Issues Concerning Common Carriers by Sea and their
Agents Relative to the Transport of Passengers, Goods or
Cargoes.
3. Is a non-stock, non-profit corporation duly organized and existing
under the laws of the Republic of the Philippines, whose members
are international shipping carriers and/or their agents operating in
the Philippines.
4. Is an AISL member-firm engaged in international shipping business. It
is a corporation duly organized and existing under the laws of
Singapore and licensed to do business in the Philippines.
5. Rollo, p. 102.
6. Id.
7. Id. at 102-115.
8. SEC. 28. Rates of Income Tax on Foreign Corporations. —
   (A) Tax on Resident Foreign Corporations. —
   (1) In General. — Except as otherwise provided in this Code, a
corporation organized, authorized, or existing under the laws of
any foreign country, engaged in trade or business within the
Philippines, shall be subject to an income tax equivalent to thirty-
five percent (35%) of the taxable income derived in the preceding
taxable year from all sources within the Philippines: Provided, That
effective January 1, 2009, the rate of income tax shall be thirty
percent (30%).
   In the case of corporations adopting the fiscal-year accounting period,
the taxable income shall be computed without regard to the
specific date when sales, purchases and other transactions occur.
Their income and expenses for the fiscal year shall be deemed to
have been earned and spent equally for each month of the period.
   The corporate income tax rate shall be applied on the amount
computed by multiplying the number of months covered by the
 new rate within the fiscal year by the taxable income of the
corporation for the period, divided by twelve.
   Provided, however, That a resident foreign corporation shall be
granted the option to be taxed at fifteen percent (15%) on gross
income under the same conditions, as provided in Section 27 (A).
xxx xxx xxx
   (3) International Carrier. — An international carrier doing business in
the Philippines shall pay a tax of two and one-half percent (2
1/2%) on its 'Gross Philippine Billings' as defined hereunder:
xxx xxx xxx
   (b) International Shipping. — 'Gross Philippine Billings' means gross
revenue whether for passenger, cargo or mail originating from the
Philippines up to final destination, regardless of the place of sale
or payments of the passage or freight documents.
xxx xxx xxx
9. Rollo, pp. 111-114.
10. Id. at 114-115.
11. Id. at 116.
12. AN ACT RECOGNIZING THE PRINCIPLE OF RECIPROCITY AS
BASIS FOR THE GRANT OF INCOME TAX EXEMPTIONS TO
INTERNATIONAL CARRIERS AND RATIONALIZING OTHER
TAXES IMPOSED THEREON BY AMENDING SECTIONS 28 (A)
(3) (a), 109, 118 AND 236 OF THE NATIONAL INTERNAL
REVENUE CODE (NIRC), AS AMENDED, AND FOR OTHER
PURPOSES.
13. Revenue Regulations Implementing Republic Act No. 10378 entitled
"An Act Recognizing the Principle of Reciprocity as Basis for the
Grant of Income Tax Exemptions to International Carriers and
Rationalizing Other Taxes Imposed thereon by Amending
Sections 28 (A) (3) (A), 109, 118 and 236 of the National Internal
Revenue Code (NIRC), as amended, and for other Purposes."
14. With applications for a temporary restraining order and a writ of
preliminary injunction, rollo, pp. 136-165.
15. Id. at 139.
16. Id. at 141-146.
17. Id. at 149.
18. Id. at 150-151.
19. Id. at 152.
20. Id. at 155.
21. Id. at 160.
22. Id. at 411-426.
23. Id. at 417-418.
24. Id. at 420-424.
25. Id. at 424.
26. Id. at 427-444.
27. AN ACT TO AMEND SECTION ONE OF ACT NUMBERED THIRTY-
SEVEN HUNDRED AND THIRTY-SIX, BY PROVIDING THAT
THE PROVISIONS OF THE SAID ACT SHALL NOT APPLY TO
CASES INVOLVING LIABILITY FOR ANY TAX, DUTY, OR
CHARGE COLLECTIBLE UNDER ANY LAW ADMINISTERED BY
THE BUREAU OF CUSTOMS OR THE BUREAU OF INTERNAL
REVENUE.
28. Rollo, pp. 428-432.
29. Id. at 474-491.
30. AN ACT RECOGNIZING THE PRINCIPLE OF RECIPROCITY AS
BASIS FOR THE GRANT OF INCOME TAX EXEMPTIONS TO
INTERNATIONAL CARRIERS AND RATIONALIZING OTHER
TAXES IMPOSED THEREON BY AMENDING SECTIONS 28 (A)
(3) (a), 109, 118 AND 236 OF THE NATIONAL INTERNAL
REVENUE CODE (NIRC), AS AMENDED, AND FOR OTHER
PURPOSES.
31. Rollo, pp. 89-94.
32. Id. at 94.
33. Id. at 654-655.
34. Id. at 658.
35. Id. at 665.
36. Id. at 674-700.
37. Diaz, Jr. v. Valenciano, Jr., G.R. No. 209376, December 06, 2017,
848 SCRA 85, 96 (2017).
38. 507 Phil. 94, 98 (2005).
39. City of Lapu-Lapu v. PEZA, 748 Phil. 473, 512-513 (2014).
40. 565 Phil. 766, 786-787 (2007).
41. SEC. 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases. — The power to interpret the provisions of this
Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
   The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
42. Section 5. Implementing Rules and Regulations. — The Secretary of
Finance shall, upon the recommendation of the Commissioner of
Internal Revenue, promulgate not later than thirty (30) days upon
the effectivity of this Act the necessary rules and regulations for its
effective implementation. The Department of Finance (DOF), in
coordination with the Department of Foreign Affairs (DFA), shall
oversee the exchange of notes between the Philippines and
concerned countries for purposes of facilitating the availment of
reciprocal exemptions intended under this Act.
43. SEC. 244. Authority of Secretary of Finance to Promulgate Rules and
Regulations. — The Secretary of Finance, upon recommendation
of the Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of this
Code.
44. 595 Phil. 1051, 1057-1058 (2008).
45. G.R. No. 219340, November 07, 2018.
46. Supra note 38.
47. G.R. No. 230107, July 24, 2018.
48. 669 Phil. 371, 382-383 (2011).
49. Letran, Bjorn Biel M. "A bustling and thriving sector,"
BWorldOnline.Com., April 25, 2018. See
https://www.bworldonline.com/a-bustling-and-thriving-sector.
50. Obiasca v. Basallote, 626 Phil. 775, 785 (2010).
51. Black's Law Dictionary See: <a
href="https://thelawdictionary.org/demurrage/"title="DEMURRAGE
">DEMURRAGE</a> (Last accessed: November 13, 2019).
52. PNG Logistics See: http://pnglc.com/detention-and-demurrage-
whats-the-difference/ (Last accessed: November 13, 2019).
 53. Section 105, RA 8424.
54. See CIR v. PAL, 535 Phil. 95, 106 (2006).
55. 695 Phil. 243, 280 (2012).
56. Republic of the Philippines v. Drugmaker's Laboratories, Inc., et al.,
728 Phil. 480, 490 (2014).
57. Id.

|||  

FIRST DIVISION

[G.R. No. 210238. January 6, 2020.]

IMELDA SZE, SZE KOU FOR, & TERESITA

NG, petitioners, vs. BUREAU OF INTERNAL
REVENUE, represented by the
COMMISSIONER OF INTERNAL
REVENUE, respondents.

DECISION

Criminal case where a corpo was issued certi of qualification which

grants taxpayer in privilege of last oirotu and inv of all IR taxes and
assesments under certain condition. The CHIA was issues a LOA for
1999 and 2000 but they refused with BIR and so issued a PAN then FLD
then FAN but still failed to protests and BIR assessed and final after
J.C. REYES, JR., J  : p

The Facts

The respondent Bureau of Internal Revenue (BIR)

issued Revenue Regulations 8-2001 or the Voluntary
Assessment Program (VAP), granting taxpayers the privilege
of last priority in the audit and investigation of all internal
revenue taxes for the taxable year December 31, 2000, and
all prior years under certain conditions. Chiat Sing
Cardboard Corporation (Chiat Corp.) availed of the VAP and
was issued a certificate of qualification for 1999 and 2000.
The BIR clarified that availment of the VAP should not be
construed to cover up any fraud or illegal acts that the
taxpayer may commit as it is a mere privilege. 1
On March 25, 2003, the BIR issued a Letter of
Authority (LOA) for the examination of accounting books and
records of Chiat Corp. for all internal revenue taxes for 1999
and 2000. Chiat Corp.'s Master Payroll, Beth Tugade
(Tugade) received the LOA, but the required documents
were not presented. On May 5, 2003, Tugade received the
BIR's second notice and final notice, and still the records
were not presented. 2
Due to Chiat Corp's. refusal to present its accounting
records, the BIR conducted an investigation and discovered
that Chiat Corp.: (1) underdeclared its sales amounting to
P160,588,321.63 and P113,578,182.69; (2) underdeclared
its income amounting to P10,663,130.96 and P5,678,909.13
for 1999 and 2000, respectively; (3) derived income from
undeclared importation of raw materials; (4) the
underdeclared sales and income should have been
subjected to VAT and income tax; (5) deliberately and
wilfully misdeclared its taxable base to evade payment of
correct internal revenue liabilities; (6) failed to withhold taxes
on labor cost it claimed amounting to P427,010,000.00; (7)
failed to rectify its income, value-added and withholding tax
returns, which should reflect the actual and correct taxable
base; and (8) understated the payment of its correct tax
liabilities by more than 30%. 3
Thereafter, the BIR issued a Notice of Informal
Conference (NIC), Preliminary Assessment Notice (PAN),
Formal Letter of Demand (FLD), and Final Assessment
Notice (FAN). Despite these notices, Chiat Corp. failed to
interpose any protest; thus, the BIR's assessment for
deficiency taxes for 1999 and 2000 amounting to
P33,847,574.18 became final, executory and demandable. 4
On May 19, 2005, the BIR charged the officers of
Chiat Corp., petitioners Imelda T. Sze (Sze), Sze Kou For
(For), and Teresita A. Ng (Ng), with tax evasion and/or tax
fraud for violation of Sections 27 (A), 31, 32, 56 (A) (1), 79
(A) (B), 80 (A), 81, 106, 114 (A) (B), in relation to Sections
251, 253 (d), 254, 255, and 256 of the National Internal
Revenue Code of 1997 (NIRC). 5
Petitioners Sze, For, and Ng denied the accusations
against them and claimed, among other allegations, that: (1)
there was no factual and legal basis for the charges; (2) the
filing was premature and violated their rights to due process;
(3) they did not receive the notices; (4) they were not
responsible for any underdeclaration, misdeclaration or
importation; (5) they were not responsible for the preparation
and filing of tax returns; (6) Chiat Corp. has no assets to
satisfy the assessed taxes; (7) Chiat Corp. notified the BIR
of the termination of business as of December 2004; and (8)
the BIR presumed that Chiat Corp. manufactured the raw
materials into final products and sold them. 6
The State Prosecutor dismissed the complaint on July
12, 2006. The BIR moved for reconsideration, which was
denied on November 29, 2006. The BIR filed a petition for
review before the Department of Justice (DOJ), which
denied the same in a resolution dated April 27, 2007. The
DOJ also denied the BIR's motion for reconsideration on
June 17, 2010. The BIR elevated the case before the Court
of Appeals (CA) through a petition for certiorari. 7

The CA Decision

In its May 31, 2012 Decision, 8 the CA gave due

course to the petition after finding that the records showed
sufficient evidence of probable cause for tax evasion and
violation of the NIRC. Chiat Corp. failed to present
countervailing evidence to refute the documents and other
importation records from different government agencies. 9
The CA held that the DOJ abused its discretion when
it failed to consider various documents from the Department
of Trade and Industry's Bureau of Import Services, the BIR's
Audit Information Tax Exemption Incentive Division, and the
Bureau of Custom's Management Information System
Technology Group. 10
 The CA observed that Chiat Corp. filed an application
for retirement of business after applying for VAP. The CA
found this move as suspicious, if not an indication of bad
faith. 11
The CA resolved that probable cause was sufficiently
established, and ordered the DOJ to file the corresponding
Information with the proper court. 12
Chiat Corp. moved for reconsideration, which the CA
denied in its November 26, 2013 Resolution. 13 Undeterred,
petitioners Sze, For, and Ng filed this petition for review
on certiorari before the Court.

The Issue Presented

Whether or not the CA erred in finding probable cause

for violation of the NIRC.

The Court's Ruling

While this petition is pending, the petitioners

manifested to the Court that pursuant to the May 31, 2012
CA Decision, an Amended Information in Criminal Case Nos.
O-385 to O-392 were filed against them in the Court of Tax
Appeals (CTA). They moved to quash the Amended
Information due to prescription and double jeopardy. On July
8, 2015, the CTA issued a resolution dismissing all the cases
on the ground of prescription. The CTA resolution became
final and executory, and an entry of judgment was later
issued. The petitioners aver that with this development, the
issues in their petition have become moot and academic. 14
The BIR confirmed in its Manifestation and Comment,
that the DOJ complied with the CA's decision and filed
criminal Information against Sze, For, and Ng. On July 8,
2015, the CTA promulgated a resolution dismissing Criminal
Case Nos. O-385 to O-392 due to prescription. 15
In its Reply, the petitioners reiterated that the propriety
of the CA's decision in finding probable cause was rendered
moot and academic by the CTA decision dismissing the
Amended Information against them. 16
Section 281 of the Tax Reform Act of 1997 17 states
that the prescriptive period for violation of the law is five
years.
 SEC. 281. Prescription for Violations of any
Provision of this Code. — All violations of any
provision of this Code shall prescribe after five (5)
years.
Prescription shall begin to run from the day of the
commission of the violation of the law, and if the
same be not known at the time, from the discovery
thereof and the institution of judicial proceedings for
its investigation and punishment.
The prescription shall be interrupted when
proceedings are instituted against the guilty persons
and shall begin to run again if the proceedings are
dismissed for reasons not constituting jeopardy.
xxx xxx xxx
The CTA explained that Revenue Memorandum
Circular 101-90 provides that an offense under the Tax
Code is considered discovered only after the manner of
commission and the nature and extent of fraud has been
definitely ascertained. This occurs when the BIR renders its
final decision and requires the taxpayer to pay the deficiency
tax. 18
The CTA determined that the FLD and the FAN for
taxable years 1999 and 2000 were served on Chiat Corp. on
February 7, 2005. Chiat Corp. did not file a protest, resulting
in the finality, demandability, and executory nature of the
assessment for deficiency taxes. Counting 30 days from the
service of the FLD and the FAN, the violations were
considered discovered on March 9, 2005. The BIR's revenue
officers filed their joint affidavit in the DOJ for preliminary
investigation on May 26, 2005. However, the original
Information was only filed in court on April 23, 2014, which
exceeded the five-year prescriptive period. Therefore, the
action had prescribed. 19
The Court observed that the Public Prosecutor did not
appeal or move for reconsideration of the CTA's decision;
thus rendering it final and executory.
The Court dismisses the petition for being moot and
academic. So when na FAN ka and na final and required
to pay taxes na then 5 yrs runs.
In Peñafrancia Sugar Mill, Inc. v. Sugar Regulatory
Administration, 20 the Court defined moot and academic as:
 A case or issue is considered moot and
academic when it ceases to present a justiciable
controversy by virtue of supervening events, so that
an adjudication of the case or a declaration on the
issue would be of no practical value or use. In such
instance, there is no actual substantial relief which a
petitioner would be entitled to, and which would be
negated by the dismissal of the petition. Courts
generally decline jurisdiction over such case or
dismiss it on the ground of mootness. This is
because the judgment will not serve any useful
purpose or have any practical legal effect because,
in the nature of things, it cannot be enforced.
(Citation omitted)
Here, the dismissal of the criminal cases on the
ground of prescription rendered the issue on the propriety of
the CA's decision in finding probable cause as moot and
academic. Thus, the Court finds it appropriate to abstain
from passing upon the merits of this petition where legal
relief is neither needed nor called for.
WHEREFORE, the petition is DISMISSED for being
moot and academic.
SO ORDERED.
Peralta, C.J., Caguioa and Lazaro-Javier, JJ., concur.
Lopez, * J., is on official leave.
 
Footnotes

* On official leave.

1. Rollo, pp. 26-27.
2. Id. at 27-28.
3. Id. at 28-29.
4. Id. at 29-30.
5. Id. at 26.
6. Id. at 30-31, 34-35, 38.
7. Id. at 52.
8. Penned by Associate Justice Angelita A. Gacutan, with Associate
Justices Magdangal M. De Leon and Francisco P. Acosta,
concurring; id. at 25-65.
9. Id. at 60.
10. Id. at 62.
11. Id. at 60-61.
12. Id. at 64.
13. Id. at 66-67.
14. Id. at 92-93.
15. Id. at 119.
16. Id. at 139-141.
17. Republic Act 8424, AN ACT AMENDING THE NIRC, AS AMENDED,
AND FOR OTHER PURPOSES. Approved on December 11,
1997.
18. Rollo, p. 97.
19. Id. at 97-98.
20. 728 Phil. 535, 540 (2014).
 

FIRST DIVISION

[G.R. No. 245887. January 22, 2020.]

 CITY OF DAVAO and MR. ERWIN
ALPARAQUE, in his official capacity as Acting
City Treasurer of the City of
Davao, petitioners, vs. AP HOLDINGS,
INC., respondent.

DECISION

This involved the coconut undustry fund case 1, so CIIF is a fund from a
party of levy imposed on coc farmers and other copra profucst and the
fund was invested in 6 oil mills in 1983 CIIF ONG bought shares from
SMC and established 14 holding co and one was AFI for pruposes of
holding shares. Davao issued business tax to AFI pursuant to city of
davao revenue code based on taxes on divindendcd and interest from
SMC shares and money placenemts. So AFI questioned the assessment
and paid under protest and filed for a refund sa city treasurer. An SC
decision said that AFI SMC shares are owned by govt while RTC case
was pending. AFI daw was a financial intermediary so it can be subject
to local business tax.

LAZARO-JAVIER, J  : p

The Case
This Petition for Review on Certiorari assails
the Decision 1 dated August 20, 2018 and
the Resolution 2 dated January 23, 2019 of the Court of Tax
Appeals En Banc in CTA EB No. 1640 finding respondent
AP Holdings, Inc. (APHI) entitled to a refund or credit of the
0.55% local business taxes it paid to petitioner City of Davao
for the dividends it earned from its San Miguel Corporation
(SMC) preferred shares and interests from its money market
placements for the taxable year 2010.
Antecedents
The Coconut Industry Investment Fund (CIIF)
under Presidential Decree 582 (PD 582) is a fund from part
of the levy imposed on the initial sale by coconut farmers of
copra and other coconut products. Pursuant to PD 582's
mandate, the CIIF was invested in six (6) oil mills, the CIIF
Oil Mills Group (CIIF OMG). 3
Sometime in 1983, CIIF OMG bought shares of stock
from SMC. It also established fourteen (14) holding
companies, one of which is APHI, for the sole purpose of
owning and holding such shares, viz.:
PRIMARY PURPOSE
The primary purpose for which such
Corporation is formed is:
To purchase, subscribe for, or otherwise
acquire and own, hold, use, sell, assign, transfer,
mortgage, pledge, exchange, or otherwise dispose
of real and personal property of every kind and
description, including shares of stock, voting trust
certificates for shares of the capital stock, bonds,
debentures, notes, evidences of indebtedness, and
other securities, contracts, or obligations of any
corporation or corporations, association or
associations, domestic or foreign, and to pay
therefor in whole or in part in cash or by exchanging
therefor stocks, bonds, or other evidences of
indebtedness or securities, contracts, or obligation,
to receive, collect, and dispose of the interest,
dividends and income arising from such property,
and to possess and exercise in respect thereof, all
the rights, powers and privileges of ownership,
including all voting powers on any stocks so owned;
and to do every act and thing covered generally by
the denomination "holding corporation," and
especially to direct the operations of other
corporations through the ownership of stock therein,
provided however that the Corporation shall not act
as an investment company or a securities broker
and/or dealer nor exercise the functions of a trust
corporation." 4 (Underscore supplied)
Over time, APHI received cash and stock dividends
from its SMC preferred shares. These dividends were
deposited in a trust account which earned interest from
money market placements. 5
In 1986, APHI's SMC shares were sequestered by the
Presidential Commission on Good Government.
Subsequently, cases were filed before this Court questioning
the ownership of the CIIF, CIIF OMG, the fourteen (14)
holding companies and the SMC shares held by them. One
of these cases was G.R. Nos. 177857-58,
entitled "Philippine Coconut Producers Federation, Inc. v.
Republic of the Philippines." 6
 In 2011, petitioner City of Davao, through its City
Treasurer, issued a Business Tax Order of Payment
directing APHI to pay 0.55% local business tax in the
amount of P723,531.50. Pursuant to Section 69 (f) of
the 2005 Revenue Code of the City of Davao, the tax was
assessed on the dividends and interests APHI earned from
its SMC preferred shares and money market placements,
respectively. APHI paid the assessment under protest.
Subsequently, it filed an administrative claim for refund or
tax credit with the City Treasurer. Claiming that the City
Treasurer failed to act on the protest, APHI filed a petition for
review with the Regional Trial Court. 7
Meanwhile, by Decision dated January 24, 2012, this
Court in G.R. Nos. 177857-58 declared the CIIF companies,
including APHI and the CIIF block of SMC shares, as public
funds or property necessarily owned by the government. 8
The Regional Trial Court's Decision
By Decision 9 dated June 22, 2015, the trial court ruled
that APHI's primary purpose in its Amended Articles of
Incorporation resembles the definition of a financial
intermediary under Section 4101Q.1 of the Manual of
Regulations for Non-Bank Financial Institutions, and, hence,
taxable under Section 69 (f) of the 2005 Revenue Code of
the City of Davao, viz.: 10
SECTION 69. Imposition of Tax. — There is hereby
imposed on the following persons who establish,
operate, conduct or maintain their respective
business within the City a graduated business tax in
the amounts hereafter prescribed:
xxx xxx xxx
(f) On Banks and Other Financial Institutions,
at a rate of fifty-five per cent (55%) of one per cent
(1%) of the gross receipts of the preceding calendar
year derived from interest, commissions and
discounts from lending activities, income from
financial leasing, dividends, rentals on property, and
profit from exchange or sale of property, insurance
premium. All other income and receipts not herein
enumerated shall be excluded in the computation of
the tax.
APHI moved for reconsideration but was denied under
Order dated September 11, 2015. 11
The Court of Tax Appeals (CTA) Division's Decision
 By Decision 12 dated January 30, 2017, the CTA
Division affirmed the trial court's decision.
Through Resolution 13 dated April 17, 2017, it denied
petitioners' motion for reconsideration.
The Court of Tax Appeals En Banc's Decision
By Decision 14 dated August 20, 2018, the CTA En
Banc reversed and declared APHI entitled to a tax refund or
credit. It found that APHI was not a non-bank financial
intermediary for the following reasons:
First, APHI did not fall under the definition of a non-
bank financial intermediary under Section 131 (e) of
the Local Government Code (LGC), 15 Section 22 (W) of
the National Internal Revenue Code (NIRC) of 1997 16 and
Section 4101Q.1 of the Bangko Sentral ng Pilipinas' (BSP)
Manual of Regulations for Non-Bank Financial Institutions. 17
Second, although APHI's functions, based on its
Amended Articles of Incorporation, included supposed
functions of a non-bank financial intermediary, it was not
shown that these functions were its principal purpose. 18
Third, it was not established that the functions
performed by non-bank financial intermediaries were done
by APHI on a regular and recurring basis. 19
Fourth, there was no evidence showing that APHI
held itself out as a non-bank intermediary. 20
Lastly, APHI belonged to the CIIF block of SMC
shares, which were declared to be owned by the
government, thus, any tax imposed upon it is a tax on the
government. 21 Under Section 133 (o) of the LGC, local
government units cannot tax the National Government.
By Resolution dated January 23, 2019, the CTA En
Banc denied petitioners' motion for reconsideration. 22
The Present Petition
Petitioners now seek to reverse the CTA En Banc's
dispositions. They essentially assert:
a) APHI is deemed a "bank and other financial
institution," specifically as a "non-bank financial
intermediary or an investment company"
because it owned a substantial number of
shares and received millions of pesos of
dividends from its investments.
b) Its business purpose as contained in the Amended
Articles of Incorporation is broad enough to
catch all the descriptive functions of a non-bank
financial intermediary under Section 4101Q.1 of
the Manual of Regulations for Non-Bank
Financial Institutions of the BSP. Too, the
statement in APHI's Articles of Incorporation
that it shall not act as an investment company or
securities broker is not conclusive proof that it is
not a "bank or other financial institution." For
based on the tax audit and its financial
statements, APHI has no other business except
its primary business of stock investment and
money market placements with SMC.
c) The Bureau of Local Government Finance's
(BLGF's) opinion on the exemption from local
business taxes is not binding upon the courts
since BLGF is not among the quasi-judicial
agencies whose technical findings on questions
of fact and law are binding in the courts.
On the other hand, APHI counters in the main:
a) Pursuant to Section 143 (f) of
the LGC, 23 petitioners can only collect business
taxes on the dividends and interest income of
banks and other financial institutions. Since it is
not engaged in those businesses, its dividends
and interest income cannot be subject to local
business taxes.
b) It is not a bank or non-bank financial intermediary
considering that it is not engaged in lending
money, investing, reinvesting or trading
securities on a regular and recurring basis.
More, it was not required by the Securities and
Exchange Commission to secure secondary
license nor was it regulated by the BSP or the
Insurance Commission.
c) Mere ownership of shares of stock of SMC does
not ipso facto qualify it as a non-bank financial
intermediary.
d) It is a holding company. Its Articles of
Incorporation 24 expressly prohibits it from acting
as a financial intermediary.
 e) APHI, as well as its SMC shares and income
derived therefrom are national government
properties which are exempt from local business
taxes as declared by the BLGF.
Issue
As a CIIF holding company, is APHI liable to pay local
business taxes on its dividend earnings from its SMC
preferred shares?
Ruling
We rule in the negative.
In the recent case of City of Davao, et al. v. Randy
Allied Ventures, Inc. (RAVI), 25 the Court ordained that
RAVI, a CIIF holding company like APHI, was exclusively
established to own and hold SMC shares of stock. As such,
it is not liable to pay local business taxes on the dividends
earned from its SMC preferred shares as the same shares
are government assets owned by the national government
for the benefit of the coconut industry, thus:
In this case, it is clear that RAVI is neither a
bank nor other financial institution, i.e., an NBFI. In
order to be considered as an NBFI under
the National Internal Revenue Code, banking laws,
and pertinent regulations, the following must concur:
a. The person or entity is authorized by the
BSP to perform quasi-banking functions;
b. The principal functions of said person or
entity include the lending, investing or
placement of funds or evidences of
indebtedness or equity deposited to
them, acquired by them, or otherwise
coursed through them, either for their
own account or for the account of
others; and
c. The person or entity must perform any of the
following functions on a regular and
recurring, not on an isolated basis, to
wit:
1. Receive funds from one (1) group of
persons, irrespective of number,
through traditional deposits, or
issuance of debt or equity
securities; and make
 available/lend these funds to
another person or entity, and in
the process acquire debt or
equity securities;
2. Use principally the funds received for
acquiring various types of debt or
equity securities;
3. Borrow against, or lend on, or buy or
sell debt or equity securities.
As observed in the COCOFED case, RAVI is
a CIIF holding company. The SMC preferred shares
held by it are considered government assets owned
by the National Government for the coconut
industry. As held in the same case, these SMC
shares as well as any resulting dividends or
increments from said shares are owned by the
National Government and shall be used only for the
benefit of the coconut farmers and for the
development of the coconut industry. Thus, RAVI's
management of the dividends from the SMC
preferred shares, including placing the same in a
trust account yielding interest, is not tantamount to
doing business whether as a bank or other financial
institution, i.e., an NBFI, but rather an activity that is
essential to its nature as a CIIF holding company.
Verily, therefore, CIIF holding companies, including
APHI itself and the entire CIIF block of SMC shares, are
public assets owned by the Republic of the Philippines.
Consequently, dividends and any income from these shares
are also owned by the Republic. 26 On this score, APHI
cannot be considered as a non-bank financial intermediary
since its investment and placement of funds are not done in
a regular or recurring manner for the purpose of earning
profit. Rather, its management of dividends from the SMC
shares is only in furtherance of its purpose as a CIIF holding
company for the benefit of the Republic.
All told, the City of Davao acted beyond its taxing
authority when it imposed the questioned business tax on
APHI.
ACCORDINGLY, the petition is DENIED.
The Decision dated August 20, 2018 and Resolution dated
January 23, 2019 of the Court of Tax Appeals En Banc in
CTA EB No. 1640 are AFFIRMED.
 SO ORDERED.
Peralta, C.J., Caguioa, J.C. Reyes, Jr. and Lopez, JJ.,
concur.
 
Footnotes

1. Penned by Associate Justice Erlinda P. Uy and concurred in by

Presiding Justice Roman G. Del Rosario, Associate Justices
Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito N.
Mindaro-Grulla, Ma. Belen M. Ringpis-Liban and Catherine T.
Manahan but Associate Justice Juanito C. Castañeda, Jr. wrote
his Dissenting Opinion; Rollo, pp. 35-54.
2. Id. at 71-74.
3. Record, CTA En Banc, p. 11.
4. Rollo, pp. 48-49.
5. Record, CTA En Banc, p. 11.
6. Id.
7. Penned by Presiding Judge Emmanuel C. Carpio; rollo, pp. 36-37.
8. Id. at 50.
9. Id. at 38.
10. Section 4101Q.1 Financial Intermediaries. — Financial
intermediaries shall mean persons or entities whose principal
functions include the lending, investing or placement of funds or
evidences of indebtedness or equity deposited with them,
acquired by them, or otherwise coursed through them either for
their own account or for the account of others.
Principal shall mean chief, main, most considerable or important,
of first importance, leading, primary, foremost, dominant or
preponderant, as distinguished from secondary or incidental.
Functions shall mean actions, activities or operations of a person
or entity by which his/its business or purpose is fulfilled or carried
out. The business or purpose of a person or entity may be
determined from the purpose clause in its articles of
incorporation/partnership, and from the nature of the business
indicated in his/its application for registration of business filed with
the appropriate government agency.
11. Rollo, p. 38.
12. Penned by Associate Justice Caesar A. Casanova and concurred in
by Associate Justice Juanito C. Castañeda, Jr. but Associate
Justice Catherine T. Manahan wrote her Dissenting Opinion;
record, CTA Division, pp. 266-278.
13. Id. at 297-302.
14. Rollo, pp. 35-54.
15. Section 131. x x x. —
xxx xxx xxx
(e) "Banks and other financial institutions" include non-bank
financial intermediaries, lending investors, finance and investment
companies, pawnshops, money shops, insurance companies,
stock markets, stock brokers and dealers in securities and foreign
exchange, as defined under applicable laws, or rules and
regulations thereunder[.]
16. Section 22. x x x. —
xxx xxx xxx
(W) The term "non-bank financial intermediary" means a financial
intermediary, as defined in Section 2 (D) (c) of Republic Act No.
337, as amended, otherwise known as the General Banking Act,
authorized by the Bangko Sentral ng Pilipinas (BSP) to perform
quasi-banking activities.
xxx xxx xxx
17. Rollo, pp. 44-46.
18. Id. at 48-49.
19. Id. at 49.
20. Id.
21. Id. at 50-58.
22. Id. at 100.
23. Section 143. Tax on Business. — The municipality may impose
taxes on the following businesses:
xxx xxx xxx
(f) On banks and other financial institutions, at a rate not
exceeding fifty percent (50%) of one percent (1%) on the gross
receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium.
24.PRIMARY PURPOSE
The primary purpose for which such Corporation is formed is:
To purchase, subscribe for, or otherwise acquire and own, hold,
use, sell, assign, transfer, mortgage, pledge, exchange, or
otherwise dispose of real and personal property of every kind and
description, including shares of stock, voting trust certificates for
shares of the capital stock, bonds, debentures, notes, evidences
of indebtedness, and other securities, contracts, or obligations of
any corporation or corporations, association or associations,
domestic or foreign, and to pay therefor in whole or in part in cash
or by exchanging therefor stocks, bonds, or other evidences of
indebtedness or securities, contracts, or obligation, to receive,
collect, and dispose of the interest, dividends and income arising
from such property, and to possess and exercise in respect
thereof, all the rights, powers and privileges of ownership,
including all voting powers on any stocks so owned; and to do
every act and thing covered generally by the denomination
"holding corporation," and especially to direct the operations of
other corporations through the ownership of stock therein,
provided however that the Corporation shall not act as an
investment company or a securities broker and/or dealer nor
exercise the functions of a trust corporation." (Underscore
supplied)
25.G.R. No. 241697, July 29, 2019; citations omitted.
26.Section 133 (o) of the LGC.
 
 SECOND DIVISION

[G.R. No. 216601. October 7, 2019.]

AEGIS PEOPLESUPPORT, INC. [formerly

PEOPLESUPPORT (Philippines),
INC.], petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.

DECISION

Aegis is a domestic corp it is registered with the BOI and registered

witht the PEZA.

J.C. REYES, JR., J  :

p

The Facts and The Case

The facts of this case, as found by the Court of Tax
Appeals-First Division (CTA-Division) are not in dispute:  HTcADC

Petitioner Aegis PeopleSupport, Inc. is a

domestic corporation duly organized and existing
under and by virtue of the laws of the Republic of
the Philippines, with principal office at
PeopleSupport Center, Ayala corner Senator Gil
Puyat Avenues, Makati City. It is registered with the
Board of Investments (BOI) under its former name
PeopleSupport (Philippines), Inc., with Certificate of
Registration No. 2003-059 dated April 22, 2003 as a
new and pioneer IT Export service firm in the field of
Customer Contact Center. As such, it was issued a
Certificate of ITH 1 Entitlement CE No. 2008-000145
issued on March 24, 2008.
Also, petitioner is registered with the
Philippine Economic Zone Authority (PEZA), under
its former name PeopleSupport (Philippines), Inc.,
as a new Ecozone IT (Export) Enterprise to engage
in the establishment of a contact center which will
provide outsourced customer care services and
business process outsourcing (BPO) under
Amended Registration Certificate No. 03-17-IT
dated June 19, 2007. Petitioner is likewise
registered with the BIR as an income taxpayer, with
OCN No. 9RC0000247326 on March 9, 2000.
On the other hand, respondent is the duly
appointed Commissioner of the Bureau of Internal
Revenue (BIR) empowered to perform the duties of
said office including, among others, the power to
decide, approve and grant refunds or tax credits of
erroneously or excessively paid taxes, as provided
by law.
On April 15, 2008, petitioner filed with the
BIR, through the electronic filing and payment
system (eFPS), its Annual Income Tax Return (ITR)
for taxable year 2007, under reference No.
120800002188132. Thereafter, petitioner filed its
amended Annual ITR for taxable year 2007 via the
BIR's eFPS, under Reference No.
120800002209352 on April 29, 2008. On the same
date, petitioner filed its Audited Financial
Statements with the Revenue District Office (RDO)
No. 47 of the BIR.
Meanwhile, on December 3, 2008, petitioner
amended its Articles of Incorporation changing its
name from PeopleSupport (Philippines), Inc. to
Aegis PeopleSupport, Inc.
Subsequently, on April 8, 2010, petitioner
filed with the BIR Revenue District Office (RDO) No.
47, an administrative claim for refund or issuance of
tax credit certificate (TCC) and an Application for
Tax Credits/Refunds (BIR Form No. 1914) for its
excess payment of income tax for taxable year 2007
in the amount of P66,177,830.95.
Respondent's inaction on petitioner's
administrative claim for refund prompted the filing of
the instant Petition for Review on April 15, 2010.
Respondent posted an Answer to this
petition, through registered mail, on June 7, 2010
interposing the following special and affirmative
defenses:
6) Assuming but without admitting that
Petitioner filed a claim for refund, the
same is still subject to investigation by
the Bureau of Internal Revenue;
7) Petitioner failed to demonstrate that the tax,
which is the subject of this case, was
erroneously or illegally collected;
8) Taxes paid and collected are presumed to
be made in accordance with the laws
and regulations, hence, not creditable or
refundable;
9) It is incumbent upon the Petitioner to show
that it has complied with the provision of
Section 204(C) in relation to Section 299
of the 1997 Tax Code, as amended;
10) In an action for tax credit or refund, the
burden is upon the taxpayer to prove
that he is entitled thereto, and failure to
discharge the said burden is fatal to the
claim (Emmanuel & Zenaida Aguilar v.
Commissioner, CA-G.R. No. Sp. 16432,
March 20, 1990 cited Aban, Law of
Basic Taxation in the Philippines, 1st
Edition, p. 206);
11) Claims for refund are construed strictly
against the claimant, the same partake
the nature of exemption from
taxation (Commissioner of Internal
Revenue v. Ledesma, 31 SCRA 95) and
as such, they are looked upon with
disfavor (Western Minolco Corp. vs.
 Commissioner of Internal Revenue, 124
SCRA 121).
The issues having been joined, this case was
set for pre-trial on July 9, 2010. As directed by the
Court, the parties filed their Consolidated Joint
Stipulation of Facts and Issues on July 26, 2010
which was approved in the Resolution dated July
28, 2010.
During trial, petitioner presented two (2)
witnesses, Liana Lorenzo and ICPA Katherine
Constantino, in support of its claim. On the other
hand, respondent's counsel manifested during the
hearing held on November 17, 2011 that he would
not present any evidence, as the issues involved in
the instant case are purely legal. 
aScITE

On January 21, 2012, petitioner submitted its

Memorandum; while respondent failed to file her
Memorandum per records verification dated
February 1, 2012. Accordingly, the case was
submitted for decision on February 3, 2012. 2
On July 9, 2012, the CTA-Division rendered a
Decision 3 denying petitioner's claim for refund or issuance
of tax credit certificate for insufficiency of evidence for
petitioner's failure to present evidence in support of its
allegation that the activities from which the amount of foreign
exchange gain arose, were attributable to activities with
income tax incentive, as it failed to establish the nature of
the foreign exchange contracts entered by it with Citibank
from which the subject foreign exchange gains were derived.
After the CTA-Division denied its Motion for
Reconsideration in a Resolution dated March 4,
2013, 4 petitioner appealed the matter before the CTA En
Banc via a Petition for Review.
In a Decision 5 dated August 4, 2014, the CTA En
Banc denied the petition and affirmed the Decision and
Resolution of the CTA-Division. In denying the petition, the
CTA En Banc found the foreign exchange gains realized by
the petitioner to have been derived from the foreign
exchange contracts entered into by it with Citibank, and not
from its registered activity as a contact center nor
necessarily related to it as would entitle such income to
income tax holiday and therefore, subject to a tax refund.
The pertinent portion of its Decision reads:
 We affirm the CTA First Division's ruling in
the assailed Resolution and Decision denying
petitioner's Petition for Review for insufficiency of
evidence. Records show that while petitioner may
have shown that its earned USD as a contact center
is being used to purchase Pesos, through its
hedging contracts with Citibank, in order to pay for
the ordinary and necessary expenses of petitioner's
customer-support business, the fact still remains
that the subject foreign exchange gains were
derived from the foreign exchange contracts entered
into by petitioner with Citibank and not from its
registered activity as a contact center nor
necessarily related to it.
It should be recalled that petitioner's primary
purpose as a contact center as stated in its
Amended Articles of Incorporation is "to engage in
the business of customer support services by
providing information and database service on the
Internet including web-based applications in the
Philippines and providing or furnishing any and all
forms or types of services, data and facilities
relating to providing information on consumer
products and services through the internet; and,
otherwise, to carry on and conduct a general
business relating to internet services."
Likewise, its PEZA Certification shows that it
is a registered Ecozone IT (Export) Enterprise
engaged in the establishment of a contact center
which will provide outsourced customer care
services and business process outsourcing (BPO)
services.
On the other hand, petitioner's hedging
activity involves the sale of specified amounts of
dollar to the bank on pre-determined dates and at
pre-determined exchange rates.
Considering petitioner's hedging activity is
outside of the registered activity as a contact center,
then, the income tax holiday on its registered activity
may not be extended to the said foreign exchange
gains. 6
Petitioner asked the CTA En Banc to reconsider
its Decision, but the latter denied it in a Resolution 7 dated
January 7, 2015.
 Undaunted, petitioner is now before this Court by way
of a Petition for Review on Certiorari, 8 raising the following
grounds:
The Issues Presented
A. THE CTA EN BANC ERRED IN RULING THAT
PETITIONER FAILED TO PROVE BY
PREPONDERANCE OF EVIDENCE THAT ITS
FOREX GAINS AROSE FROM ACTIVITIES
THAT ARE INTEGRAL AND RELATED TO
ITS CONTACT CENTER OPERATIONS.
B. THE CTA EN BANC ERRED IN NOT
RECOGNIZING THAT PETITIONER'S FOREX
GAINS SHOULD LIKEWISE BE COVERED
BY INCOME TAX HOLIDAY ON THE BASIS
OF THE REGULATION BY THE PEZA AND
NUMEROUS RULINGS BY THE
RESPONDENT.
C. THE CTA EN BANC ERRED IN UPHOLDING THE
DENIAL OF PETITIONER'S CLAIM FOR
REFUND OF ERRONEOUSLY PAID INCOME
TAX FOR CY 2007. 9
The pivotal issue for the Court's determination is
whether petitioner's foreign exchange gains derived from its
hedging contract with the Citibank is covered by Income Tax
Holiday and subject to tax refund.
The Arguments of the Parties
Petitioner insisted that it is entitled to a refund or to be
issued a tax credit certificate for the tax it erroneously paid
for the foreign exchange (forex) gains it realized from the
hedging contract it entered into with Citibank because said
gains were attributable to its PEZA-registered activity as a
contact center.
It explained that it renders customer care services to
the U.S. based customers of its non-resident clients as part
of its PEZA-registered activities of engaging in the
establishment of a contact center that provides outsourced
customer care services and business process outsourcing.
Since the companies for which it rendered customer support
services are based abroad, the payments received by it for
and in consideration of such services were denominated in
US Dollars (USD). Given that petitioner is operating in the
Philippines, the operating expenses it incurred to enable it to
render customer support services to its foreign clients which
 include rental and utility charges, cost of renovation and
expansion, and payroll expenses are paid in Philippine Peso
(PhP). The difference in the currency of its service revenues
and operating expenses necessitated it to convert its USD-
denominated income from its PEZA-registered activities to
PhP, otherwise petitioner will be unable to pay for the
ordinary and necessary expenses incurred by it in the
conduct of its customer support business. Thus, to ensure
that petitioner will have sufficient supply of PhP-denominated
funds to finance its business expenses, it entered into a
hedging contract with Citibank where they agreed to
exchange USD to PhP for Calendar Year (CY) 2007 at a
pre-agreed exchange rate of PhP49.04 to USD1.00 (forward
contract price). At the time petitioner sold USD55,000,000.00
to Citibank, the prevailing exchange rate was PhP45.61 to
USD1.00, which was lower than the forward contract price.
As a result of the use by the petitioner and Citibank of an
exchange rate (based on the forward contract price) that was
higher than the prevailing market rate, it realized forex gains
equivalent to PhP189,079,517.00, computed as follows:
 

  Exchange USD Sold Peso Bought

Rate

Forward 49.04 $55,000,000.00 Php2,697,401,000.00

Contract Price

Market Rate 45.61 55,000,000.00 2,508,321,483.00

  Forex Gain   Php189,079,517.00 10

 
Since its forex gains were realized when it converted
its USD-denominated service revenue to PhP in order to
finance its PEZA-registered contact center activities that
enjoy ITH privilege, its forex gains must likewise enjoy the
same ITH privilege because it is integral and related to its
PEZA-registered activities.
Petitioner asseverated that its position finds support
in Revenue Regulations No. 20-2002 and PEZA
Memorandum Circular No. 32-2005 whereby the language
by which said issuances were couched evinces a clear
intention to extend the ITH privilege not only to income
derived directly from PEZA-registered activities, but also to
revenues earned from transactions that are inextricably
linked to these registered activities. Consistent with these
issuances, the Bureau of Internal Revenue issued several
rulings 11 which held that a taxpayer need not prove that its
forex gains came from its PEZA-registered activity before
such gains may be covered by the applicable tax incentives.
Rather, the preferential tax regime is automatically extended
to forex gains that arose from transactions which, although
different from the PEZA-registered activities, were necessary
and related to the latter. In short, for as long as the forex
gains were derived from transactions undertaken to enable
the entities to perform their registered activities, the fiscal
incentives granted to them under the law should likewise
extend to their forex gains. Thus, petitioner contended that
the CTA erred when it did not uphold the express mandate
of the said administrative issuances, and instead ruled that it
is not entitled to a refund because only income arising
directly from an enterprise's PEZA-registered activities are
exempt from the payment of income tax. Petitioner added
that since the issuances did not add to, subtract from, or
alter the conditions for the conferment of ITH privilege
under Republic Act (R.A.) No. 7916, 12 the statute they seek
to implement, the CTA En Banc had no justifiable reason not
to apply the same in resolving its claim for refund. 
aDSIHc

Moreover, petitioner contended that its right to the

equal protection of the laws will be violated if its forex gains
will be treated differently from the forex gains of other PEZA-
registered firms that respondent has exempted from income
tax in accordance with the decision of the CTA in JP Morgan
Bank, N.A. v. Commissioner of Internal Revenue 13 and BIR
Ruling No. DA-195-08. 14
For her part, respondent Commissioner of Internal
Revenue contended that the CTA-Division and En
Banc correctly ruled that petitioner was not entitled to a tax
refund or the issuance of a tax credit certificate because it
failed to substantiate its claim that its forex gains were
attributable to its registered activity. On the contrary, it had
been established clearly that its forex gains were derived
from its hedging activity — an activity without tax incentive,
or an unregistered activity. Thus, subject to the normal
corporate income tax. Respondent went on to state that it did
not matter whether the forex gains realized from the hedging
contract were used to finance the business of the petitioner.
The fact remains that such gains were derived from its
activities that were not registered with PEZA. Thus, the
income tax holiday accorded to its registered operations
cannot be extended to its forex gains. 15
The Ruling of the Court
The Court finds the instant petition meritorious.
At the outset, Section 4 of R.A. No. 7916 provides that
enterprises located within the recognized economic or trade
zones "are granted preferential tax treatment." Such
incentive is further buttressed in Section 23 of the same law
which provides that "[b]usiness establishments operating
within the ECOZONES shall be entitled to the fiscal
incentives as provided for under Presidential Decree No. 66,
the law creating the Export Processing Zone Authority, or
those provided under Book VI of Executive Order (EO) No.
226, otherwise known as the Omnibus Investment Code of
1987." In this case, the petitioner opted to avail of the benefit
of an income tax holiday under Article 39 (a) of EO No.
226 which reads:
(a) Income Tax Holiday.
(1) For six (6) years from commercial operation
for pioneer firms and four (4) years for
non-pioneer firms, new registered firms
shall be fully exempt from income
taxes levied by the National
Government. Subject to such guidelines
as may be prescribed by the Board, the
income tax exemption will be extended
for another year in each of the following
cases:
i. the project meets the prescribed ratio
of capital equipment to number of
workers set by the Board;
ii. utilization of indigenous raw materials
at rates set by the Board;
iii. the net foreign exchange savings or
earnings amount to at least
US$500,000.00 annually during
the first three (3) years of
operation.
The preceding paragraph
notwithstanding, no registered pioneer
firm may avail of this incentive for a
period exceeding eight (8) years.
 (2) For a period of three (3) years from
commercial operation, registered
expanding firms shall be entitled to an
exemption from income taxes levied by
the National Government proportionate
to their expansion under such terms and
conditions as the Board may determine;
Provided, however, That during the
period within which this incentive is
availed of by the expanding firm it shall
not be entitled to additional deduction
for incremental labor expense.
(3) The provision of Article 7 (14)
notwithstanding, registered firms shall
not be entitled to any extension of this
incentive. (Emphasis supplied)
Concomitantly, the Secretary of Finance
issued Revenue Regulation No. 20-2002 of which Section 1
states:
SEC. 1. TAX TREATMENT. — Income
derived by an enterprise registered with the
Subic Bay Metropolitan Authority (SBMA), the Clark
Development Authority (CDA), or the Philippine
Economic Zone Authority (PEZA) from its
registered activity/ies shall be subject to such
tax treatment as may be specified in its terms of
registration (i.e., the 5% preferential tax rate, the
income tax holiday, or the regular income tax rate,
as the case may be). Nonetheless, whatever the tax
treatment of said enterprise with respect to its
registered activity/ies, income realized by such
registered enterprise that is not related to its
registered activity/ies shall be subject to the
regular internal revenue taxes, such as the 20%
final income tax on interest from Philippine Currency
bank deposits and yield or any other monetary
benefit from deposit substitutes, and from trust
funds and similar arrangements, the 7.5% tax on
foreign currency deposits and the 5%/10% capital
gains tax or 1/2% stock transaction tax, as the case
may be, on the sale of shares of stock. (Emphasis
supplied) 
ETHIDa

The aforementioned provision means that any income

earned by a PEZA-registered enterprise which is not related
to its registered activities is not covered by the incentives
granted under R.A. No. 7916 and EO No. 226.
As regards the tax treatment of gains on forex, PEZA
issued Memorandum Circular No. 2005-032 which states:
On Gains on Foreign Exchange Transactions:
Foreign currency is normally used by Ecozone
Export Enterprises for their registered activities,
either as the functional currency or as a
supplemental currency. On the other hand, it is also
used by some Ecozone Export Enterprises for other
activities which can be considered as "additional
business opportunities" which PEZA has no control
of.
The tax treatment of foreign exchange (forex) gains
shall depend on the activities from which these
arise. Thus, if the forex gain is attributed to an
activity with income tax incentive (Income Tax
Holiday or 5% Gross Income Tax), said forex gain
shall be covered by the same income tax incentive.
On the other hand, if the forex gain is attributed to
an activity without income tax incentive, said forex
gain shall likewise be without income tax
incentive, i.e., therefore, subject to normal corporate
income tax.
At this juncture, the Court proceeds to determine
whether the forex fluctuation "gains" of the petitioner under
the hedging contract it entered into with Citibank is subject to
the regular income tax under the NIRC.
In its rudimentary definition,
a hedge (as opposed to speculation and arbitrage) is an
investment undertaken to reduce the risk of adverse price
movements in an asset. 16 Simply put, it is a loose form of
insurance against value or price fluctuations of a particular
asset (such as cash in the form of foreign currency). 17 In the
context of foreign currency exchanges, hedging involves
contracting with a foreign currency broker to deliver or
receive a specified foreign currency at a specified future date
and at a specified exchange rate. 18 Here, a fully hedged
transaction results in no exchange gain or loss to the
company; and for a fee, the broker assumes all the risks
associated with exchange rate changes. 19 This is because
the equivalent amount or value of the foreign currency in
legal tender remains to be a mere estimate until it
is actually converted to local currency. Therefore, any
occurring fluctuation in local currency value before the
conversion of foreign currency does not result in the
realization of any gain or loss.
Relatedly, a "true hedge" can occur only when forward
sales prices are fixed and the relation between commodity
purchase and later sales price is insured against both
increase and decrease of commodity prices. 20 Its aim is to
insure against losses resulting from unfavorable changes in
price at the time of actual delivery of what hedgers have to
sell or buy in their business. 21
In the instant case, petitioner may validly enter into a
hedging contract to manage its foreign currencies on-hand
earned as gross revenues. The third item listed as one of its
Secondary Purposes in its Amended Articles of
Incorporation 22 reads:
3. To invest and deal with the money and
properties of the Corporation [in]  such manner as
may from time to time be considered wise or
expedient for the advancement of its interest and
to sell, dispose of or transfer the business,
properties and goodwill of the Corporation or any
part thereof for such consideration and under such
terms as it shall see fit to accept. (Emphases
supplied)
Such item undoubtedly authorizes the petitioner to
enter into a hedging contract with a broker such as Citibank
in order to protect its gross revenues in the form of foreign
currency from being severely devalued in terms of local
currency. Consequently, the Court considers hedging to be
very much related to its registered activities and, hence, still
subject to a preferential tax treatment under R.A. No.
7916 and EO No. 226.
WHEREFORE, premises considered, the petition
is GRANTED. The assailed August 4, 2014 Decision and the
January 7, 2015 Resolution of the Court of Tax Appeals-En
Banc in CTA EB Case No. 996 are REVERSED and SET
ASIDE. The respondent is ordered to refund or issue a Tax
Credit Certificate in the amount of P66,177,930.95 in favor of
the petitioner representing the erroneous income tax it paid
for the calendar year 2007.
SO ORDERED.
Carpio, Caguioa, Lazaro-Javier and Zalameda, JJ.,
concur.
  
Footnotes

1. Income Tax Holiday.

2. CTA En Banc rollo, pp. 42-46.
3. Penned by Associate Justice Erlinda P. Uy, with Presiding Justice
Ernesto D. Acosta and Associate Justice Esperanza Fabon-
Victorino, concurring; id. at 42-67.
4. Id. at 69-77.
5. Penned by Associate Justice Caesar A. Casanova, with Presiding
Justice Roman G. Del Rosario and Associate Justices Juanito C.
Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Esperanza R.
Fabon-Victorino, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-
Manalastas, and Ma. Belen M. Ringpis-Liban,
concurring; rollo, pp. 111-124.
6. Id. at 116-117.
7. Id. at 128-133.
8. Id. at 52-94.
9. Id. at 61.
10. Id. at 65.
11. Id. at 69-74, referring to BIR Ruling Nos. DA-195-08, DA-375-08, DA-
(IL-011) 107-08, DA-(C-295) 723-09, and DA-(IL 009) 089-10.
12. THE SPECIAL ECONOMIC ZONE ACT OF 1995.
13. Docketed as CTA Case No. 7962. On appeal to the CTA En Banc,
the case was docketed as C.T.A. EB No. 876 and
entitled Commissioner of Internal Revenue v. JP Morgan Chase
Bank, N.A.
14. Rollo, pp. 52-94, 175-200.
15. Id. at 147-159.
16. https://www.investopedia.com/terms/h/hedge.asp (last visited: July 1,
2019).
17. See: Day v. United States, 734 F.2d 375 (1984).
18. Stice, et al., Intermediate Accounting, 17th Ed. (2010), p. 503.
19. Id.
20. Corn Products Refining Co. v. Commissioner of Internal Revenue,
215 F.2d 513 (1954).
21. See: United States v. New York Coffee and Sugar Exchange, Inc.,
263 U.S. 611 (1924).
22. Court of Tax Appeals-First Division records, p. 28.

SECOND DIVISION

[G.R. No. 233556. September 11, 2019.]

CITY TREASURER OF
MANILA, petitioner, vs. PHILIPPINE
BEVERAGE PARTNERS, INC., substituted by
COCA-COLA BOTTLERS
PHILIPPINES, respondent.

DECISION

J.C. REYES, JR., J  : p

Assailed in this Petition for Review on Certiorari are

the December 22, 2016 Decision 1 and June 13, 2017
Resolution 2 of the Court of Tax Appeals (CTA) En Banc in
CTA EB No. 1342 which affirmed the May 8, 2015
Decision 3 and the July 20, 2015 Resolution 4 of the CTA
Second Division in C.T.A. AC No. 122.
The Antecedents
On January 17, 2007, the petitioner City Treasurer of
Manila (petitioner) issued a Statement of Account (SOA)
under Bill No. 012007-33025 to Philippine Beverage
Partners, Inc. (respondent). The SOA showed that
respondent is liable to pay petitioner local business taxes
and regulatory fees for the first quarter of 2007 in the total
amount of P2,930,239.82.
Respondent protested the assessment through a letter
dated January 19, 2007, arguing that Tax Ordinance Nos.
7988 and 8011, amending the Revenue Code of Manila
(RCM), have been declared null and void. Respondent also
argued that the collection of local business tax under Section
21 of the RCM in addition to Section 14 of the same code
constitutes double taxation. Thereafter, respondent made a
formal tender of payment to the City of Manila on January
22, 2007, for local business tax and regulatory fees for the
first quarter of 2007 in the amount of P506,080.89. On
February 2, 2007, petitioner issued a letter to respondent
denying the latter's protest which respondent received on
February 6, 2007.
On February 13, 2007, respondent paid the total
amount of P2,930,239.82 stated in the SOA. Then, on March
2, 2007, respondent filed a written claim for refund of
erroneously/illegally collected tax with petitioner in the
amount of P2,424,158.93. Further, respondent filed a
Complaint for the Revision of SOA (Preliminary Assessment)
and for Refund or Credit of LBT Erroneously/Illegally
Collected with the Regional Trial Court, Manila, Branch 47
(RTC) on March 8, 2007.
The RTC Ruling

In a Decision 5 dated November 18, 2013, the RTC

ordered the refund of the overpayment made by respondent.
It held that respondent is already taxed under Section 14 of
the RCM, thus, it should no longer be subjected to tax under
Section 21 of the same Code. The trial court added that
respondent properly filed a claim for refund. It noted that the
taxes and fees subject of the claim for refund/tax credit were
paid on February 13, 2007 and on March 2, 2007,
respondent filed with petitioner a written claim for refund.
The RTC opined that respondent had not only exhausted the
requisite administrative remedy, i.e., filing of a claim for
refund with the City Treasurer, but it also filed the present
case on time, on March 8, 2007, which is within two years
from the payment of the taxes and fees erroneously/illegally
collected which payment was made on February 13, 2007.
The fallo reads:
WHEREFORE, premises considered,
judgment is hereby rendered ordering defendants
City of Manila and Liberty M. Toledo to refund to the
plaintiff the taxes paid hereunder in the amount of
[P]2,424,158.93 and to pay the cost of suit.
SO ORDERED. 6
Petitioner moved for reconsideration but the same was
denied by the RTC in an Order 7 dated July 4, 2014.
Aggrieved, petitioner filed a Petition for Review with
the CTA Second Division.
The CTA Second Division Ruling

In a Decision dated May 8, 2015, the CTA Second

Division affirmed the RTC ruling. It ruled that respondent
complied with the requirements for filing a refund of any local
taxes, fees or charges erroneously or illegally collected. The
CTA Second Division denied petitioner's contentions that it
was erroneous for the trial court to grant respondent's claim
for refund based solely on the latter's computation and that
respondent's claim should be negated by its tax deficiency
for the years 2006 and 2007 amounting to P9,071,298.78. It
held that these arguments were not raised by petitioner in its
Answer before the trial court. Further, petitioner passed upon
the opportunity of raising other factual and legal issues when
they agreed to dispense with the pre-trial and to just submit
the case for decision upon filing of the parties' respective
memoranda. The CTA Second Division disposed the case in
this wise:
WHEREFORE, premises considered, the
present Petition for Review is hereby DENIED for
lack of merit. The Assailed Decision dated
November 18, 2013 and Order dated July 4, 2014 of
the Regional Trial Court of Manila, Branch 47, are
both AFFIRMED.
SO ORDERED. 8
 Petitioner moved for reconsideration, but the same
was denied by the CTA Second Division in a Resolution
dated July 20, 2015. Undaunted, petitioner filed a Petition for
Review before the CTA En Banc.
The CTA En Banc Ruling

In a Decision dated December 22, 2016, the CTA En

Banc ruled that respondent was able to comply with the
requisites for entitlement to a refund/credit of local taxes
considering that it filed a written claim for refund on March 2,
2007, and filed the judicial claim on March 8, 2007, which is
within two years from payment of the tax on February 13,
2007. As regards the deficiency tax of respondent for the
years 2006 and 2007 which petitioner seeks to offset against
the amount respondent is entitled to as tax refund, the
CTA En Banc ruled that petitioner waived any additional
defenses by its failure to raise the same in its Answer before
the trial court. The fallo reads:
WHEREFORE, the instant Petition for
Review is DENIED for lack of merit. The Decision
promulgated on May 8, 2015 and the Resolution
promulgated on July 20, 2015 by the Second
Division are hereby AFFIRMED.
SO ORDERED. 9
Petitioner moved for reconsideration, but the same
was denied by the CTA En Banc on June 13, 2017. Hence,
this Petition for Review on Certiorari.
The Issues
I. WHETHER A TAXPAYER WHO PROTESTED AN
ASSESSMENT MAY LATER ON INSTITUTE A
JUDICIAL ACTION FOR REFUND; AND
II. WHETHER THE ALLEGED DEFICIENCY TAXES
OF RESPONDENT MAY BE USED TO
OFFSET ITS CLAIM FOR REFUND.
Petitioner argues that respondent should have
appealed the denial of its protest instead of instituting an
action for refund; and that based on the 2006 Audited
Financial Statement of respondent, the latter has
underpayments in its business tax payments for 2006 and
2007, thus, the same should be offset against respondent's
claim for refund. 10
The Court's Ruling
 The petition is denied.
I.
Petitioner contends that the assessment against
respondent became final and executory when the latter
effectively abandoned its protest and instead sued in court
for the refund of the assessed taxes and charges. The
foregoing argument is not novel. In fact, the case of City of
Manila v. Cosmos Bottling Corporation 11 (Cosmos) finds
application. It must be noted that Cosmos and the present
case involve the same taxing authority (City of Manila), the
same taxing period (first quarter of 2007) and Cosmos, like
respondent in the case at bar, was assessed with the tax on
manufacturers under Section 14 and the tax on other
businesses under Section 21 of the RCM. The Court has
settled in Cosmos that a taxpayer facing an assessment
issued by the local treasurer may protest it and alternatively:
(1) appeal the assessment in court, or (2) pay the tax, and
thereafter, seek a refund. Thus, in Cosmos, the Court
declared:
Second, a taxpayer who had
protested and paid an assessment is not
precluded from later on instituting an action for
refund or credit.
The taxpayers' remedies of protesting an
assessment and refund of taxes are stated in
Sections 195 and 196 of the LGC, to wit:
Section 195. Protest of Assessment.
— When the local treasurer or his duly
authorized representative finds that
correct taxes, fees, or charges have
not been paid, he shall issue a notice
of assessment stating the nature of
the tax, fee, or charge, the amount of
deficiency, the surcharges, interests
and penalties. Within sixty (60) days
from the receipt of the notice of
assessment, the taxpayer may file a
written protest with the local treasurer
contesting the assessment; otherwise,
the assessment shall become final
and executory. The local treasurer
shall decide the protest within sixty
(60) days from the time of its filing. If
the local treasurer finds the protest to
 be wholly or partly meritorious, he
shall issue a notice cancelling wholly
or partially the assessment. However,
if the local treasurer finds the
assessment to be wholly or partly
correct, he shall deny the protest
wholly or partly with notice to the
taxpayer. The taxpayer shall have
thirty (30) days from the receipt of the
denial of the protest or from the lapse
of the sixty (60)-day period prescribed
herein within which to appeal with the
court of competent jurisdiction
otherwise the assessment becomes
conclusive and unappealable.
Section 196. Claim for Refund of Tax
Credit. — No case or proceeding shall
be maintained in any court for the
recovery of any tax, fee, or charge
erroneously or illegally collected until a
written claim for refund or credit has
been filed with the local treasurer. No
case or proceeding shall be
entertained in any court after the
expiration of two (2) years from the
date of the payment of such tax, fee,
or charge, or from the date the
taxpayer is entitled to a refund or
credit.
The first provides the procedure for
contesting an assessment issued by the local
treasurer; whereas, the second provides the
procedure for the recovery of an erroneously paid or
illegally collected tax, fee or charge. Both Sections
195 and 196 mention an administrative remedy that
the taxpayer should first exhaust before bringing the
appropriate action in court. In Section 195, it is the
written protest with the local treasurer that
constitutes the administrative remedy; while in
Section 196, it is the written claim for refund or
credit with the same office. As to form, the law does
not particularly provide any for a protest or refund
claim to be considered valid. It suffices that the
written protest or refund is addressed to the local
treasurer expressing in substance its desired relief.
The title or denomination used in describing the
letter would not ordinarily put control over the
content of the letter.
Obviously, the application of Section 195 is
triggered by an assessment made by the local
treasurer or his duly authorized representative for
nonpayment of the correct taxes, fees or charges.
Should the taxpayer find the assessment to be
erroneous or excessive, he may contest it by filing a
written protest before the local treasurer within the
reglementary period of sixty (60) days from receipt
of the notice; otherwise, the assessment shall
become conclusive. The local treasurer has sixty
(60) days to decide said protest. In case of denial of
the protest or inaction by the local treasurer, the
taxpayer may appeal with the court of competent
jurisdiction; otherwise, the assessment becomes
conclusive and unappealable. (Italics in the original)
On the other hand, Section 196 may be
invoked by a taxpayer who claims to have
erroneously paid a tax, fee or charge, or that such
tax, fee or charge had been illegally collected from
him. The provision requires the taxpayer to first file
a written claim for refund before bringing a suit in
court which must be initiated within two years from
the date of payment. By necessary implication, the
administrative remedy of claim for refund with the
local treasurer must be initiated also within such
two-year prescriptive period but before the judicial
action.
Unlike Section 195, however, Section 196
does not expressly provide a specific period within
which the local treasurer must decide the written
claim for refund or credit. It is, therefore, possible for
a taxpayer to submit an administrative claim for
refund very early in the two-year period and initiate
the judicial claim already near the end of such two-
year period due to an extended inaction by the
local treasurer. In this instance, the taxpayer cannot
be required to await the decision of the local
treasurer any longer, otherwise, his judicial action
shall be barred by prescription. (Emphasis in the
original)
 Additionally, Section 196 does not expressly
mention an assessment made by the local
treasurer. This simply means that its applicability
does not depend upon the existence of an
assessment notice. By consequence, a taxpayer
may proceed to the remedy of refund of taxes even
without a prior protest against an assessment that
was not issued in the first place. This is not to say
that an application for refund can never be
precipitated by a previously issued assessment, for
it is entirely possible that the taxpayer, who had
received a notice of assessment, paid the
assessed tax, fee or charge believing it to be
erroneous or illegal. Thus, under such
circumstance, the taxpayer may subsequently
direct his claim pursuant to Section 196 of the
LGC.
Clearly, when a taxpayer is assessed a
deficiency local tax, fee or charge, he may protest it
under Section 195 even without making payment of
such assessed tax, fee or charge. This is because
the law on local government taxation, save in the
case of real property tax, does not expressly require
"payment under protest" as a procedure prior to
instituting the appropriate proceeding in court. This
implies that the success of a judicial action
questioning the validity or correctness of the
assessment is not necessarily hinged on the
previous payment of the tax under protest.
Needless to say, there is nothing to prevent
the taxpayer from paying the tax under protest or
simultaneous to a protest. There are compelling
reasons why a taxpayer would prefer to pay while
maintaining a protest against the assessment. For
instance, a taxpayer who is engaged in business
would be hard-pressed to secure a business permit
unless he pays an assessment for business tax
and/or regulatory fees. Also, a taxpayer may pay the
assessment in order to avoid further penalties, or
save his properties from levy and distraint
proceedings.
The foregoing clearly shows that a
taxpayer facing an assessment may protest it
and alternatively: (1) appeal the assessment in
court, or (2) pay the tax and thereafter seek a
refund. Such procedure may find jurisprudential
mooring in San Juan v. Castro wherein the Court
described for the first and only time the alternative
remedies for a taxpayer protesting an assessment
— either appeal the assessment before the court of
competent jurisdiction, or pay the tax and then seek
a refund. The Court, however, did not elucidate on
the relation of the second mentioned alternative
option, i.e., pay the tax and then seek a refund, to
the remedy stated in Section 196.
As this has a direct bearing on the arguments
raised in the petition, we thus clarify.
Where an assessment is to be protested or
disputed, the taxpayer may proceed (a) without
payment, or (b) with payment of the assessed tax,
fee or charge. Whether there is payment of the
assessed tax or not, it is clear that the protest in
writing must be made within sixty (60) days from
receipt of the notice of assessment; otherwise, the
assessment shall become final and conclusive.
Additionally, the subsequent court action must be
initiated within thirty (30) days from denial or
inaction by the local treasurer; otherwise, the
assessment becomes conclusive and
unappealable. (Emphasis in the original)
(a) Where no payment is made,
the taxpayer's procedural remedy is
governed strictly by Section 195. That
is, in case of whole or partial denial of
the protest, or inaction by the local
treasurer, the taxpayer's only recourse
is to appeal the assessment with the
court of competent jurisdiction. The
appeal before the court does not seek
a refund but only questions the validity
or correctness of the assessment.
(Italics in the original)
(b) Where payment was
made, the taxpayer may thereafter
maintain an action in court
questioning the validity and
correctness of the assessment
(Section 195, LGC) and at the same
time seeking a refund of the
taxes. In truth, it would be illogical for
the taxpayer to only seek a reversal of
the assessment without praying for the
refund of taxes. Once the assessment
is set aside by the court, it follows as a
matter of course that all taxes paid
under the erroneous or invalid
assessment are refunded to the
taxpayer.
The same implication should
ensue even if the taxpayer were to
style his suit in court as an action for
refund or recovery of erroneously paid
or illegally collected tax as pursued
under Section 196 of the LGC. In such
a suit for refund, the taxpayer cannot
successfully prosecute his theory of
erroneous payment or illegal collection
of taxes without necessarily assailing
the validity or correctness of the
assessment he had administratively
protested. (Emphasis in the original)
It must be understood,
however, that in such latter case, the
suit for refund is conditioned on the
prior filing of a written claim for refund
or credit with the local treasurer. In this
instance, what may be considered as
the administrative claim for refund is
the letter-protest submitted to the
treasurer. Where the taxpayer had
paid the assessment, it can be
expected that in the same letter-
protest, he would also pray that the
taxes paid should be refunded to him.
As previously mentioned, there is
really no particular form or style
necessary for the protest of an
assessment or claim of refund of
taxes. What is material is the
substance of the letter submitted to
the local treasurer.
Equally important is the
institution of the judicial action for
refund within thirty (30) days from
the denial of or inaction on the
letter-protest or claim, not any time
later, even if within two (2) years from
the date of payment (as expressly
stated in Section 196). Notice that the
filing of such judicial claim for refund
after questioning the assessment is
within the two-year prescriptive period
specified in Section 196. Note too that
the filing date of such judicial action
necessarily falls on the beginning
portion of the two-year period from the
date of payment. Even though the suit
is seemingly grounded on Section
196, the taxpayer could not avail of
the full extent of the two-year period
within which to initiate the action in
court. (Emphases in the original)
The reason is obvious. This is
because an assessment was made,
and if not appealed in court within
thirty (30) days from decision or
inaction on the protest, it becomes
conclusive and unappealable. Even if
the action in court is one of claim for
refund, the taxpayer cannot escape
assailing the assessment, invalidity or
incorrectness, the very foundation of
his theory that the taxes were paid
erroneously or otherwise collected
from him illegally. Perforce, the
subsequent judicial action, after the
local treasurer's decision or inaction,
must be initiated within thirty (30) days
later. It cannot be anytime thereafter
because the lapse of 30 days from
decision or inaction results in the
assessment becoming conclusive and
unappealable. In short, the scenario
wherein the administrative claim for
refund falls on the early stage of the
two-year period but the judicial claim
on the last day or late stage of such
two-year period does not apply in this
specific instance where an
assessment is issued.
 To stress, where an assessment is issued,
the taxpayer cannot choose to pay the assessment
and thereafter seek a refund at any time within the
full period of two years from the date of payment as
Section 196 may suggest. If refund is pursued, the
taxpayer must administratively question the validity
or correctness of the assessment in the 'letter-claim
for refund' within 60 days from receipt of the notice
of assessment, and thereafter bring suit in court
within 30 days from either decision or inaction by
the local treasurer.
Simply put, there are two conditions that
must be satisfied in order to successfully
prosecute an action for refund in case the
taxpayer had received an assessment. One, pay
the tax and administratively assail within 60
days the assessment before the local treasurer,
whether in a letter-protest or in a claim for
refund. Two, bring an action in court within
thirty (30) days from decision or inaction by the
local treasurer, whether such action is
denominated as an appeal from assessment
and/or claim for refund of erroneously or
illegally collected tax. 12 (Emphases supplied and
citations omitted)
In this case, after respondent received the
assessment on January 17, 2007, it protested such
assessment on January 19, 2007. After payment of the
assessed taxes and charges, respondent wrote petitioner
another letter asking for the refund and reiterating the
grounds raised in the protest letter. Then, on February 6,
2007, respondent received the letter denying its protest.
Thus, on March 8, 2007, or exactly thirty (30) days from its
receipt of the denial, respondent brought the action before
the RTC of Manila. Hence, respondent was justified in filing
a claim for refund after timely protesting and paying the
assessment.
II.
As regards the second issue, Section 195 of the LGC
provides that "When the local treasurer or his duly
authorized representative finds that correct taxes, fees, or
charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and
penalties." Thus, suffice it to say that the issuance of a
notice of assessment is mandatory before the local treasurer
may collect deficiency taxes from the taxpayer. The notice of
assessment is not only a requirement of due process but it
also stands as the first instance the taxpayer is officially
made aware of the pending tax liability. 13 The local treasurer
cannot simply collect deficiency taxes for a different taxing
period by raising it as a defense in an action for refund of
erroneously or illegally collected taxes.
To reiterate, respondent, after it had protested and
paid the assessed tax, is permitted by law to seek a refund
having fully satisfied the twin conditions for prosecuting an
action for refund before the court.
Consequently, the CTA did not commit a reversible
error when it allowed the refund in favor of respondent.
WHEREFORE, the petition is DENIED for lack of
merit. The December 22, 2016 Decision and the June 13,
2017 Resolution of the Court of Tax Appeals En Banc in
CTA EB No. 1342 are hereby AFFIRMED.
SO ORDERED.
Carpio, Caguioa, Lazaro-Javier and Zalameda, JJ.,
concur.
 
Footnotes

1. Penned by Associate Justice Lovell R. Bautista, with Presiding Justice

Roman G. Del Rosario, Associate Justices Juanito C. Castañeda,
Jr., Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-
Victorino, and Cielito N. Mindaro-Grulla, concurring; rollo, pp. 24-
39.
2. Id. at 41-46.
3. Penned by Associate Justice Caesar A. Casanova, with Associate
Justices Juanito C. Castañeda, Jr., and Amelia R. Cotangco-
Manalastas, concurring; id. at 139-153.
4. Id. at 155-158.
5. Penned by Presiding Judge Paulino Q. Gallegos; id. at 76-86.
6. Id. at 86.
7. Id. at 107A-109.
8. Id. at 152.
9. Id. at 38.
10. Id. at 10-18.
11. G.R. No. 196681, June 27, 2018.
12. Id.
13. Yamane v. BA Lepanto Condominium Corp., 510 Phil. 750, 770
(2005).

SECOND DIVISION

[G.R. No. 207039. August 14, 2019.]

 COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. INTERPUBLIC
GROUP OF COMPANIES, INC., respondent.

DECISION

J.C. REYES, JR., J  : p

This resolves the Petition for Review

on Certiorari under Rule 45 of the Rules of Court which
seeks to reverse and set aside the October 23, 2012
Decision 1 of the Court of Tax Appeals (CTA) En Banc and
its April 15, 2013 Resolution, 2 affirming the Decision of the
CTA Third Division and denying petitioner's Motion for
Reconsideration, in CTA EB No. 791.
Respondent Interpublic Group of Companies, Inc.
(IGC) is a non-resident foreign corporation duly organized
and existing under and by virtue of the laws of the State of
Delaware, United States of America.
The IGC owns 2,999,998 shares or 30% of the total
outstanding and voting capital stock of McCann Worldgroup
Philippines, Inc. (McCann), a domestic corporation duly
organized and existing under the laws of the Philippines
engaged in the general advertising business.
In 2006, McCann's Board of Directors declared cash
dividends in the total amount of P205,648,685.02 in favor of
its stockholders of record, as follows:
 

Shareholder Percentage Amount of Dividend

of Shares

Fintec Holdings,
Inc. 70% P143,954,079.51

Interpublic Group of
Companies, Inc. 30% 61,694,605.51

TOTAL   P205,648,685.02
 

The IGC received cash dividends from McCann in the

amount of P61,694,605.51. On June 15, 2006, McCann
withheld a Final Withholding Tax (FWT) at the rate of 35%
on IGC's cash dividends and remitted the payment of the
FWT in the amount of P21,593,111.93 to petitioner
Commissioner of Internal Revenue (CIR).
On September 27, 2007, the IGC established a
Regional Headquarters (RHQ) in the Philippines. On April
30, 2008, the RHQ was converted into its Regional
Operating Headquarters (ROHQ).
On March 5, 2008, the IGC filed an administrative
claim for refund or issuance of tax credit certificate (TCC) in
the amount of P12,338,921.00, representing the alleged
overpaid FWT on dividends paid by McCann to IGC. In the
said administrative claim, the IGC averred that as a non-
resident foreign corporation, it may avail of the preferential
FWT rate of 15% on dividends received from a domestic
corporation under Section 28 (B) (5) (b) of the Tax Code.
On May 29, 2008, the IGC submitted to CIR additional
documents in support of its administrative claim for refund or
issuance of TCC. The CIR failed to act on IGC's claim for
refund or issuance of TCC. This prompted the IGC to file a
petition for review with the CTA on June 16, 2008.
On February 21, 2011, the CTA Third Division granted
the IGC's petition for review. Accordingly, the CIR was
ordered to refund or to issue a TCC in favor of IGC in the
amount of P12,338,921.00, representing the overpaid FWT
on cash dividends for taxable year 2006. 3
On March 14, 2011, the CIR filed a Motion for
Reconsideration of the Decision dated February 21, 2011.
Said motion was denied for lack of merit on May 31, 2011.
After being granted an extension, the CIR filed a
Petition for Review with the CTA En Banc on July 7, 2011.
On January 11, 2012, the case was submitted for decision.
In the Decision dated October 23, 2012, the CTA En
Banc denied the CIR's Petition for Review and accordingly
affirmed the February 21, 2011 Decision and the May 31,
2011 Resolution of the CTA Third Division.
The CIR filed a motion for reconsideration and the
same was denied by the CTA En Banc for lack of merit in a
Resolution dated April 15, 2013.
Dissatisfied, the CIR filed the instant Petition with this
Court on the lone ground of —
 THE [CTA] ERRED IN RULING THAT IGC IS
ENTITLED TO A TAX REFUND OR TAX CREDIT
CERTIFICATE FOR THE ALLEGED OVERPAID
FINAL WITHHOLDING TAX ON ITS CASH
DIVIDENDS FOR TAXABLE YEAR 2006. 4
To support its contention, the CIR argued that: (1) the
IGC failed to file a Tax Treaty Relief Application (TTRA) with
the International Tax Affairs Division (ITAD) of the Bureau of
Internal Revenue (BIR) 15 days before it paid the tax on
dividends, in accordance with Revenue Memorandum Order
(RMO) No. 1-2000; (2) the IGC, being an unlicensed
corporation, has no capacity to sue in Philippine courts in
accordance with the Corporation Code; and (3) claim for
refund shall be construed strictissimi juris against the
taxpayer and is subject to administrative
investigation/examination to ascertain the veracity of the
claimant's allegations.
I.
We resolve first the issue of whether or not the IGC
has the capacity to sue in Philippine courts. Otherwise
stated, can a non-resident foreign corporation which collects
dividends from the Philippines sue here to claim tax refund?
We agree with the CTA that the issue is not one of first
impression.
Section 133 of the Corporation Code provides:
SEC. 133. Doing business without a
license. — No foreign corporation transacting
business in the Philippines without a license, or its
successors or assigns, shall be permitted to
maintain or intervene in any action, suit or
proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued
or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action
recognized under Philippine laws.
The aforementioned provision bars a foreign
corporation "transacting business" in the Philippines without
a license access to our courts. Thus, in order for a foreign
corporation to sue in Philippine courts, a license is
necessary only if it is "transacting or doing business" in the
country. 5 Conversely, if an unlicensed foreign corporation is
not transacting or doing business in the Philippines, it can be
permitted to bring an action even without such license.
 In the case of B. Van Zuiden Bros., Ltd. v. GTVL
Manufacturing Industries, Inc., 6 the court categorically
explained:
The law is clear. An unlicensed foreign
corporation doing business in the Philippines cannot
sue before Philippine courts. On the other hand, an
unlicensed foreign corporation not doing business
in the Philippines can sue before Philippine courts.
Explaining the rationale for this rule, the Court held:
The purpose of the law in requiring that
foreign corporations doing business in the country
be licensed to do so, is to subject the foreign
corporations doing business in the Philippines to the
jurisdiction of the courts, otherwise, a foreign
corporation illegally doing business here because of
its refusal or neglect to obtain the required license
and authority to do business may successfully
though unfairly plead such neglect or illegal act so
as to avoid service and thereby impugn the
jurisdiction of the local courts.
The same danger does not exist among
foreign corporations that are indubitably not doing
business in the Philippines. Indeed, if a foreign
corporation does not do business here, there would
be no reason for it to be subject to the State's
regulation. As we observed, in so far as the State is
concerned, such foreign corporation has no legal
existence. Therefore, to subject such corporation to
the courts' jurisdiction would violate the essence of
sovereignty. 7
Apparently, it is not the absence of the prescribed
license, but the "doing of business" in the Philippines without
such license which debars the foreign corporation from
access to our courts. 8 The operative phrase is "transacting
or doing business."
The threshold question therefore is whether the IGC
was doing business in the Philippines when it collected
dividend earnings from sources within the Philippines. The
Corporation Code provides no definition for the phrase
"doing business." 9
In the old case of The Mentholatum Co. v.
Mangaliman, 10 the Court discussed the test to determine
whether a foreign company is "doing business" in the
Philippines, thus:
No general rule or governing principle can be
laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. Indeed,
each case must be judged in the light of its peculiar
environmental circumstances. The true test,
however, seems to be whether the foreign
corporation is continuing the body or substance of
the business or enterprise for which it was
organized or whether it has substantially retired
from it and turned it over to another. The term
implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of
some of the functions normally incident to, and in
progressive prosecution of, the purpose and object
of its organization. 11 (Citations omitted)
The foregoing definition found its way in Republic Act
(R.A.) No. 7042, otherwise known as the Foreign
Investments Act of 1991, which repealed Articles 44-56,
Book II of the Omnibus Investments Code of 1987. Said law
enumerated not only the acts or activities which constitute
"doing business," but also those activities which are not
deemed "doing business." Thus, Section 3 (d) of R.A. No.
7042 provides:
SEC. 3. Definitions. — x x x
xxx xxx xxx
d) The phrase "doing business" shall include
soliciting orders, service contracts, opening offices,
whether called "liaison" offices or branches;
appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one
hundred eighty (180) days or more; participating in
the management, supervision or control of any
domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of
acts or works, or the exercise of some of the
functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose
and object of the business organization: Provided,
 however, That the phrase "doing business" shall not
be deemed to include mere investment as a
shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or
the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests
in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which
transacts business in its own name and for its own
account[.] (Underscoring supplied)
Inferring from the aforecited provision, mere
investment as a shareholder by a foreign corporation in a
duly registered domestic corporation shall not be deemed
"doing business" in the Philippines. It is clear then that the
IGC's act of subscribing shares of stocks from McCann, a
duly registered domestic corporation, maintaining
investments therein, and deriving dividend income
therefrom, does not qualify as "doing business"
contemplated under R.A. No. 7042. Hence, the IGC is not
required to secure a license before it can file a claim for tax
refund.
The CIR argues that since IGC was already
maintaining an RHQ in the Philippines, which was
subsequently converted into an ROHQ, said headquarters
should be the proper claimant of the tax refund. The IGC
explained that the ROHQ had no involvement, whatsoever,
in IGC's investments in McCann. It was only the IGC that is
entitled to receive dividend income arising from such
investment.
True, the alleged overpayment of FWT were incurred
from the dividend income earned by IGC, which is a
separate and distinct income taxpayer from their ROHQ in
the Philippines. As explained by IGC, the ROHQ has a sole
purpose of servicing IGC's affiliates, subsidiaries, branches
and markets in the Asia-Pacific Region, but certainly not of
investing in McCann. It can be concluded then that the
investment in McCann was made for purposes peculiarly
germane to the conduct of IGC's corporate affairs and the
same was not shown to be coursed through the ROHQ.
Having made an independent investment, then it is the ICG
that should face the tax consequence and avail of tax reliefs
(i.e., refund, credit, preferential tax rate) appurtenant to such
investment. Thus:
 The general rule that a foreign corporation is
the same juridical entity as its branch office in the
Philippines cannot apply here. This rule is based on
the premise that the business of the foreign
corporation is conducted through its branch office,
following the principal-agent relationship theory. It is
understood that the branch becomes its agent here.
So that when the foreign corporation transacts
business in the Philippines independently of its
branch, the principal-agent relationship is set aside.
The transaction becomes one of the foreign
corporation, not of the branch. Consequently, the
taxpayer is the foreign corporation, not the branch
or the resident foreign corporation.
Corollarily, if the business transaction is
conducted through the branch office, the latter
becomes the taxpayer, and not the foreign
corporation. 12
II.
The tax treatment of dividends earned by a foreign
corporation, not engaged in trade of business in the
Philippines, from Philippine sources is provided under
Section 28 (B) (1) of the Tax Code, 13 as follows:
SEC. 28. Rates of Income Tax on Foreign
Corporations. —
xxx xxx xxx
(B) Tax on [Non-resident] Foreign
Corporation. —
(1) In General. — Except as otherwise
provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall
pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year
from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries,
premiums (except reinsurance premiums),
annuities, emoluments or other fixed or
determinable annual, periodic or casual gains,
profits and income, and capital gains, except capital
gains subject to tax under subparagraphs 5(c) and
(d): Provided, That effective January 1, 1998, the
rate of income tax shall be thirty-four percent (34%);
effective January 1, 1999, the rate shall be thirty-
 three percent (33%); and, effective January 1, 2000
and thereafter, the rate shall be thirty-two percent
(32%).
However, the ordinary 35% tax rate applicable to
dividend remittances to non-resident corporate stockholders
of a Philippine corporation, goes down to 15% if the country
of domicile of the foreign stockholder corporation "shall
allow" such foreign corporation a tax credit for "taxes
deemed paid in the Philippines," applicable against the tax
payable to the domiciliary country by the foreign stockholder
corporation. 14 Thus, Section 28 (B) (5) (b) of the Tax
Code, 15 which is the very basis of respondent's claim for
refund of its overpaid FWT on dividends, provides:
SEC. 28. x x x
xxx xxx xxx
(5) Tax on Certain Incomes Received by a
Nonresident Foreign Corporation. —
xxx xxx xxx
(b) Intercorporate Dividends. — A final
withholding tax at the rate of fifteen percent (15%) is
hereby imposed on the amount of cash and/or
property dividends received from a domestic
corporation, which shall be collected and paid as
provided in Section 57(A) of this Code, subject to
the condition that the country in which the [non-
resident] foreign corporation is domiciled, shall allow
a credit against the tax due from the [non-resident]
foreign corporation taxes deemed to have been paid
in the Philippines equivalent to twenty percent
(20%) for 1997, nineteen percent (19%) for 1998,
eighteen percent (18%) for 1999, and seventeen
percent (17%) thereafter, which represents the
difference between the regular income tax of thirty-
five percent (35%) in 1997, thirty-four percent (34%)
in 1998, thirty-three percent (33%) in 1999, and
thirty-two percent (32%) thereafter on corporations
and the fifteen percent (15%) tax on dividends as
provided in this subparagraph[.]
As it is recognized, the application of the provisions of
the National Internal Revenue Code (NIRC) must be subject
to the provisions of tax treaties entered into by the
Philippines with foreign countries. 16 It remains only to note
that under the Philippines-US Convention "With Respect to
Taxes on Income," the Philippines, by a treaty commitment,
reduced the regular rate of dividend tax to a maximum of
20% of the gross amount of dividends paid to US parent
corporations. 17 Thus, the RP-US Tax Treaty which applies
on income derived or which accrued beginning January 1,
1983 provides:
Article 11
DIVIDENDS
xxx xxx xxx
(2) The rate of tax imposed by one of the
Contracting States on dividends derived from
sources within that Contracting State by a resident
of the other Contracting State shall not exceed —
(a) 25 percent of the gross
amount of the dividend; or
(b) When the recipient is a
corporation, 20 percent of the gross
amount of the dividend if during the
part of the paying corporation's taxable
year which precedes the date of
payment of the dividend and during
the whole of its prior taxable year (if
any), at least 10 percent of the
outstanding shares of the voting stock
of the paying corporation was owned
by the recipient corporation. 18 (Italics
supplied)
The foregoing RP-US Tax Treaty, at the same time,
created a treaty obligation on the part of the US that it "shall
allow" to a US parent corporation receiving dividends from its
Philippine subsidiary "a tax credit for the appropriate amount
of taxes paid or accrued to the Philippines by the said
Philippine subsidiary. The US allowed a "deemed paid" tax
credit to US corporations on dividends received from foreign
corporation. Thus, Section 902 of the US Internal Revenue
Code, as amended, provides:
SEC. 902. CREDIT FOR CORPORATE
STOCKHOLDERS IN FOREIGN CORPORATION.
—
(A) Treatment of Taxes Paid by Foreign
Corporation — For purposes of this subject, a
domestic corporation which owns at least 10
percent of the voting stock of a foreign corporation
 from which it receives dividends in any taxable year
shall —
(1) to the extent such dividends
are paid by such foreign corporation
out of accumulated profits [as defined
in subsection (c) (1) (a)] of a year for
which such foreign corporation is not a
less developed country
corporation, be deemed to have paid
the same proportion of any income,
war profits, or excess profits taxes
paid or deemed to be paid by such
foreign corporation to any foreign
country or to any possession of the
United States on or with respect to
such accumulated profits, which the
amount of such dividends (determined
without regard to Section 78) bears to
the amount of such accumulated
profits in excess of such income, war
profits, and excess profits taxes (other
than those deemed paid); and
(2) to the extent such
dividends are paid by such foreign
corporation out of accumulated
profits [as defined in subsection (c)
(1) (b)] of a year for which such foreign
corporation is a less developed
country corporation, be deemed to
have paid the same proportion of any
income, war profits, or excess
profits taxes paid or deemed to be
paid by such foreign corporation to
any foreign country or to any
possession of the United States on or
with respect to such accumulated
profits, which the amount of such
dividends bears to the amount of
such accumulated profits. 19
For this reason, it was established on the part of the
Philippines a deliberate undertaking to reduce the regular
dividend tax rate of 35%. 20
This goes to show that the IGC, being a non-resident
US corporation is qualified to avail of the aforesaid 15%
preferential tax rate on the dividends it earned from the
Philippines. It was proven that the country which it was
domiciled shall grant similar tax relief/credit against the tax
due upon the dividends earned from sources within the
Philippines. Clearly, the IGC has made an overpayment of
its tax due of FWT by using the 35% tax rate.
The question now is whether the IGC, by failing to file
a TTRA with the ITAD of the BIR pursuant to RMO No. 1-
2000, was effectively deprived of its right to claim a tax
refund based on the said overpayment. The issue is not of
first impression.
In the case of CBK Power Company Ltd. v.
Commissioner of Internal Revenue, 21 the Court emphasized
the binding effect of international treaty which we entered
into, thus:
The Philippine Constitution provides for
adherence to the general principles of international
law as part of the law of the land. The time-honored
international principle of pacta sunt
servanda demands the performance in good faith of
treaty obligations on the part of the states that enter
into the agreement. In this jurisdiction, treaties have
the force and effect of law. 22
Specifically, the RP-US Tax Treaty is just one of a
number of bilateral treaties which the Philippines has
entered into and to which we are expected to observe
compliance therewith in good faith. As explained by the
Court, the purpose of these international agreements is to
reconcile the national fiscal legislations of the contracting
parties in order to help the taxpayer avoid simultaneous
taxation in two different jurisdictions. 23 More precisely, the
tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is
defined as the imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject
matter and for identical periods. 24
On the other hand, the mandatory wording of RMO
No. 1-2000, reads:
III. Policies:
xxx xxx xxx
2. Any availment of the tax treaty re
 lief shall be preceded by an application by filing BIR
Form No. 0901 (Application for Relief from Double
Taxation) with ITAD at least 15 days before the
transaction i.e., payment of dividends,
royalties, etc., accompanied by supporting
documents justifying the relief. x x x
The objective of RMO No. 1-2000 in requiring the
application for treaty relief with the ITAD before a party's
availment of the preferential rate under a tax treaty is to
avert the consequences of any erroneous interpretation
and/or application of treaty provisions, such as claims for
refund/credit for overpayment of taxes, or deficiency tax
liabilities for underpayment.
This apparent conflict between which should prevail
was settled in the case of Deutsche Bank AG Manila Branch
v. Commissioner of Internal Revenue, 25 where the Court
lengthily discussed that the obligation to comply with a tax
treaty must take precedence over the objective of RMO No.
1-2000, thus:
x x x We recognize the clear intention of the
BIR in implementing RMO No. 1-2000, but the
CTA's outright denial of a tax treaty relief for failure
to strictly comply with the prescribed period is not in
harmony with the objectives of the contracting state
to ensure that the benefits granted under tax
treaties are enjoyed by duly entitled persons or
corporations.
Bearing in mind the rationale of tax treaties,
the period of application for the availment of
lief as required by RMO No. 1-2000 should not
operate to divest entitlement to the relief as it
would constitute a violation of the duty required by
good faith in complying with a tax treaty. The denial
of the availment of tax relief for the failure of a
taxpayer to apply within the prescribed period under
the administrative issuance would impair the
value of the tax treaty. At most, the application for a
tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the
relief.
The obligation to comply with a tax treaty
must take precedence over the objective of RMO
No. 1-2000. Logically, noncompliance with tax
treaties has negative implications on international
 relations, and unduly discourages foreign investors.
While the consequences sought to be prevented by
RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other
system management processes, e.g., the imposition
of a fine or penalty. But we cannot totally deprive
those who are entitled to the benefit of a treaty
for failure to strictly comply with an
administrative issuance requiring prior
application for
lief. 26 (Emphases supplied)
Since the RP-US Tax Treaty does not provide for any
other prerequisite for the availment of the benefits under the
said treaty, to impose additional requirements would negate
the availment of the reliefs provided for under international
agreements. 27
At any rate, the application for a tax treaty relief from
the BIR should merely operate to confirm the entitlement of
the taxpayer to the relief. 28 This is only applicable to taxes
paid on the basis of international agreements and treaties.
Once it was settled that the taxpayer is entitled to the relief
under the tax treaty, then by all means it could pay its tax
liabilities using the tax relief provided by the treaty. In other
words, the requirements under RMO No. 1-2000 applies only
to a taxpayer who is about to pay their taxes on the basis of
tax reliefs provided by international agreements and treaties
and to confirm its entitlement to the said reliefs.
The application for tax treaty relief is not applicable on
claims for tax refund. As explained by the Court:
However, as pointed out in Deutsche Bank,
the underlying principle of prior application with the
BIR becomes moot in refund cases — as in the
present case — where the very basis of the claim
is erroneous or there is excessive
payment arising from the non-availment of a tax
treaty relief at the first instance. Just as Deutsche
Bank was not faulted by the Court for not complying
with RMO No. 1-2000 prior to the transaction, so
should CBK Power. In parallel, CBK Power could
not have applied for a tax treaty relief 15 days prior
to its payment of the final withholding tax on the
interest paid to its lenders precisely because it
erroneously paid said tax on the basis of the
regular rate as prescribed by the NIRC, and not on
 the preferential tax rate provided under the different
treaties. As stressed by the Court, the prior
application requirement under RMO No. 1-2000
then becomes illogical. 29
In the same manner, it would be illogical for the IGC to
comply with the prior requirement under RMO No. 1-2000
before it paid the FWT on the dividends earned. At the time
of the payment transaction, the IGC was not availing of the
15% preferential tax rate as prescribed pursuant to the
treaty, but it was applying the 35% regular tax rate. RMO No.
1-2000 is clear that application must be filed 15 days before
the transaction (time of payment). It appears then that the
prior application requirement under RMO No. 1-2000 is no
longer a condition precedent to refund an erroneously paid
tax on the basis of the regular tax rate under the Tax Code.
Finally, we agree with the CTA that the IGC was able
to comply with all the requisites in order for its claim for
refund to be granted. To be granted a refund, the IGC, in
addition to being able to point out the specific provision of
law creating such right, the taxpayer must be able to
establish the fact of payment of the tax sought to be
refunded and that the filing of the claim for refund was made
within the reglementary period provided for under Section
204 30 of the NIRC for its administrative claims for refund
and Section 229 31 for its judicial claims for refund.
The well-settled doctrine is that factual findings of the
CTA are binding upon this court and can only be disturbed
on appeal if not supported by substantial evidence. 32
The fact of payment of the tax sought to be refunded
is essentially a factual finding of the CTA and as such, the
same must be accorded weight and respect especially if
supported by substantial evidence. Here, it was proven that
on June 13, 2006, McCann withheld FWT on the dividends
earned by the IGC at the rate of 35% in the amount of
P21,593,111.93 and remitted the same on June 15, 2006.
To prove this, the IGC submitted the Monthly Remittance
Return of the Final Income Taxes Withheld of McCann and
the accompanying payment transaction. 33
As to the timeliness of the claim for refund, both in the
administrative and judicial level, we again concur with the
factual findings of the CTA that both were done within the
reglementary period provided by law. Indeed, it was found
out that McCann withheld and paid to the BIR, in behalf of
the IGC, the amount of P21,593,111.93 on June 15, 2006.
The IGC filed its administrative claim for refund on March 5,
2008. 34 The inaction of the CIR on IGC's claim for refund
prompted the latter to file a judicial claim for refund with the
CTA on June 16, 2008. 35 Indeed, the IGC may, within the
statutory period of two years, proceed with its suit without
waiting for the decision of the CIR. 36 The reason is that both
the claim for refund with the BIR and with the CTA must be
filed within the two-year period. These are mandatory
requirements and non-compliance therewith is fatal to the
action for refund or tax credit.
It bears stressing that tax refunds are in the nature of
tax exemptions. As such they are regarded as in derogation
of sovereign authority and to be construed strictissimi
juris against the person or entity claiming the
exemption. 37 The burden of proof is upon him who claims
the exemption in his favor and he must be able to justify his
claim by the clearest grant of organic or statute law. 38 The
IGC was able to discharge such burden of proof required by
law.
WHEREFORE, the Petition is DENIED. The October
23, 2012 Decision and the April 15, 2013 Resolution of the
Court of Tax Appeals En Banc in CTA EB No. 791
are AFFIRMED.
SO ORDERED.
Caguioa,  ** Lazaro-Javier and Zalameda, JJ., concur.
Carpio,  * J., is on official leave.
 
Footnotes

* On official leave.

** Per Special Order No. 2688 dated July 30, 2019.
1. Penned by Associate Justice Juanito C. Castañeda, Jr., with Presiding
Justice Ernesto D. Acosta and Associate Justices Lovell R.
Bautista, Caesar A. Casanova, Olga Palanca-Enriquez and Cielito
N. Mindaro-Grulla, concurring. Associate Justices Erlinda P. Uy
and Esperanza R. Fabon-Victorino, both on leave; rollo, pp. 40-57.
2. Id. at 58-60.
3. Id. at 78-79.
4. Id. at 24.
5. Eriks Pte. Ltd. v. Court of Appeals, 335 Phil. 229, 235-236 (1997).
6. 551 Phil. 231, 236 (2007).
7. Avon Insurance PLC v. Court of Appeals, 343 Phil. 849, 861 (1997).
8. MR Holdings, Ltd. v. Bajar, 430 Phil. 443, 461 (2002).
9. Cargill, Inc. v. Intra Strata Assurance Corp., 629 Phil. 320, 329 (2010).
10. 72 Phil. 524 (1941).
11. Id. at 528-529.
12. Marubeni Corp. v. Commissioner of Internal Revenue, 258 Phil. 295,
304 (1989).
13. Republic Act No. 8424, Tax Reform Act of 1997, December 11, 1997.
14. Commissioner of Internal Revenue v. Procter & Gamble Philippines
Manufacturing Corp., 281 Phil. 425, 444-445 (1991).
15. Supra note 13.
16. Air Canada v. Commissioner of Internal Revenue, 776 Phil. 119, 138
(2016).
17. Commissioner of Internal Revenue v. Procter & Gamble Philippines
Manufacturing Corp., supra note 14, at 445.
18. Convention between the Government of the Republic of the
Philippines and the Government of the United States of America
with Respect to Taxes on Income
<https://www.bir.gov.ph/images/bir_files/international_tax_affairs/
United States treaty.pdf> (visited August 9, 2019).
19. Commissioner of Internal Revenue v. Procter & Gamble Philippines
Manufacturing Corp., supra note 14, at 446.
20. Id. at 460.
21. 750 Phil. 748 (2015).
22. Id. at 759.
23. Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc.,
368 Phil. 388, 404 (1999).
24. Id.
25. 716 Phil. 676 (2013).
26. Id. at 689-690.
27. CBK Power Company Ltd. v. Commissioner of Internal
Revenue, supra note 21, at 761.
28. Id. at 760.
29. Id. at 760-761.
30. Sec. 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. — The Commissioner may —
xxx xxx xxx
   (c) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their
value upon proof of destruction.
   No credit or refund of taxes or penalties shall be allowed unless
the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or
refund. (Emphases supplied)
31. Sec. 229. Recovery of Tax Erroneously or Illegally Collected. — No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, of
any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
   In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax
or penalty regardless of any supervening cause that may arise
after payment[.] x x x. (Emphases supplied)
32. Commissioner of Internal Revenue v. Tours Specialists, Inc., 262
Phil. 437, 442 (1990).
33. Rollo, p. 74.
34. Id. at 78.
35. Id.
36. Commissioner of Customs v. Court of Tax Appeals, 253 Phil. 339,
343 (1989).
 37. Commissioner of Internal Revenue v. S.C. Johnson and Son,
Inc., supra note 23, at 411.
38. Id.

SECOND DIVISION

[G.R. No. 241697. July 29, 2019.]

CITY OF DAVAO and BELLA LINDA N.

TANJILI, in her official capacity as City
Treasurer of Davao
City, petitioners, vs. RANDY ALLIED
VENTURES, INC., respondent.

DECISION

Since RAVI is also a holding co and assests owned by gov so no tax

bruh

PERLAS-BERNABE, J  : p

Assailed in this petition for review on certiorari 1 are

the Decision 2 dated February 20, 2018 and the
Resolution 3 dated July 25, 2018 of the Court of Tax
Appeals En Banc (CTA EB), which upheld the CTA First
Division in granting respondent Randy Allied Ventures, Inc.
(RAVI)'s claim for refund or credit of erroneously and illegally
collected local business taxes (LBT) for the taxable year
2010.
 The Facts
RAVI is one of the Coconut Industry Investment Fund
(CIIF) holding companies established to own and hold the
shares of stock of San Miguel Corporation (SMC). On
January 24, 2012, the Supreme Court rendered its decision
in Philippine Coconut Producers Federation, Inc. v.
Republic (COCOFED), docketed as G.R. Nos. 177857-58
and 178793, declaring the CIIF companies, including RAVI,
and the CIIF block of SMC shares as "public funds
necessarily owned by the Government." 4 On January 17,
2013, RAVI filed with the Regional Trial Court (RTC),
a claim for refund or credit of erroneously and illegally
collected LBT for the taxable year 2010. RAVI claimed
that petitioners erroneously and illegally collected LBT in the
amount of P503,346.00, corresponding to its dividends from
its SMC preferred shares, on the mistaken assumption that it
is a non-bank financial intermediary (NBFI). 5
For their part, petitioners maintained that RAVI's
activities in owning shares and receiving dividends and
interest income constitute investing or doing business as an
NBFI. 6 Also, the clause in RAVI's Amended Articles of
Incorporation (AOI), which prohibits it from acting as an
investment company, is not conclusive proof that it has not
actually done so. 7
The RTC Ruling
In a Decision 8 dated June 22, 2015, the RTC denied
the claim for refund or credit. It held that RAVI's dividends
and interests are not merely incidental to its business but are
its principal sources of income, in line with the primary
purpose stated in its Amended AOI. Being a financial
intermediary, RAVI's income from dividends and interests is
subject to LBT under Section 143 (f) of Republic Act (RA)
No. 7160, or the Local Government Code of 1991 (LGC). 9
Unsatisfied, RAVI filed a Petition for Review with the
CTA First Division. 10
CTA First Division Ruling
In a Decision 11 dated August 9, 2016, the CTA First
Division granted the petition. It held that RAVI is a holding
company and not an NBFI subject to LBT. 12
Petitioners filed a Motion for Reconsideration, but was
denied in a Resolution 13 dated December 15, 2016.
Petitioners then filed a Petition for Review with the CTA EB.
 CTA EB Ruling
In a Decision 14 dated February 20, 2018, the
CTA EB denied the petition for lack of merit. It held that
RAVI cannot be considered an NBFI for failing to meet the
requisites provided under the General Banking Law, Manual
of Regulations for Non-Bank Financial Institutions, and
the National Internal Revenue Code, i.e., it is not authorized
to act as an NBFI by the Bangko Sentral ng Pilipinas (BSP);
its principal function does not relate to NBFI activities; and
that while its primary purpose may involve one of the
activities enumerated in the BSP Manual, there was no proof
that it performed such activities as its principal function and
on a regular and recurring basis. It also held that
the COCOFED case already settled that RAVI, as a CIIF
company, and the SMC shares it holds are government
properties, hence, beyond the City of Davao's power to
tax. 
TCAScE

Petitioners filed its Motion for Reconsideration, which

was denied in a Resolution 15 dated July 25, 2018. Hence,
this petition.
The Issue before the Court
The issue for the Court's resolution is whether or not
the CTA EB erred in finding that RAVI is not an NBFI subject
to LBT under Section 143 (f) of the LGC.
The Court's Ruling
The petition is without merit.
This case involves a refund of erroneously paid LBT.
Petitioners argue that RAVI's liability for LBT finds
basis under Section 143 (f) of the LGC, to wit:
SECTION 143. Tax on Business. — The
municipality may impose taxes on the following
businesses:
xxx xxx xxx
(f) On banks and other financial
institutions, at a rate not exceeding fifty percent
(50%) of one percent (1%) on the gross receipts of
the preceding calendar year derived from interest,
commissions and discounts from lending activities,
income from financial leasing, dividends, rentals on
property and profit from exchange or sale of
property, insurance premium. (Emphasis supplied)
 "Banks and other financial institutions" are defined
under the same Code as to "include non-bank financial
intermediaries, lending investors, finance and investment
companies, pawnshops, money shops, insurance
companies, stock markets, stock brokers and dealers in
securities and foreign exchange, as defined under applicable
laws, or rules and regulations thereunder." 16
Essentially, LBT are taxes imposed by local
government units on the privilege of doing business
within their jurisdictions. 17 To be sure, the phrase "doing
business" means some "trade or commercial
activity regularly engaged in as a means of
livelihood or with a view to profit." 18 Particularly, the LBT
imposed pursuant to Section 143 (f) is premised on the fact
that the persons made liable for such tax are banks or other
financial institutions by virtue of their being engaged in the
business as such. This is why the LBT are imposed on their
gross receipts from "interest, commissions and discounts
from lending activities, income from financial leasing,
dividends, rentals on property and profit from exchange or
sale of property, insurance premium." 19
In this case, it is clear that RAVI is neither a bank nor
other financial institution, i.e., an NBFI. In order to be
considered as an NBFI under the National Internal Revenue
Code, banking laws, and pertinent regulations, the following
must concur: 20
a. The person or entity is authorized by the BSP to
perform quasi-banking functions; 21
b. The principal functions of said person or entity
include the lending, investing or placement of
funds or evidences of indebtedness or equity
deposited to them, acquired by them, or
otherwise coursed through them, either for
their own account or for the account of
others; 22 and
c. The person or entity must perform any of the
following functions on a regular and recurring,
not on an isolated basis, to wit: 23
1. Receive funds from one (1) group of
persons, irrespective of number, through
traditional deposits, or issuance of debt
or equity securities; and make
available/lend these funds to another
 person or entity, and in the process
acquire debt or equity securities;
2. Use principally the funds received for
acquiring various types of debt or equity
securities;
3. Borrow against, or lend on, or buy or sell
debt or equity securities.
As observed in the COCOFED case, 24 RAVI is a CIIF
holding company. The SMC preferred shares held by it are
considered government assets owned by the National
Government for the coconut industry. 25 As held in the same
case, these SMC shares as well as any resulting dividends
or increments from said shares are owned by the National
Government and shall be used only for the benefit of the
coconut farmers and for the development of the coconut
industry. 26 Thus, RAVI's management of the dividends from
the SMC preferred shares, including placing the same in a
trust account yielding interest, is not tantamount to doing
business whether as a bank or other financial institution, i.e.,
an NBFI, but rather an activity that is essential to its nature
as a CIIF holding company.  cTDaEH

Indeed, there is a stark distinction between a holding

company and a financial intermediary as contemplated
under the LGC, in relation to other laws. A "'holding
company' is 'organized' and is basically conducting its
business by investing substantially in the equity
securities of another company for the purpose of
controlling their policies (as opposed to directly engaging
in operating activities) and 'holding' them in a conglomerate
or umbrella structure along with other subsidiaries." 27 While
holding companies may partake in investment activities, this
does not per se qualify them as financial intermediaries that
are actively dealing in the same. Financial intermediaries are
regulated by the BSP because they deal with public funds
when they offer quasi-banking functions. 28 On the other
hand, a holding company is not similarly regulated because
any investment activities it conducts are mere incidental
operations, since its main purpose is to hold shares for
policy-controlling purposes. 29
To be sure, RAVI's act of placing the dividends from
the SMC preferred shares in a trust account, which
incidentally earns interest, does not convert it into an active
investor or dealer in securities. As above-stated, the primary
test is regularity of function, not on an isolated basis, with the
end in mind for self-profit. Being restricted to managing the
dividends of the SMC preferred shares on behalf of the
government, RAVI cannot be said to be "doing business" as
a bank or other financial institution, i.e., an NBFI.
Moreover, while RAVI's stated primary purpose in its
AOI is couched in broad terms as to allow some functions
similar to an NBFI, this does not necessarily mean it is
engaged in the same business. Verily, the "power to
purchase and sell real and personal property, including
shares," and "to receive dividends thereon," are common
provisions to all corporations," 30 including holding
companies like RAVI which undertake investments. The
mere fact that a holding company makes investments does
not ipso facto convert it to an NBFI. Otherwise, there would
be absolutely no distinction between a mere holding
company and financial intermediaries.
In sum, since RAVI is not a bank or other financial
institution, i.e., an NBFI, it cannot be held liable for LBT
under Section 143 (f) of the LGC. However, this
pronouncement is without prejudice to RAVI's potential
liability for other taxes, whether national or local, should it so
engage in other profit-making activities aside from its
management of the SMC preferred shares, and the
dividends resulting therefrom.
WHEREFORE, the petition is DENIED.
The Decision dated February 20, 2018 and the Resolution
dated July 25, 2018 of the Court of Tax Appeals En Banc in
CTA EB No. 1591 are AFFIRMED.
SO ORDERED.
Carpio, Caguioa, J.C. Reyes, Jr. and Lazaro-Javier,
JJ., concur.
 
Footnotes

1. Rollo, pp. 17-35.

2. Id. at 39-57. Penned by Associate Justice Catherine T. Manahan, with
Presiding Justice Roman G. Del Rosario and Associate Justices
Lovell R. Bautista, Erlinda P. Uy, Esperanza R. Fabon-Victorino,
Cielito N. Mindaro-Grulla, and Ma. Belen M. Ringpis-Liban,
concurring. Associate Justice Juanito C. Castañeda, Jr. issued a
Dissenting Opinion (see id. at 58-61), joined by Associate Justice
Caesar A. Casanova.
3. Id. at 62-65.
4. See id. at 52-55.
5. Id. at 40.
6. See id. at 40-41.
7. Id. at 43.
8. Not found in the rollo but referenced in the CTA EB Decision; see id. at
41-42.
9. See id.
10. See id. at 42.
11. Not found in the rollo but referenced in the CTA EB Decision;
see id. at 42.
12. See id. at 45, 50-51.
13. Not found in the rollo but referenced in the CTA EB Decision;
see id. at 42.
14. Id. at 39-57. Associate Justice Juanito C. Castañeda dissented in full.
He opined that the required authorization by the BSP to perform
NBFI activities, and the Monetary Board's determination of
whether such entities are actually performing financial
intermediary activities, are mere regulatory measures. Moreover,
RAVI performed NBFI activities despite the limitations in its AOI.
RAVI's consistent receipt of dividends and interest income leads
to the conclusion that it engaged in NBFI activities. Lastly,
although the SMC shares have been adjudged to belong to the
government, it is not the shares but respondent, as an NBFI, who
is subject to LBT (see id. at 58-61).
15. Id. at 62-65.
16. See Section 131 (e) of the LGC; emphasis supplied.
17. See The City of Manila v. Coca-Cola Bottlers Philippines, Inc., 612
Phil. 609, 623-624 (2009).
18. See Section 131 (d) of the LGC; emphasis supplied.
19. Emphasis supplied.
20. Rollo, pp. 49-50.
21. See Section 131 (e), LGC; and Section 22 (W) of the National
Internal Revenue Code.
22. See Section 2 (2.3), BIR Revenue Regulations No. 09-04; and
Section 4101Q.1, BSP Manual of Regulations for Non-Bank
Financial Institutions.
23. See Section 4101Q.1 of the BSP Manual of Regulations for Non-
Bank Financial Institutions.
24. 679 Phil. 508 (2012).
25. "Since the CIIF companies and the CIIF block of SMC shares were
acquired using coconut levy funds — funds, which have been
established to be public in character — it goes without saying that
these acquired corporations and assets ought to be regarded and
treated as government assets. Being government properties, they
are accordingly owned by the Government, for the coconut
industry pursuant to currently existing laws." (See id. at 621)
26. "We thus affirm the decision of the Sandiganbayan on this point. But
as We have earlier discussed, reiterating our holding in Republic
v. COCOFED, the State's avowed policy or purpose in creating the
coconut levy fund is for the development of the entire coconut
industry, which is one of the major industries that promotes
sustained economic stability, and not merely the livelihood of a
significant segment of the population. Accordingly, We sustain the
ruling of the Sandiganbayan in CC No. 0033-F that the CIIF
companies and the CIIF block of SMC shares are public funds
necessary owned by the Government. We, however, modify the
same in the following wise: These shares shall belong to the
Government, which shall be used only for the benefit of the
coconut farmers and for the development of the coconut industry."
(See id. at 622)
27. Maricalum Mining Corporation v. Florentino, G.R. No. 221813, July
23, 2018.
28. Presidential Decree No. 71 (Amending R.A. No. 337 (General
Banking Act):
   Section 2-D. For purposes of Sections Two, Two-A, Two-B, and Two-
C the following definition or terms shall apply:
xxx xxx xxx
   (b) "Quasi-Banking Functions" shall mean borrowing funds, for the
borrower's own account, through the issuance, endorsement or
acceptance of debt instruments of any kind other than deposits, or
through the issuance of participations, certificates of assignment,
or similar instruments with recourse, trust certificates, or of
repurchase agreements, from twenty or more lenders at any one
time, for purposes of relending or purchasing of receivables and
other obligations: Provided, however, That commercial, industrial,
 and other non-financial companies, which borrow funds through
any of these means for the limited purpose of financing their own
needs or the needs of their agents or dealers, shall not be
considered as performing quasi-banking functions.
29. See Maricalum Mining Corporation v. Florentino, supra note 27.
30. See Section 36 of Batas Pambansa Blg. 68, as amended, otherwise
known as the "Corporation Code of the Philippines."

|||  

SECOND DIVISION

[G.R. No. 226556. July 3, 2019.]

POWER SECTOR ASSETS AND LIABILITIES

MANAGEMENT
CORPORATION, petitioner, vs. COMMISSIONE
R OF INTERNAL REVENUE, respondent.

DECISION

CARPIO, J  :p

The Case
This petition for review 1 assails
the Decision 2 promulgated on 17 May 2016 as well as
the Resolution 3 promulgated on 12 August 2016 by the
Court of Tax Appeals En Banc (CTA EB) in CTA EB Case
 No. 1282. The CTA EB affirmed the Decision 4 dated 2
December 2014 and Resolution 5 dated 25 February 2015 of
the Third Division of the Court of Tax Appeals (CTA Third
Division) in CTA Case No. 8475. The CTA Third Division
found petitioner Power Sector Assets and Liabilities
Management Corporation (PSALM) liable to pay the amount
of P9,566,062,571.44 as deficiency value-added tax (VAT)
for the taxable year 2008, inclusive of the deficiency interest
and delinquency interest.
The Facts
PSALM, a government-owned and controlled
corporation created under Republic Act No. (RA) 9136 or
the Electric Power Industry Reform Act of 2001 (EPIRA), 6 is
mandated to manage the orderly sale, disposition, and
privatization of the National Power Corporation (NPC)
generation assets, real estate and other disposable assets,
and Independent Power Producer contracts with the
objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner. 7
On 9 June 2011, the Bureau of Internal Revenue (BIR)
issued a Final Assessment Notice (FAN) covered by
Assessment No. VT-08-00072 8 alleging that, for taxable
year ending 31 December 2008, PSALM is liable to pay a
deficiency VAT amounting to P10,103,158,715.06, inclusive
of penalties and interests, computed as follows:
 

Taxable Sales per VAT Returns    

Add: Adjustments    

Proceeds from Sales of Generating Asset P53,859,322,483.00  

Proceeds from Lease of Naga Complex 172,096,188.00  

Collection of Income 9,183,364.00  

Collection of receivables 1,148,257.00 54,041,750,292.00

  –––––––––––––––– ––––––––––––––––
– –

Total Proceeds to be subjected to VAT   P54,041,750,292.00

Output Tax   P6,485,010,035.04

Less: Creditable Input Tax    

 Input Tax Carried Over from Previous
Quarter P30,364,192.07  

Input Tax Claimed per VAT Return 14,932,013.06  

  ––––––––––––––––
–  

Total Input Tax per VAT Return 45,296,205.13  

Less: Excess Input Tax Carried Over to

Succeeding Period 45,296,205.13  

  ––––––––––––––––
–  

Value Added Tax Due   P6,485,010,035.04

Less: VAT Payments   ––––––––––––––––

Deficiency Value Added Tax   P6,485,010,035.04

Add: Increments    

Interest P3,618,098,680.02  

Penalty 50,000.00 3,618,148,680.02

    ––––––––––––––––

Total Amount Due   P10,103,158,715.06

 
On 7 July 2011, PSALM filed its administrative protest
against the FAN, alleging that the privatization of NPC
assets is an original mandate of PSALM and not subject to
VAT. On 5 September 2011, PSALM filed its supplemental
protest reiterating its substantive defenses.  CAIHTE

On 19 March 2012, respondent Commissioner of

Internal Revenue (CIR) issued its Final Decision on Disputed
Assessment, 9 which denied PSALM's protest for lack of
factual and legal bases. The CIR held that the sale of
electricity is subject to VAT under RA 9337 10 and the real
properties sold by PSALM are regarded as real properties
used in trade or business.
Thus, on 18 April 2012, PSALM filed a petition for
review before the CTA.
The Ruling of the CTA Third Division
 In a Decision dated 2 December 2014, the CTA Third
Division partially granted PSALM's petition, allowing PSALM
to claim input tax credits, and holding that PSALM is not
liable to pay the compromise penalty of P50,000.00.
However, the CTA Third Division ruled that PSALM is
liable to pay the deficiency VAT, because the enactment
of RA 9337 superseded BIR Ruling No. 020-2002, on which
PSALM relied for its VAT exemption. The CTA Third Division
found that the sale of generating assets of PSALM — the
Masinloc, Ambuklao-Binga and Pantabangan power plants
— fall under "all kinds of goods and properties" subject to
VAT under Section 106 of the National Internal Revenue
Code of 1997 (NIRC). The CTA Third Division thereafter
modified the computation of the penalty interest and
computed it from the last day prescribed by law for filing a
return. Thus, the CTA Third Division computed PSALM's
liability as follows:
 

Output Tax   P6,485,010,035.04

Less: Creditable Input Tax    

Input tax carried over from previous

Quarter P30,364,192.07  

Input tax claimed per VAT Return 14,932,013.06 45,296,205.13

  –––––––––––––––
–  

Value Added Tax Due   P6,439,713,829.91

Less: VAT payments   -

Deficiency Value Added Tax   P6,439,713,829.91

Add: Increments    

Interest (01-25-2009 to 06-30-2011) P3,126,348,741.53  

Compromise Penalty - 3,126,348,741.53

Total Deficiency VAT   P9,566,062,571.44

 
Thus, the dispositive portion of its Decision reads:
 WHEREFORE, premises considered, the
instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the assessments issued by
respondent against petitioner covering taxable year
2008 for deficiency value-added tax are UPHELD
but in the MODIFIED AMOUNT of NINE BILLION
FIVE HUNDRED SIXTY SIX MILLION SIXTY TWO
THOUSAND FIVE HUNDRED SEVENTY ONE and
44/100 PESOS (P9,566,062,571.44), inclusive of
twenty percent (20%) interest imposed upon Section
249(A) of the Tax Code, as amended.
In addition, petitioner is hereby ORDERED
TO PAY:
a) Deficiency interest at the rate of 20% per
annum on the basic deficiency VAT of
P6,439,713,829.91 computed from June
30, 2011 until full payment thereof
pursuant to Section 249(B) of the NIRC
of 1997;
b) Delinquency interest at the rate of 20% per
annum on the basic deficiency VAT of
P6,439,713,829.91 [computed from]
June 30, 2011 until full payment thereof
pursuant to Section 249(C)(3) of
the NIRC of 1997, as amended; and
c) Delinquency interest at the rate of 20% per
annum on the deficiency interest which
have accrued as afore-stated in (a)
computed from June 30, 2011 until full
payment thereof pursuant to Section
249(C)(3) of the NIRC of 1997, as
amended.
SO ORDERED. 11
PSALM filed a motion for partial reconsideration,
which was denied for lack of merit by the CTA Third Division
in its 25 February 2015 Resolution. Hence, PSALM
appealed to the CTA EB.
The Ruling of the CTA En Banc
In a Decision dated 17 May 2016, the CTA EB
affirmed the decision of the CTA Third Division and held that
PSALM is subject to VAT for its sale of generating assets,
lease of Naga Complex, and collection of income and
receivables, because these were done in the course of trade
or business, and RA 9337 placed the electric power industry
under the VAT system.
Thus, the dispositive portion of the CTA EB decision
reads:
WHEREFORE premises considered, the
petition is DENIED for lack of merit. The Decision of
the Third Division of this Court in CTA Case No.
8475, promulgated on December 2, 2014 and its
Resolution, promulgated on February 25, 2015, are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED. 12
In a Dissenting Opinion, Presiding Justice Roman G.
Del Rosario (Justice Del Rosario) opined that the
assessment issued by the CIR against PSALM should be
cancelled, insofar as it relates to the proceeds from sales of
generating assets and from collection of income and
receivables, because: (1) PSALM relied in good faith on BIR
Ruling No. 020-02 dated 13 May 2002 declaring that the
disposition or sale of assets as a consequence of PSALM's
mandate is not subject to VAT; and (2) the collection of
receivables is not in the nature of sale, barter, exchange,
lease of goods or properties, performance of service, and
importation of goods, so as to fall under a transaction subject
to VAT under Section 105 of the NIRC.  DETACa

However, Justice Del Rosario opined that the lease of

Naga Complex should be excluded from the coverage of BIR
Ruling No. 020-02, absent any showing that the property
involved is among those transferred from NPC to PSALM.
Also, he opined that the deficiency interest may not be
imposed on the deficiency VAT assessed against PSALM,
because deficiency interest may be imposed only on income
tax, donor's tax and estate tax, under the NIRC.
In a Concurring and Dissenting Opinion, Associate
Justice Erlinda P. Uy concurred with the majority opinion that
PSALM is liable to pay VAT, but dissented as to the
imposition of the deficiency interest, reasoning out that
deficiency interest should be imposed only in cases of
deficiency income tax, donor's tax and estate tax.
On 12 August 2016, the CTA EB denied the motion for
reconsideration filed by PSALM, due to lack of merit. Hence,
PSALM filed the present petition before the Court.
The Issues
 PSALM raises the following issues for resolution:
A. WHETHER PSALM'S PRIVATIZATION
ACTIVITIES ARE SUBJECT TO VAT[;]
B. WHETHER PSALM IS LIABLE FOR DEFICIENCY
VAT FOR TRANSACTIONS INCIDENTAL TO
ITS PRIVATIZATION ACTIVITIES[;] [and]
C. WHETHER PSALM IS LIABLE FOR DEFICIENCY
VAT FOR RECEIVABLES NOT ARISING
FROM SALE OF GOODS OR SERVICES[.] 13
The Ruling of the Court
We find merit in the petition.
The relevant provisions of the NIRC, as amended,
state:
SEC. 105. Persons Liable. — Any person who, in
the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties
or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act
7716.
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, by any person
regardless of whether or not the person
engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of
its net income and whether or not it sells
exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in
the course of trade or business.
xxx xxx xxx
SEC. 108. Value-Added Tax on Sale of Services
and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied,
assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services,
including the use or lease of properties: Provided,
That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a
percentage of Gross Domestic Product
(GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a
percentage of GDP of the previous
year exceeds one and one-half
percent (1 1/2%).
The phrase "sale or exchange of services" means
the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration, including those performed or
rendered by construction and service contractors;
stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or
distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest houses, pension
houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers
in securities; lending investors; transportation
contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes
for hire another domestic common carriers by land
relative to their transport of goods or cargoes;
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines; sales of electricity by generation
 companies, transmission, and distribution
companies; services of franchise grantees of
electric utilities; telephone and telegraph, radio and
television broadcasting and all other franchise
grantees except those under section 119 of this
Code, and non-life insurance companies (except
their crop insurances), including surety, fidelity,
indemnity, and bonding companies; and similar
services regardless of whether or not the
performance thereof calls for the exercise or use of
the physical or mental faculties. (Emphasis
supplied) aDSIHc

The issue of whether the sale of power plants by

PSALM is subject to VAT and the arguments of both parties
in this case have been passed upon and settled in G.R. No.
198146 (Power Sector Assets and Liabilities Management
Corporation v. Commissioner of Internal Revenue), 14 where
the Court ruled:
Under Section 50 of the EPIRA law, PSALM's
principal purpose is to manage the orderly sale,
disposition, and privatization of the NPC generation
assets, real estate and other disposable assets, and
IPP's contracts with the objective of liquidating all
NPC's financial obligations and stranded contract
costs in an optimal manner.
PSALM asserts that the privatization of
NPC's assets, such as the sale of the Pantabangan-
Masiway and Magat Power Plants, is pursuant to
PSALM's mandate under the EPIRA law and is not
conducted in the course of trade or business.
PSALM cited the 13 May 2002 BIR Ruling No. 020-
02, that PSALM's sale of assets is not conducted in
pursuit of any commercial or profitable activity as to
fall within the ambit of a VAT-able transaction under
Sections 105 and 106 of the NIRC. The pertinent
portion of the ruling adverted to states:
2. Privatization of assets by PSALM is not
subject to VAT
Pursuant to Section 105 in
relation to Section 106, both of the Tax
Code of 1997, a value-added tax
equivalent to ten percent (10%) of the
gross selling price or gross value in
money of the goods, is collected from
 any person, who, in the course of
trade or business, sells, barters,
exchanges, leases goods or
properties, which tax shall be paid by
the seller or transferor.
The phrase "in the course of
trade or business" means the regular
conduct or pursuit of a commercial
activity, including transactions
incidental thereto.
Since the disposition or sale of
the assets is a consequence of
PSALM's mandate to ensure the
orderly sale or disposition of the
property and thereafter to liquidate the
outstanding loans and obligations of
NPC, utilizing the proceeds from sales
and other property contributed to it,
including the proceeds from the
Universal Charge, and not conducted
in pursuit of any commercial or
profitable activity, including
transactions incidental thereto, the
same will be considered an isolated
transaction, which will therefore not be
subject to VAT. (BIR Ruling No. 113-
98 dated July 23, 1998)
On the other hand, the CIR argues that the
previous exemption of NPC from VAT under Section
13 of Republic Act No. 6395 (RA 6395) was
expressly repealed by Section 24 of Republic Act
No. 9337 (RA 9337), which reads:
SEC. 24. Repealing Clause. —
The following laws or provisions of
laws are hereby repealed and the
persons and/or transactions affected
herein are made subject to the value-
added tax subject to the provisions of
Title IV of the National Internal
Revenue Code of 1997, as amended:
(A) Section 13 of R.A. No. 6395
on the exemption from value-
added tax of National Power
Corporation (NPC);
 (B) Section 6, fifth paragraph
of R.A. No. 9136 on the zero
VAT rate imposed on the sale
of generated power by
generation companies; and
(C) All other laws, acts,
decrees, executive orders,
issuances and rules and
regulations or parts thereof
which are contrary to and
inconsistent with any provisions
of this Act are hereby repealed,
amended or modified
accordingly.
As a consequence, the CIR posits that the
VAT exemption accorded to PSALM under BIR
Ruling No. 020-02 is also deemed revoked since
PSALM is a successor-in-interest of NPC.
Furthermore, the CIR avers that prior to the sale,
NPC still owned the power plants and not PSALM,
which is just considered as the trustee of the NPC
properties. Thus, the sale made by NPC or its
successors-in-interest of its power plants should be
subject to the 10% VAT beginning 1 November
2005 and 12% VAT beginning 1 February 2007.
We do not agree with the CIR's position,
which is anchored on the wrong premise that
PSALM is a successor-in-interest of NPC.
PSALM is not a successor-in-interest of
NPC. Under its charter, NPC is mandated to
"undertake the development of hydroelectric
generation of power and the production of electricity
from nuclear, geothermal and other sources, as well
as the transmission of electric power on a
nationwide basis." With the passage of
the EPIRA law which restructured the electric power
industry into generation, transmission, distribution,
and supply sectors, the NPC is now primarily
mandated to perform missionary electrification
function through the Small Power Utilities Group
(SPUG) and is responsible for providing power
generation and associated power delivery systems
in areas that are not connected to the transmission
system. On the other hand, PSALM, a government-
owned and -controlled corporation, was created
under the EPIRA law to manage the orderly sale
and privatization of NPC's assets with the objective
of liquidating all of NPC's financial obligations in an
optimal manner. Clearly, NPC and PSALM have
different functions. Since PSALM is not a
successor-in-interest of NPC, the repeal by RA
9337 of NPC's VAT exemption does not affect
PSALM.  ETHIDa

In any event, even if PSALM is deemed a

successor-in-interest of NPC, still the sale of the
power plants is not "in the course of trade or
business" as contemplated under Section 105 of
the NIRC, and thus, not subject to VAT. The sale
of the power plants is not in pursuit of a
commercial or economic activity but a
governmental function mandated by law to
privatize NPC generation assets. PSALM was
created primarily to liquidate all NPC financial
obligations and stranded contract costs in an
optimal manner. The purpose and objective of
PSALM are explicitly stated in Section 50 of
the EPIRA law, x x x.
xxx xxx xxx
PSALM is limited to selling only NPC assets
and IPP contracts of NPC. The sale of NPC assets
by PSALM is not "in the course of trade or business"
but purely for the specific purpose of privatizing
NPC assets in order to liquidate all NPC financial
obligations. PSALM is tasked to sell and privatize
the NPC assets within the term of its existence.
The EPIRA law even requires PSALM to submit a
plan for the endorsement by the Joint Congressional
Power Commission and the approval of the
President of the total privatization of the NPC assets
and IPP contracts. Section 47 of the EPIRA law
provides:
SEC. 47. NPC Privatization. —
Except for the assets of SPUG, the
generation assets, real estate, and
other disposable assets as well as IPP
contracts of NPC shall be privatized in
accordance with this Act. Within six (6)
months from the effectivity of this Act,
the PSALM Corp. shall submit a plan
for the endorsement by the Joint
Congressional Power Commission and
the approval of the President of the
Philippines, on the total privatization of
the generation assets, real estate,
other disposable assets as well as
existing IPP contracts of NPC and
thereafter, implement the same, in
accordance with the following
guidelines, except as provided for in
Paragraph (f) herein:
(a) The privatization
value to the National
Government of the NPC
generation assets, real estate,
other disposable assets as well
as IPP contracts shall be
optimized;
(b) The participation by
Filipino citizens and
corporations in the purchase of
NPC assets shall be
encouraged.
In the case of foreign
investors, at least seventy-five
percent (75%) of the funds used
to acquire NPC-generation
assets and IPP contracts shall
be inwardly remitted and
registered with the Bangko
Sentral ng Pilipinas;
(c) The NPC plants
and/or its IPP contracts
assigned to IPP Administrators,
its related assets and assigned
liabilities, if any, shall be
grouped in a manner which
shall promote the viability of the
resulting generation companies
(gencos), ensure economic
efficiency, encourage
competition, foster reasonable
electricity rates and create
market appeal to optimize
returns to the government from
the sale and disposition of such
assets in a manner consistent
with the objectives of this Act. In
the grouping of the generation
assets and IPP contracts of
NPC, the following criteria shall
be considered:
(1)  sufficient
scale of operations and
balance sheet strength to
promote the financial
viability of the
restructured units;
(2) Broad
geographical groupings
to ensure efficiency of
operations but without
the formation of regional
companies or
consolidation of market
power;
(3) Portfolio of
plants and IPP contracts
to achieve management
and operational synergy
without dominating any
part of the market or the
load curve; and
(4) Such other
factors as may be
deemed beneficial to the
best interest of the
National Government
while ensuring
attractiveness to
potential investors.
(d) All assets of NPC
shall be sold in open and
transparent manner through
public bidding, and the same
shall apply to the disposition of
IPP contracts;  cSEDTC

(e) In cases of transfer of

possession, control, operation
or privatization of multi-purpose
hydro facilities, safeguards shall
be prescribed to ensure that the
national government may direct
water usage in cases of
shortage to protect potable
water, irrigation, and all other
requirements imbued with
public interest;
(f) The Agus and Pulangi
complexes in Mindanao shall be
excluded from among the
generation companies that will
be initially privatized. Their
ownership shall be transferred
to the PSALM Corp. and both
shall continue to be operated by
the NPC. Said complexes may
be privatized not earlier than
ten (10) years from the
effectivity of this Act, and,
except for Agus III, shall not be
subject to Build-Operate-
Transfer (B-O-T), Build-
Rehabilitate-Operate-Transfer
(B-R-O-T) and other variations
thereof pursuant to Republic
Act No. 6957, as amended by
Republic Act No. 7718. The
privatization of Agus and
Pulangi complexes shall be left
to the discretion of PSALM
Corp. in consultation with
Congress;
(g) The steamfield assets
and generating plants of each
geothermal complex shall not
be sold separately. They shall
be combined and each
geothermal complex shall be
sold as one package through
public bidding. The geothermal
complexes covered by this
requirement include, but are not
limited to, Tiwi-Makban, Leyte A
 and B (Tongonan), Palinpinon,
and Mt. Apo;
(h) The ownership of the
Caliraya-Botokan-Kalayaan
(CBK) pump storage complex
shall be transferred to the
PSALM Corporation;
(i) Not later than three (3)
years from the effectivity of this
Act, and in no case later than
the initial implementation of
open access, at least seventy
percent (70%) of the total
capacity of generating assets of
NPC and of the total capacity of
the power plants under contract
with NPC located in Luzon and
Visayas shall have been
privatized: Provided, That any
unsold capacity shall be
privatized not later than eight
(8) years from the effectivity of
this Act; and
(j) NPC may generate
and sell electricity only from the
undisposed generating assets
and IPP contracts of PSALM
Corp. and shall not incur any
new obligations to purchase
power through bilateral
contracts with generation
companies or other suppliers.
Thus, it is very clear that the sale of the
power plants was an exercise of a governmental
function mandated by law for the primary
purpose of privatizing NPC assets in accordance
with the guidelines imposed by the EPIRA law.
In the 2006 case of Commissioner of Internal
Revenue v. Magsaysay Lines, Inc. (Magsaysay), the
Court ruled that the sale of the vessels of the
National Development Company (NDC) to
Magsaysay Lines, Inc. is not subject to VAT since it
was not in the course of trade or business, as it was
involuntary and made pursuant to the government's
 policy of privatization. The Court cited the CTA's
ruling that the phrase "course of business" or "doing
business" connotes regularity of activity. Thus, since
the sale of the vessels was an isolated transaction,
made pursuant to the government's privatization
policy, and which transaction could no longer be
repeated or carried on with regularity, such sale was
not in the course of trade or business and was not
subject to VAT.
Similarly, the sale of the power plants in
this case is not subject to VAT since the sale
was made pursuant to PSALM's mandate to
privatize NPC's assets, and was not undertaken
in the course of trade or business. In selling the
power plants, PSALM was merely exercising a
governmental function for which it was created
under the EPIRA law. 15 (Boldfacing and
underscoring supplied)
Applying our ruling in G.R. No. 198146 involving the
same parties and similar issues, the sale of the generating
assets — the Masinloc, Ambuklao-Binga and Pantabangan
power plants — in the present case is likewise not subject to
VAT, since the sale was pursuant to the mandate of PSALM
under the EPIRA to privatize NPC assets. The sale of the
power plants is not in pursuit of a commercial or economic
activity but a governmental function mandated by law to
privatize NPC generation assets. 16 The sale of the power
plants is clearly not the same as the sale of electricity by
generation companies, transmission, and distribution
companies, which is subject to VAT under Section 108 of
the NIRC. Thus, we do not find any merit in the arguments
raised by the CIR.
We likewise do not find PSALM liable to pay VAT on
the lease of Naga Complex; collection of income from
participation fee, site visit fee, plant CDs, photocopying
charges and data room access fee; and collection of
receivables from employees for the excess utilization of
allowed mobile phone services, inventory variance
receivable from custodian, refund from a successor-
generation company of the insurance premiums paid by
PSALM and interest received from mandatory dollar deposit.
Under the EPIRA, PSALM, as the conservator of NPC
assets, operates and maintains NPC assets and manages
its liabilities in trust for the national government, until the
NPC assets could be sold or disposed of. 17 Thus, during its
corporate life, PSALM has powers relating to the
management of its personnel and leasing of its properties as
may be necessary to discharge its mandate. Section 51 of
the EPIRA law provides:  SDAaTC

SECTION 51. Powers. — The Corporation shall, in

the performance of its functions and for the
attainment of its objective, have the following
powers:
(a) To formulate and implement
a program for the sale and
privatization of the NPC assets and
IPP contracts and the liquidation of
NPC debts and stranded contract
costs, such liquidation to be completed
within the term of existence of the
PSALM Corp.;
(b) To take title to and
possession of, administer and
conserve the assets transferred to it;
to sell or dispose of the same at such
price and under such terms and
conditions as it may deem necessary
or proper, subject to applicable laws,
rules and regulations;
(c) To take title to and
possession of the NPC IPP contracts
and to appoint, after public bidding in
transparent and open manner,
qualified independent entities who
shall act as the IPP Administration in
accordance with this Act;
(d) To calculate the amount of
the stranded debts and stranded
contract costs of NPC which shall form
the basis for ERC in the determination
of the universal charge;
(e) To liquidate the NPC
stranded contract costs, utilizing the
proceeds from sales and other
property contributed to it, including the
proceeds from the universal charge;
 (f) To adopt rules and
regulations as may be necessary or
proper for the orderly conduct of its
business or operations;
(g) To sue and be sued in its
name;
(h) To appoint or hire,
transfer, remove and fix the
compensation of its
personnel; Provided, however, That
the Corporation shall hire its own
personnel only if absolutely necessary,
and as far as practicable, shall avail
itself of the services of personnel
detailed from other government
agencies;
(i) To own, hold, acquire, or
lease real and personal properties
as may be necessary or required in
the discharge of its functions;
(j) To borrow money and incur
such liabilities, including the issuance
of bonds, securities or other evidences
of indebtedness utilizing its assets as
collateral and/or through the
guarantees of the National
Government: Provided, however, That
all such debts or borrowings shall
have been paid off before the end of
its corporate life;
(k) To restructure existing loans
of the NPC;
(l) To collect, administer, and
apply NPC's portion of the universal
charge; and
(m) To structure the sale,
privatization or disposition of NPC
assets and IPP contracts and/or their
energy output based on such terms
and conditions which shall optimize
the value and sale prices of said
assets. (Emphasis supplied)
 Since the lease of Naga Complex and collection of
income and receivables are within PSALM's powers
necessary to discharge its mandate under the law and
likewise undertaken in the exercise of PSALM's
governmental function, we do not find these activities subject
to VAT. To reiterate, VAT is ultimately a tax on consumption,
and it is levied only on the sale, barter or exchange of goods
or services by persons who engage in such activities, in the
course of trade or business. 18
Accordingly, the CTA Third Division and CTA EB erred
in finding PSALM liable for deficiency VAT in the amount of
P9,566,062,571.44. Since PSALM has no VAT liability in this
case, there is no necessity to rule upon the issue of
deficiency interest and delinquency interest.
WHEREFORE, we GRANT the petition.
The Decision of the Court of Tax Appeals in CTA Case No.
8475, dated 2 December 2014, which found petitioner Power
Sector Assets and Liabilities Management Corporation liable
to pay the amount of P9,566,062,571.44 as deficiency value-
added tax for the taxable year 2008, inclusive of the
deficiency interest and delinquency interest,
is REVERSED and SET ASIDE. Assessment No. VT-08-
00072 is hereby ordered CANCELLED.
SO ORDERED.  acEHCD

Perlas-Bernabe, Caguioa, J.C. Reyes,

Jr. and Lazaro-Javier, JJ., concur.
 
Footnotes

1. Rollo, pp. 12-36. Under Rule 45 of the 1997 Rules of Civil Procedure.

2. Id. at 54-67. Penned by Associate Justice Cielito N. Mindaro-Grulla,
with Associate Justices Lovell R. Bautista, Caesar A. Casanova,
Esperanza R. Fabon-Victorino, Amelia R. Cotangco-Manalastas
and Ma. Belen Ringpis-Liban concurring. Presiding Justice Roman
G. Del Rosario penned a Dissenting Opinion, Associate Justice
Juanito C. Castañeda, Jr. penned a Separate Concurring Opinion,
and Associate Justice Erlinda P. Uy penned a Concurring and
Dissenting Opinion.
3. Id. at 101-103.
4. Id. at 251-270. Penned by Associate Justice Ma. Belen M. Ringpis-
Liban, with Associate Justices Lovell R. Bautista and Esperanza
R. Fabon-Victorino concurring.
5. Id. at 284-285.
6. Section 49 of Republic Act No. 9136 provides:
   SEC. 49. Creation of Power Sector Assets and Liabilities
Management Corporation. — There is hereby created a
government-owned and -controlled corporation to be known as the
"Power Sector Assets and Liabilities Management Corporation,"
hereinafter referred to as the "PSALM Corp.," which shall take
ownership of all existing NPC generation assets, liabilities, IPP
contracts, real estate and all other disposable assets. All
outstanding obligations of the NPC arising from loans, issuances
of bonds, securities and other instruments of indebtedness shall
be transferred to and assumed by the PSALM Corp. within one
hundred eighty (180) days from the approval of this Act.
7. Section 50 of Republic Act No. 9136 provides:
   SEC. 50. Purpose and Objective, Domicile and Term of Existence. —
The principal purpose of the PSALM Corp. is to manage the
orderly sale, disposition, and privatization of NPC generation
assets, real estate and other disposable assets, and IPP contracts
with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.
   The PSALM Corp. shall have its principal office and place of business
within Metro Manila.
   The PSALM Corp. shall exist for a period of twenty five (25) years
from the effectivity of this Act, unless otherwise provided by law,
and all assets held by it, all moneys and properties belonging to it,
and all its liabilities outstanding upon the expiration of its term of
existence shall revert to and be assumed by the National
Government.
8. Rollo, pp. 105-106, 108.
9. Id. at 130-132.
10. AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109,
110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237
AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED, AND FOR OTHER PURPOSES.
11. Id. at 268-269.
12. Id. at 66.
13. Id. at 18.
14. G.R. No. 198146, 8 August 2017, 835 SCRA 235.
15. Id. at 275-285.
16. Id. at 279.
17. Power Generation Employees Association-NPC v. National Power
Corporation, G.R. No. 187420, 9 August 2017, 835 SCRA 645,
670.
18. Commissioner of Internal Revenue v. Magsaysay Lines, Inc., 529
Phil. 64 (2006).

SECOND DIVISION

[G.R. No. 228539. June 26, 2019.]

ASSOCIATION OF NON-PROFIT CLUBS, INC.

(ANPC), herein represented by its authorized
representative, MS. FELICIDAD M. DEL
ROSARIO, petitioner, vs. BUREAU OF
INTERNAL REVENUE (BIR), herein
 represented by HON. COMMISSIONER KIM S.
JACINTO-HENARES, respondent.

DECISION

PERLAS-BERNABE, J  : p

Assailed in this petition for review on certiorari  1 are

the Decision 2 dated July 1, 2016 and the Order 3 dated
November 7, 2016 of the Regional Trial Court of Makati City,
Branch 134 (RTC), in Special Civil Case No. 14-985, which
denied petitioner Association of Non-Profit Clubs, Inc.
(ANPC)'s petition 4 for declaratory relief, thereby upholding in
full the validity of Revenue Memorandum Circular (RMC) No.
35-2012. 5
The Facts
On August 3, 2012, respondent the Bureau of Internal
Revenue (BIR) issued RMC No. 35-2012, entitled "Clarifying
the Taxability of Clubs Organized and Operated Exclusively
for Pleasure, Recreation, and Other Non-Profit
Purposes," 6 which was addressed to all revenue officials,
employees, and others concerned for their guidance
regarding the income tax and Value n Added Tax (VAT)
liability of the said recreational clubs. 7
On the income tax component, RMC No. 35-
2012 states that "[c]lubs which are organized and
operated exclusively for pleasure, recreation, and other
non-profit purposes are subject to income tax under
the National Internal Revenue Code [(NIRC)] of 1997, 8 as
amended [(1997 NIRC)]." 9 The BIR justified the foregoing
interpretation based on the following reasons:
According to the doctrine of casus omissus pro
omisso habendus est, a person, object, or thing
omitted from an enumeration must be held to have
been omitted intentionally. The provision in the
[1977 Tax Code] which granted income tax
exemption to such recreational clubs was omitted in
the current list of tax exempt corporations under
[the 1997 NIRC], as amended. Hence, the income
of recreational clubs from whatever
source, including but not limited to membership
fees, assessment dues, rental income, and
 service fees are subject to income
tax. 10 (Emphasis and underscoring supplied)
Likewise, on the VAT component, RMC No. 35-
2012 provides that "the gross receipts of recreational
clubs including but not limited to membership fees,
assessment dues, rental income, and service fees
are subject to VAT." 11 As basis, the BIR relied on Section
105, 12 Chapter I, Title IV of the 1997 NIRC, which states
that even a nonstock, nonprofit private organization or
government entity is liable to pay VAT on the sale of goods
or services. 13
On October 25, 2012, ANPC, along with the
representatives of its member clubs, invited Atty. Elenita
Quimosing (Atty. Quimosing), Chief of Staff, Operations
Group of the BIR, to discuss "specifically the effects of the
said [C]ircular and to seek clarification and advice from the
BIR on how it will affect the operational requirements of each
club and their members/stakeholders." 14 During their
meeting, Atty. Quimosing discussed the basis and effects
of RMC No. 35-2012, and further suggested that the
attendees submit a position paper to the BIR expressing
their concerns. 15 
CAIHTE

Consequently, ANPC submitted its position

paper, 16 requesting "the non-application of RMC [No.] 35-
2012 for income tax and VAT liability on membership fees,
association dues, and fees of similar nature collected by
[the] exclusive membership clubs from [their] members
which are used to defray the expenses of the said
clubs." 17 However, despite the lapse of two (2) years, the
BIR has not acted upon the request, and all the member
clubs of ANPC were subjected to income tax and VAT on all
membership fees, assessment dues, and service fees. 18
Aggrieved, ANPC, on behalf of its club members, filed
a petition 19 for declaratory relief before the RTC on
September 17, 2014, seeking to declare RMC No. 35-
2012 invalid, unjust, oppressive, confiscatory, and in
violation of the due process clause of
the Constitution. 20 ANPC argued that in issuing RMC No.
35-2012, the BIR acted beyond its rule-making authority in
interpreting that payments of membership fees, assessment
dues, and service fees are considered as income subject to
income tax, as well as a sale of service that is subject to
VAT. 21
 For its part, the Office of the Solicitor General (OSG),
on behalf of the BIR, sought the dismissal of the petition for
ANPC's failure to exhaust all the available administrative
remedies. It also argued that RMC No. 35-2012 is a mere
amplification of the existing law and the rules and regulations
of the BIR on the matter, positing that the said Circular
merely explained that by removing recreational clubs from
the list of tax exempt entities or corporations, Congress
intended to subject them to income tax and VAT under
the 1997 NIRC. 22
The RTC Ruling
In a Decision 23 dated July 1, 2016, the RTC denied
the petition for declaratory relief 24 and upheld the validity
and constitutionality of RMC No. 35-2012. 25 On the
procedural issue, the RTC found that there was no violation
of the doctrine of exhaustion of administrative remedies,
since judicial intervention was urgent in light of the
impending imposition of taxes on the membership fees and
assessment dues paid by the members of the exclusive
clubs. 26 As to the substantive issue, the RTC found that
given the apparent intent of Congress to subject recreational
clubs to taxes, the BIR, being the administrative agency
concerned with the implementation of the law, has the power
to make such an interpretation through the issuance of RMC
No. 35-2012. As an interpretative rule issued well within the
powers of the BIR, the same need not be published and
neither is a hearing required for its validity. 27
Undaunted, ANPC sought reconsideration, 28 which
the RTC denied in an Order 29 dated November 7, 2016.
Raising pure questions of law, ANPC, herein represented by
its authorized representative, Ms. Felicidad M. Del Rosario,
filed the instant petition for review on certiorari directly before
the Court.
The Issue before the Court
The essential issue for the Court's resolution is
whether or not the RTC erred in upholding in full the validity
of RMC No. 35-2012.
The Court's Ruling
The petition is partly meritorious.
I.
The Court first resolves the procedural issues.
 In its Comment, 30 the BIR, through the OSG, seeks
the dismissal of the present petition on the ground that
ANPC violated the doctrine of hierarchy of courts due to its
direct resort before the Court. 31 Moreover, it asserts that
ANPC violated the doctrine of exhaustion of available
administrative remedies, pointing out that ANPC should have
first elevated the matter to the Secretary of Finance for
review pursuant to Section 4, 32 Title I of the 1997 NIRC. 33
The contentions are untenable.
First, the Court holds that there was no violation of the
doctrine of hierarchy of courts because the present petition
for review on certiorari, filed pursuant to Section 2 (c), Rule
41 in relation to Rule 45 of the Rules of Court, is
the sole remedy to appeal a decision of the RTC in cases
involving pure questions of law. The doctrine of hierarchy of
courts is violated only when relief may be had through
multiple fora having concurrent jurisdiction over the case,
such as in petitions for certiorari, mandamus, and prohibition
which are concurrently cognizable either by the Regional
Trial Courts, the Court of Appeals, or the Supreme Court.
In Uy v. Contreras: 34
[W]hile it is true that this Court, the Court of
Appeals, and the Regional Trial Courts have
concurrent original jurisdiction to issue writs
of certiorari, prohibition, mandamus, quo warranto,
and habeas corpus, such concurrence does not
accord litigants unrestrained freedom of choice of
the court to which application therefor may be
directed. There is a hierarchy of
courts determinative of the venue of appeals
which should also serve as a general
determinant of the proper forum for the
application for the extraordinary writs. A
becoming regard for this judicial hierarchy by the
petitioner and her lawyers ought to have led them to
file the petition with the proper Regional Trial
Court. 35 (Emphasis and underscoring supplied)  DETACa

Clearly, the correctness of the BIR's interpretation of

the 1997 NIRC under the assailed RMC is a pure question of
law, 36 because the same does not involve an examination of
the probative value of the evidence presented by the litigants
or any of them. 37 Thus, being the only remedy to appeal the
RTC's ruling upholding the Circular's validity on a purely
legal question, direct resort to this Court, through a Rule 45
petition, was correctly availed by ANPC.
Anent the issue of exhaustion of administrative
remedies, the Court likewise holds that the said doctrine was
not transgressed.
At the onset, it is apt to point out that RMC No. 35-
2012 only clarified the taxability (particularly, income tax and
VAT liability) of clubs organized and operated exclusively for
pleasure, recreation, and other non-profit purposes based on
the BIR's own interpretation of the NIRC provisions on
income tax and VAT. Evidently, it was not designed "to
implement a primary legislation by providing the details
thereof" as in a legislative rule; but rather, was intended only
to "provide guidelines to the law which the administrative
agency is in charge of enforcing," 38 as the said Circular was,
in fact, addressed to "[a]ll [r]evenue [o]fficials, [e]mployees[,]
and [o]thers [c]oncerned" 39 to guide them in the
enforcement of income tax and VAT laws against fees
collected by the said clubs.
Given its nature, RMC No. 35-2012 is therefore
subject to the administrative review of the Secretary of
Finance pursuant to Section 4, Title I of the 1997 NIRC,
which provides:
Section 4. Power of the Commissioner to
Interpret Tax Laws and to Decide Tax Cases. —
The power to interpret the provisions of this Code
and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
xxx xxx xxx (Emphases supplied)
Thus, as dictated by the rule on exhaustion of
administrative remedies, 40 the validity of RMC No. 35-
2012 should have been first subjected to the review of the
Secretary of Finance before ANPC sought judicial recourse
with the RTC.
However, as exceptions to this rule, when the issue
involved is purely a legal question (as above-explained), or
when there are circumstances indicating the urgency of
judicial intervention 41 — as in this case where membership
fees, assessment dues, and the like of all recreational clubs
would be imminently subjected to income tax and VAT —
then the doctrine of exhaustion of administrative remedies
may be relaxed.
 Accordingly, ANPC's recourse to the RTC and now,
before this Court are permissible and hence, are not grounds
to dismiss this case. That being said, the Court now
proceeds to resolve the substantive issue on whether or
not RMC No. 35-2012 is valid.
II.
To recount, RMC No. 35-2012 is an interpretative rule
issued by the BIR to guide all revenue officials, employees,
and others concerned in the enforcement of income tax and
VAT laws against clubs organized and operated exclusively
for pleasure, recreation, and other non-profit purposes
("recreational clubs" for brevity).
As to its income tax component, RMC No. 35-
2012 provides the interpretation that since the old tax
exemption previously accorded under Section 27
(h), 42 Chapter III, Title II of Presidential Decree No. 1158,
otherwise known as the "National Internal Revenue Code of
1977" 43 (1977 Tax Code), to recreational clubs was deleted
in the 1997 NIRC, then the income of recreational clubs
from whatever source, including but not limited to
membership fees, assessment dues, rental income, and
service fees, is subject to income tax.
The interpretation is partly correct.
Indeed, applying the doctrine of casus omissus pro
omisso habendus est (meaning, a person, object or thing
omitted from an enumeration must be held to have been
omitted intentionally), 44 the fact that the 1997 NIRC omitted
recreational clubs from the list of exempt organizations
under the 1977 Tax Code evinces the deliberate intent of
Congress to remove the tax income exemption previously
accorded to these clubs. As such, the income that
recreational clubs derive "from whatever source" 45 is now
subject to income tax under the provisions of the 1997 NIRC.
However, notwithstanding the correctness of the
above-interpretation, RMC No. 35-2012 erroneously
foisted a sweeping interpretation that membership fees
and assessment dues are sources of income of
recreational clubs from which income tax liability may
accrue, viz.:
The provision in the [1977 Tax Code] which granted
income tax exemption to such recreational clubs
was omitted in the current list of tax exempt
corporations under the [1997 NIRC], as
 amended. Hence, the income of recreational
clubs from whatever source, including but not
limited to membership fees, assessment dues,
rental income, and service fees [is] subject to
income tax. 46 (Emphases and underscoring
supplied)
The distinction between "capital" and "income" is well-
settled in our jurisprudence. As held in the early case
of Madrigal v. Rafferty, 47 "capital" has been delineated as a
"fund" or "wealth," as opposed to "income" being "the flow of
services rendered by capital" or the "service of wealth":  aDSIHc

Income as contrasted with capital or property

is to be the test. The essential difference between
capital and income is that capital is a fund;
income is a flow. A fund of property existing at an
instant of time is called capital. A flow of services
rendered by that capital by the payment of money
from it or any other benefit rendered by a fund of
capital in relation to such fund through a period of
time is called income. Capital is wealth, while
income is the service of wealth. (See Fisher, "The
Nature of Capital and Income.") The Supreme Court
of Georgia expresses the thought in the following
figurative language: "The fact is that property is a
tree, income is the fruit; labor is a tree, income the
fruit; capital is a tree, income the fruit." (Waring vs.
City of Savannah [1878], 60 Ga., 93.) A tax on
income is not a tax on property. "Income," as here
used, can be defined as "profits or
gains." (London County Council vs. Attorney-
General [1901], A. C., 26; 70 L. J. K. B. N. S., 77; 83
L. T. N. S., 605; 49 Week. Rep., 686; 4 Tax Cas.,
265. See further Foster's Income Tax, second
edition [1915], Chapter IV; Black on Income Taxes,
second edition [1915], Chapter VIII; Gibbons vs.
Mahon [1890], 136 U.S., 549; and Towne vs.
Eisner, decided by the United States Supreme
Court, January 7, 1918.) 48 (Emphases and
underscoring supplied)
In Conwi v. Court of Tax Appeals, 49 the Court
elucidated that "income may be defined as an amount of
money coming to a person or corporation within a specified
time, whether as payment for services, interest or profit
from investment. Unless otherwise specified, it means cash
or its equivalent. Income can also be thought of as a flow of
the fruits of one's labor." 50
As correctly argued by ANPC, membership fees,
assessment dues, and other fees of similar nature only
constitute contributions to and/or replenishment of the
funds for the maintenance and operations of the
facilities offered by recreational clubs to their exclusive
members. 51 They represent funds "held in trust" by these
clubs to defray their operating and general costs and
hence, only constitute infusion of capital. 52
Case law provides that in order to constitute "income,"
there must be realized "gain." 53 Clearly, because of the
nature of membership fees and assessment dues as funds
inherently dedicated for the maintenance, preservation, and
upkeep of the clubs' general operations and facilities,
nothing is to be gained from their collection. This stands in
contrast to the fees received by recreational clubs coming
from their income-generating facilities, such as bars,
restaurants, and food concessionaires, or from income-
generating activities, like the renting out of sports equipment,
services, and other accommodations. In these latter
examples, regardless of the purpose of the fees' eventual
use, gain is already realized from the moment they are
collected because capital maintenance, preservation, or
upkeep is not their pre-determined purpose. As such,
recreational clubs are generally free to use these fees for
whatever purpose they desire and thus, considered as
unencumbered "fruits" coming from a business transaction.
Further, given these recreational clubs' non-profit
nature, membership fees and assessment dues cannot be
considered as funds that would represent these clubs'
interest or profit from any investment. In fact, these fees are
paid by the clubs' members without any expectation of any
yield or gain (unlike in stock subscriptions), but only for the
above-stated purposes and in order to retain their
membership therein.
In fine, for as long as these membership fees,
assessment dues, and the like are treated as collections
by recreational clubs from their members as an inherent
consequence of their membership, and are, by nature,
intended for the maintenance, preservation, and upkeep
of the clubs' general operations and facilities, then these
fees cannot be classified as "the income of recreational
clubs from whatever source" that are "subject to income
tax." 54 Instead, they only form part of capital from which
no income tax may be collected or imposed.
It is a well-enshrined principle in our jurisdiction that
the State cannot impose a tax on capital as it constitutes an
unconstitutional confiscation of property. As the Court held
in Chamber of Real Estate and Builders' Associations, Inc. v.
Romulo: 55
As a general rule, the power to tax is plenary
and unlimited in its range, acknowledging in its very
nature no limits, so that the principal check against
its abuse is to be found only in the responsibility of
the legislature (which imposes the tax) to its
constituency who are to pay it. Nevertheless, it is
circumscribed by constitutional limitations. At
the same time, like any other statute, tax legislation
carries a presumption of constitutionality.
The constitutional safeguard of due process
is embodied in the fiat "[no] person shall be deprived
of life, liberty or property without due process of
law." In Sison, Jr. v. Ancheta [215 Phil. 582 (1984)],
we held that the due process clause may properly
be invoked to invalidate, in appropriate cases, a
revenue measure when it amounts to a
confiscation of property. But in the same case, we
also explained that we will not strike down a
revenue measure as unconstitutional (for being
violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. There
must be a factual foundation to such an
unconstitutional taint. This merely adheres to the
authoritative doctrine that, where the due process
clause is invoked, considering that it is not a fixed
rule but rather a broad standard, there is a need for
proof of such persuasive character.
xxx xxx xxx
Certainly, an income tax is arbitrary and
confiscatory if it taxes capital because capital is
not income. In other words, it is income, not capital,
which is subject to income tax. x x x. 56 (Emphases
supplied)
In Misamis Oriental Association of Coco Traders, Inc.
v. Department of Finance Secretary, 57 the Court held that
"[a]s a matter of power[,] a court, when confronted with an
interpretative rule, [such as RMC No. 35-2012,] is free to (i)
give the force of law to the rule; (ii) go to the opposite
extreme and substitute its judgment; or (iii) give some
intermediate degree of authoritative weight to the
interpretative rule." 58 Thus, by sweepingly including in RMC
No. 35-2012 all membership fees and assessment dues in
its classification of "income of recreational clubs from
whatever source" that are "subject to income tax," 59 the BIR
exceeded its rule-making authority. Case law holds that:  ETHIDa

[T]he rule-making power of administrative agencies

cannot be extended to amend or expand statutory
requirements or to embrace matters not originally
encompassed by the law. Administrative regulations
should always be in accord with the provisions of
the statute they seek to carry into effect, and any
resulting inconsistency shall be resolved in favor of
the basic law. 60
Accordingly, the Court hereby declares the said
interpretation to be invalid, and in consequence, sets aside
the ruling of the RTC.
In the same way, the Court declares as invalid the
BIR's interpretation in RMC No. 35-2012 that membership
fees, assessment dues, and the like are part of "the gross
receipts of recreational clubs" that are "subject to VAT." 61
It is a basic principle that before a transaction is
imposed VAT, a sale, barter or exchange of goods or
properties, or sale of a service is required. 62 This is true
even if such sale is on a cost-reimbursement
basis. 63 Section 105, Chapter I, Title IV of the 1997
NIRC reads:
Section 105. Persons Liable. — Any person
who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties,
renders services, and any person who imports
goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and
the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply
to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity
of Republic Act No. 7716.
 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, by any person
regardless of whether or not the person engaged
therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or
their guests), or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in
the course of trade or business. (Emphases
supplied)
As ANPC aptly pointed out, membership fees,
assessment dues, and the like are not subject to VAT
because in collecting such fees, the club is not selling its
service to the members. Conversely, the members are not
buying services from the club when dues are paid; hence,
there is no economic or commercial activity to speak of as
these dues are devoted for the operations/maintenance of
the facilities of the organization. 64 As such, there could be
no "sale, barter or exchange of goods or properties, or
sale of a service" to speak of, which would then be
subject to VAT under the 1997 NIRC.
WHEREFORE, the petition is GRANTED. The
Decision dated July 1, 2016 and the Order dated November
7, 2016 of the Regional Trial Court of Makati City, Branch
134, in Special Civil Case No. 14-985, are hereby SET
ASIDE. The Court DECLARES that membership fees,
assessment dues, and fees of similar nature collected by
clubs which are organized and operated exclusively for
pleasure, recreation, and other nonprofit purposes do not
constitute as: (a) "the income of recreational clubs from
whatever source" that are "subject to income tax";
and (b) part of the "gross receipts of recreational clubs" that
are "subject to [Value Added Tax]." Accordingly, Revenue
Memorandum Circular No. 35-2012 should be interpreted in
accordance with this Decision.
SO ORDERED.
Carpio, Caguioa, J.C. Reyes, Jr. and Lazaro-Javier,
JJ., concur.
 
 Footnotes

1. Rollo, pp. 11-78.

2. Id. at 82-89. Penned by Pairing Judge Elpidio R. Calis.
3. Id. at 90. Penned by Acting Presiding Judge Manuel L. See.
4. Dated September 15, 2014. Id. at 95-114.
5. Entitled "CLARIFYING THE TAXABILITY OF CLUBS ORGANIZED
AND OPERATED EXCLUSIVELY FOR PLEASURE,
RECREATION, AND OTHER NON-PROFIT PURPOSES" (August
3, 2012). Id. at 92-94.
6. Id.
7. Id. at 92.
8. Republic Act No. 8424, entitled "AN ACT AMENDING THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES," otherwise known as the "TAX REFORM ACT OF
1997" (January 1, 1998).
9. Rollo, pp. 92-93; emphasis and underscoring supplied.
10. Id. at 93.
11. Id. at 94; emphasis and underscoring supplied.
12. Section 105. Persons Liable. — Any person who, in the course of
trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections
106 to 108 of this Code.
xxx xxx xxx
   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, by any person
regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity.
xxx xxx xxx (Emphasis supplied)
13. See Commissioner of Internal Revenue v. Court of Appeals, 385 Phil.
875 (2000), as cited in RMC No. 35-2012. See also rollo, p. 93.
14. Rollo, p. 144.
15. See id. at 83 and 144.
16. By way of a letter dated November 12, 2012 addressed to
Commissioner of Internal Revenue Kim S. Jacinto-Henares. Id. at
143-154.
17. Id. at 152.
18. Id. at 99-100.
19. Id. at 95-114.
20. See id. at 100 and 113.
21. See id. at 100-112.
22. See id. at 83-84.
23. Id. at 82-89.
24. See id. at 89.
25. See id. at 87.
26. See id. at 85.
27. See id. at 86-87.
28. The motion for reconsideration was not attached in the rollo.
29. Rollo, p. 90.
30. Dated January 12, 2018. Id. at 165-175.
31. See id. at 172-173.
32. Section 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases. — The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.
   The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under this Code or other
laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals. (Emphases
supplied)
33.See rollo, pp. 168-172.
34.G.R. Nos. 111416-17, September 26, 1994, 237 SCRA 167.
35.Id. at 170.
36.See Calamba Steel Center, Inc. v. Commissioner of Internal Revenue,
497 Phil. 23, 33 (2005).
37.See Republic of the Philippines v. Malabanan, 646 Phil. 631, 637-638
(2010).
38.BPI Leasing Corporation v. Court of Appeals, 461 Phil. 451, 459
(2003).
39.Rollo, p. 92.
40.It is well-settled that "before a party is allowed to seek the intervention
of the courts, it is a pre-condition that he avail himself of all
administrative processes afforded him. Hence, if a remedy within
the administrative machinery can be resorted to by giving the
administrative officer every opportunity to decide on a matter that
comes within his jurisdiction, then such remedy must be
exhausted first before the court's power of judicial review can be
sought." (Samar II Electric Cooperative, Inc. v. Seludo, Jr., 686
Phil. 786, 796 [2012].)
41.See Banco De Oro v. Republic of the Philippines, 750 Phil. 349, 381-
382 (2015).
42.Section 27. Exemptions from tax on corporations. — The following
organizations shall not be taxed under this Title in respect to
income received by them as such —
xxx xxx xxx
   (h) Club organized and operated exclusively for pleasure, recreation,
and other non-profitable purposes, no part of the net income of
which inures to the benefit of any private stockholder or member[.]
43.Entitled "A DECREE TO CONSOLIDATE AND CODIFY ALL THE
INTERNAL REVENUE LAWS OF THE PHILIPPINES" (June 3,
1977).
44.Rollo, p. 86.
45.Section 32 (A), Chapter VI, Title II of the 1997 NIRC.
46.Rollo, p. 93.
47.38 Phil. 414 (1918).
48.Id. at 418-419.
49.G.R. No. 48532, August 31, 1992, 213 SCRA 83 (1992).
50.Id. at 87-88; emphases supplied.
51.Rollo, p. 68.
52.See id. at 40-42.
53.Chamber of Real Estate and Builders' Associations, Inc. v. Romulo,
628 Phil. 508, 531 (2010).
54.Rollo, p. 93.
55.Supra note 53.
56.Id. at 530-531, other citations omitted.
57.G.R. No. 108524, November 10, 1994, 238 SCRA 63.
58.Id. at 70.
59.Rollo, p. 93.
60.CS Garment, Inc. v. Commissioner of Internal Revenue, 729 Phil.
253, 275 (2014).
61.Rollo, p. 94.
62.See Commissioner of Internal Revenue v. Sony Philippines, Inc., 649
Phil. 519, 533 (2010).
63.See Commissioner of Internal Revenue v. Court of
Appeals, supra note 13.
64.Rollo, pp. 71-72.
n Note from the Publisher: Written as "Valued" in the original document.

SECOND DIVISION
 [G.R. No. 214044. June 19, 2019.]

UNIVERSITY OF THE
PHILIPPINES, petitioner, vs. CITY TREASURER
OF QUEZON CITY, respondent.

DECISION

CARPIO, J  :p

The Case
G.R. No. 214044 is a petition for certiorari and
prohibition 1 filed by the University of the Philippines (UP)
against the City Treasurer of Quezon City (City Treasurer)
seeking to annul the Statement of Delinquency dated 27
May 2014 addressed to UP as well as the Final Notice of
Delinquency dated 11 July 2014 which required UP to pay
real property tax on a parcel of land covered by TCT No. RT-
107350 (192689), which is currently leased to Ayala Land,
Inc. (ALI). The petition also seeks to enjoin the City
Treasurer, or any of his agents or representatives, from
proceeding with the sale of the subject land at a public
auction pursuant to the 11 July 2014 Final Notice of
Delinquency.
The Facts
In their submitted pleadings before this Court, both UP
and the City Treasurer admitted that UP is the registered
owner of a parcel of land covered by TCT No. RT-107350
(192689). UP entered into a contract of lease with ALI over
the subject land on 27 October 2006. 2
UP further narrated in its petition:
xxx xxx xxx
5. UP is the registered owner of a parcel of land
covered by and more particularly described in TCT
No. RT-107530 (192689) of the Registry of Deeds
of Quezon City, with an area of 985,597 square
meters and located along Commonwealth Avenue,
Diliman, Quezon City.
6. On 27 October 2006, UP entered into a Contract
of Lease with Development Obligations with [ALI]
over a portion of the aforementioned parcel of land
containing an area of 380,630 square meters. The
leased property is now known as the UP-Ayala
Technohub.
7. In a Notice of Assessment addressed to ALI
dated 23 August 2012, ALI was informed that the
subject property has been "reclassified and
assessed for taxation purposes with an assessed
value of P499,500,000.00 effective 2009."
8. In a letter to UP President Pascual dated 22
August 2012, the City Assessor of Quezon City
informed UP that the aforementioned Notice of
Assessment was served upon ALI as the entity
liable for the real property tax on the subject
property pursuant to Section 205(d) and Section
234(a) of the Local Government Code.
9. In a Statement of Delinquency dated 05
December 2012, addressed to the UP North
Property Holdings, Inc., the [City Treasurer]
demanded the payment of real property tax on the
subject property amounting to P78,970,950.00 for
the years 2009-2011 and the first three quarters of
2012.
10. In another letter to UP President Pascual dated
09 September 2013, the City Assessor of Quezon
City furnished UP a copy of the letter of the Bureau
of Local Government Finance (BLGF) of the
Department of Finance [(DOF)] dated 01 August
2013, which opined that ALI is the party legally
accountable for the real property taxes on the
subject property. It was further stated that the City
Assessor's Office "will be sending the official Notice
of Assessment and the corresponding Tax
Declaration for the subject property under the name
of [ALI] . . ." 
CAIHTE

11. In another Statement of Delinquency dated 24

September 2013, addressed to the UP North
Property Holdings, Inc., the [City Treasurer] again
demanded the payment of real property tax on the
subject property in the updated amount of
P102,747,150.00 for the years 2009-2012 and the
first three quarters of 2013.
12. For the first time and without a prior Notice of
Assessment, a Statement of Delinquency dated 27
May 2014 addressed to UP was issued by the [City
Treasurer] demanding the payment of real property
tax on the subject property amounting to
P106,992,990.00 for the years 2009 to 2013 and the
first quarter of 2014.
13. In his letter to the City Treasurer of Quezon City
dated 13 June 2014, UP President Pascual
requested the postponement of any proceeding
related to the aforementioned Statement of
Delinquency. He explained —
We respectfully take exception
to the Statement of Delinquency dated
27 May 2014 and the alleged
delinquency of the University with
respect to the payment of the real
estate taxes. The University of the
Philippines, as the National University,
has been granted tax exemptions
under Republic Act No. 9500,
otherwise known as the University of
the Philippines Charter of 2008, that
are express, patent and unambiguous.
The grant is exceedingly extensive
that it provided the University the
exemption from all taxes and duties
vis-à-vis all revenues and assets used
for educational purposes or in support
thereof.
Moreover, in the letter of the
Bureau of Local Government Finance
("BLGF") dated 01 August 2013,
addressed to the Hon. City Mayor,
Herbert M. Bautista, the BLGF opined
on the issue as to which party shall be
accountable for the unpaid real estate
taxes due on the thirty-seven (37)
hectares of land owned by the
University and being leased out to
[ALI], the same property which is the
subject of the Statement of
Delinquency dated 27 May 2014. The
BLGF concluded that "[ALI], being the
lessee, is the legally accountable party
to the unpaid real property taxes on
the government-owned UP Property."
The foregoing opinion of the BLGF
 confirms that the University is exempt
from real estate taxes, an absolute
right that the University enjoys
under R.A. No. 9500.
14. On 22 July 2014, UP received the Final Notice
of Delinquency dated 11 July 2014 from the Office
of the City Treasurer demanding the payment of real
property tax on the subject property in the updated
amount of P117,182,700.00 for the years 2009-
2013 and the first three quarters of 2014. 3
UP filed the present case before this Court within 60
days from receipt of the 11 July 2014 Final Notice of
Delinquency. 4
On 29 September 2014, we issued a
Resolution 5 which required the City Treasurer to file a
Comment. We also issued a Temporary Restraining Order to
enjoin the City Treasurer, his agents or representatives, from
enforcing the Final Notice of Delinquency dated 11 July 2014
and proceeding with the sale of subject land at a public
auction scheduled on 20 November 2014.
On 20 July 2015, we issued a Resolution 6 requiring
the City Treasurer to show cause why he/she should not be
disciplinarily dealt with or held in contempt for failure to file
comment before the period expired on 12 October 2014.
On 7 March 2016, we issued a Resolution 7 imposing
upon the City Treasurer a fine of P1,000.00 for failure to file
comment, and required compliance within ten days from
notice. On 20 July 2016, we issued a Resolution 8 imposing
upon the City Treasurer an increased fine of P2,000.00 for
failure to file comment, and required compliance within ten
days from notice.
On 18 August 2016, we received an Urgent Motion for
Extension of Time with Manifestation 9 from Ms. Ruby Rosa
G. Guevarra (Ms. Guevarra), Acting Assistant City Treasurer
of Quezon City. She alleged and manifested:
xxx xxx xxx
2. That as early on [sic] April 15, 2016, herein
respondent through its City Treasurer, Ms. Basilia S.
Pacis and to date, through its Acting Assistant City
Treasurer, sought for the legal assistance of Atty.
Christian B. Valencia, City Legal Officer of the Local
Government Unit, Quezon City, to prepare and file
Comment to the instant Petition for Certiorari and
 Prohibition, as may be evidenced by the
Indorsement dated August 11, 2016 and
Indorsement dated August 15, 2016 true copies of
them are hereto attached as Annexes "1" and "2"
and made parts hereof[;] DETACa

To date, August 18, 2016, there was no

prepared Comment by the City Legal Officer to be
filed in the Honorable Court;
3. That to date, the undersigned, Ms. Ruby
Rosa G. Guevarra is in [sic] the Acting Assistant
City Treasurer of the Local Government Unit,
Quezon City, as the City Treasurer, Ms. Basilia S.
Pacis retired [from] said position as Treasurer;
4. That to date, the undersigned, Ms. Ruby
Rosa G. Guevarra is looking for a counsel to help
her in the preparation and filing of a Comment to the
Petition for Certiorari and Prohibition;
5. That the amount of Two Thousand
(P2,000) Pesos, as fine for the non-filing of the
Comment was paid, but the said payment shall be
considered payment under protest, as the
undersigned is unjustifiably failed [sic], refused and
ignored to be legally assisted by the City Legal
Officer of the Local Government Unit, Quezon City,
for [sic] the preparation and filing the said required
Comment[.] 10
On 29 September 2016, Ms. Guevarra, as Officer in
Charge of the City Treasurer's Office, filed her
Comment 11 which reads:
1. That the relief prayed for in the instant
Petition for Certiorari and Prohibition is the same
allegation specifically stated in its body, that:
to annul the Statement of
Delinquency dated 27 May 2014 and
the Final Notice of Delinquency dated
11 July 2014.
WITH ALL DUE RESPECT, not within the province
of the Honorable Court to adjudicate. Truth to tell,
there must be [a] full-blown trial to be conducted by
a trial court for the determination of the true facts
whether to annul the said Statement of Delinquency
dated 27 May 2014 and the Final Notice of
Delinquency dated 11 July 2014. But, time and
again, it is ruled that the Honorable Court is not a
trier of facts.
In APQ Shipmanagemnet [sic] Co., LTD,
versus Casenas, 725 SCRA 108, the Honorable
Court reminded us:
The Supreme Court is not a
trier of facts and, thus, its jurisdiction is
limited only to reviewing errors of law.
2. That the respondent is not the real party-
in-interest in the instant Petition for Certiorari and
Prohibition[.]
3. That the petitioner failed to file the Motion
for Reconsideration, when it admitted the receipt of
the assailed Notice of Statement of Delinquency
dated May 27, 2014 and the Final Notice of
Delinquency dated July 11, 2014.
Thus, petitioner filed the Instant Petition
without filing the appropriate motion to give the
respondent the opportunity to correct its alleged
error.
In Lanier versus People, 719 SCRA 477, the
Honorable Court held:
Well-established is the rule that
a motion for reconsideration is a
condition sine qua non for the filing of
a petition for certiorari.
xxx xxx xxx
[7.] Most importantly, petitioner is not
exempted from paying real property tax for its real
property leased to [ALI] pursuant to the mandate of
Section 205(d) and Section 234(a) of Republic Act
No. 7160, otherwise known as "The Local
Government Code of 1991[.]"
Admittedly, on October 27, 2006, petitioner
entered into the Contract of Lease with [ALI],
subject matter of which is petitioner's parcel of land
covered by Transfer Certificate of Title No. RT-
107350 (192689), now allegedly owned by UP North
Property Holdings, Inc. Said leased [sic] of the real
property belonging to the petitioner failed to pay the
real property tax from 2009-2013 and the first three
quarters of 2014. aDSIHc
 In City of Pasig versus Republic, 656 SCRA
271, the Honorable Court unswervingly ruled:
Where the parcels of land
owned by the Republic are not
properties of public dominion, portions
of the properties leased to taxable
entities are not only subject to real
estate tax, they can also be sold at
public auction to satisfy the tax
delinquency.
Moreover, respondent merely followed the
legal basis of the Department of Finance, that:
ALI (Ayala Land, Inc.) is the
party legally accountable for the real
property taxes on the subject property.
[ALI] was duly notified of the subject
Statement of Delinquency and other similar
notices. 12
On 28 November 2016, we issued a
Resolution 13 that, among others, noted Ms. Guevarra's
Comment, and required UP to file a reply. UP, through the
OSG, filed its Reply 14 on 20 February 2017, where it
addressed Ms. Guevarra's questions regarding the propriety
of the remedy and the taxability of UP based on Republic Act
No. 9500 15 and on Section 133 (o) 16 of the Local
Government Code.
The Issue
Petitioner UP raised only one issue before this Court:
WHETHER PETITIONER UNIVERSITY OF THE
PHILIPPINES IS LIABLE FOR REAL PROPERTY
TAX IMPOSED ON THE SUBJECT PROPERTY
LEASED TO AYALA LAND, INC. 17
The Court's Ruling
We grant the petition.
This Court has the power to decide the present case.
Findings of fact are not necessary as the present petition
asks to determine whether UP, as a chartered academic
institution with specific legislated tax exemptions, is legally
liable for the real property tax on the land leased to ALI. This
issue is a pure question of law, not of fact.
 The property subject of this case refers only to the
parcel of land covered by TCT No. RT-107350 (192689).
The improvements on this parcel of land that were
introduced by ALI are not covered by the present case.
Timeline of Events and
Applicable Laws

The Contract of Lease (with Development Obligations)

between UP and ALI was executed on 27 October 2006. The
4th Whereas Clause of the Contract described the project
proposal, thus:
WHEREAS, in response to the LESSOR's
aforementioned invitation, Ayala Land, Inc., in
September 2005, submitted to the LESSOR a
Development Proposal entitled "DEVELOPMENT
PROPOSAL FOR UP NORTH SCIENCE &
TECHNOLOGY PARK," dated August 1, 2005, and
subsequently, presented to the then UP Board of
Regents such proposal which is embodied in a
presentation manual, entitled "DEVELOPMENT
PROPOSAL FOR UP NORTH SCIENCE &
TECHNOLOGY PARK," dated September 2005,
both attached hereto and marked as Annexes "E"
and "E-1," respectively (the "Development
Proposals"), signifying therein its interest in leasing
and developing the UP North S&T Park and
proposing to lease and develop the UP North S&T
Park Phase I according to its proposals, into a
prestigious and dynamic science and technology
park, where research and technology-based
collaborative projects between technology and the
academe thrive, thereby becoming a catalyst for the
development of the information technology and
information technology-enabled services; 18
The Contract provided that ALI owns the improvements on
the leased land:

3.2 PERMANENT IMPROVEMENTS; LESSOR TO

BECOME OWNER OF PERMANENT
IMPROVEMENTS AT END OF LEASE  ETHIDa

xxx xxx xxx

(c) Before the termination, expiration, or cancellation
of this Contract prior to the lapse of the original
Lease Term, all renovations, alterations, and
 improvements and the Permanent Improvements
constructed during the original Lease Term shall be
owned by, and shall be for the account of the
LESSEE; x x x. 19
As to real property taxes, the contract between UP and ALI
stated:

12.2 REAL ESTATE TAXES ON LAND

Should real estate taxes be levied on the
LEASED PREMISES, the LESSOR shall assume
the payment of the real estate taxes on the land,
while the LESSEE shall assume the payment of real
property taxes on the improvements introduced on
the LEASED PREMISES. 20
On 29 April 2008, Republic Act No. 9500, or the UP
Charter of 2008, was signed into law. Republic Act No.
9500 addressed UP's real property and income derived
therefrom in Sections 22 and 25 (a). These sections read:
SEC. 22. Land Grants and Other Real
Properties of the University. —
(a) The State shall support the
University of the Philippines System as
the national university in the form of
lump sum amount, through general
appropriations and other financial
benefits, and in kind, through land
grants and donations and use of other
real properties. To carry out the intent
of these grants, income derived from
the development of all land grants and
real properties shall be used to further
the end of the national university, as
may be decided by the board;
xxx xxx xxx
(c) The Board may plan, design,
approve and/or cause the
implementation of land
leases: Provided, That such
mechanisms and arrangements shall
sustain and protect the environment in
accordance with law, and be exclusive
of the academic core zone of the
campuses of the University of the
 Philippines: Provided, further, That
such mechanisms and arrangements
shall not conflict with the academic
mission of the national university;
(d) The Board may allow the use of
the income coming from real
properties of the national university as
security for transactions to generate
additional revenues when needed for
educational purposes;
xxx xxx xxx
SEC. 25. Tax Exemptions. — The provisions
of any general or special law to the contrary
notwithstanding:
(a) All revenues and assets of the
University of the Philippines used for
educational purposes or in support
thereof shall be exempt from all taxes
and duties;
xxx xxx xxx (Emphasis supplied)
A letter, 21 dated 22 August 2012 and addressed to
the UP President from Mr. Rodolfo M. Ordanes, Officer In
Charge, City Assessor (City Assessor), informed UP of the
City Assessor's service of a Notice of Assessment to ALI.
This Notice of Assessment had Sections 205 and 234 of the
Local Government Code as its bases. On 23 August 2012,
the City Assessor issued a Notice of Assessment 22 to ALI.
The notice stated that the land subject of the lease
agreement with UP was reclassified and assessed for
taxation purposes with an assessed value of
P499,500,000.00 effective 2009. The pertinent provisions of
Sections 205 and 234 read:  cSEDTC

Section 205. Listing of Real Property in the

Assessment Rolls. —
xxx xxx xxx
(d) Real property owned by the
Republic of the Philippines, its
instrumentalities and political
subdivisions, the beneficial use of
which has been granted, for
consideration or otherwise, to a
taxable person, shall be listed, valued
 and assessed in the name of the
possessor, grantee or of the public
entity if such property has been
acquired or held for resale or lease.
Section 234. Exemptions from Real Property
Tax. — The following are exempted from payment
of the real property tax:
(a) Real property owned by the
Republic of the Philippines or any of its
political subdivisions except when the
beneficial use thereof has been
granted, for consideration or
otherwise, to a taxable person;
xxx xxx xxx
Except as provided herein, any exemption
from payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether
natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn
upon the effectivity of this Code.
The Local Government Code took effect on 1 January
1992.
On 5 December 2012, the City Treasurer issued a
Statement of Delinquency 23 to UP North Property Holdings,
Inc. for the period 2009 to 2011 and the first three quarters
of 2012 in the total amount of P78,970,950.00. The total
amount included the tax due and penalty.
Mr. Salvador M. Castillo, Officer-In-Charge, Executive
Director of Bureau of Local Government Finance,
Department of Finance (BLGF-DOF), sent a letter 24 dated 1
August 2013 to Quezon City Mayor Herbert M. Bautista
(Mayor Bautista). This letter also referred to Sections 205
and 234 of the Local Government Code as bases to
conclude that ALI, as the lessee, is the legally accountable
party for the unpaid real property taxes due covering the
"government-owned UP property." 25 The 1 August 2013
letter from BLGF-DOF to Mayor Bautista also stated:
Evidently, real property owned by the
Republic of the Philippines are exempt from
payment of the real property tax. However, if the
beneficial use thereof has been granted for
consideration or otherwise to a taxable person, the
subject real property shall: (1) be listed, valued and
assessed in the name of the beneficial user; and (2)
becomes taxable.
It is also worthy to note that as soon as the
notice of assessment is served and received by the
taxpayer, an obligation to pay the amount assessed
and demanded arises (BLGF Memorandum Circular
No. 04-2008, January 7, 2008)[.]
As to the argument that as stipulated in the
Lease Contract entered into by and between UP
and Ayala Land, Inc. that UP shall shoulder the real
property taxes due on the subject property, please
be informed of the Supreme Court Decision under
G.R. No. 171586, dated July 15, 2009 (National
Power Corporation vs. Province of Quezon and
Municipality of Pagbilao), which is quoted in part,
below:
xxx xxx xxx
Lastly, from the points of view
of essential fairness and the integrity
of our tax system, we find it essentially
wrong to allow the NPC to assume in
its BOT contracts the liability of the
other contracting party for taxes that
the government can impose on that
other party, and at the same time allow
NPC to turn around and say that no
taxes should be collected because the
NPC is tax-exempt as a government-
owned and controlled corporation. We
cannot be a party to this kind of
arrangement; for us to allow it without
congressional authority is to intrude
into the realm of policy and to debase
the tax system that the Legislature
established. We will then also be
grossly unfair to the people of the
Province of Quezon and the
Municipality of Pagbilao who, by law,
stand to benefit from the tax provisions
of the LGC.
xxx xxx xxx
Further, attention is likewise invited to the
pertinent portion of another SC Decision (G.R. No.
 L-29772), in the case of the City of Baguio vs.
Fernando S. Busuego, viz.:  SDAaTC

. . . when the GSIS sold the

property and imposed said condition,
the agency although exempt from the
payment of taxes clearly indicated that
the property became taxable upon its
delivery to the purchaser and that the
sole determinative factor for
exemption from realty taxes is the
'use' to which the property is
devoted. And where the 'use' is the
test, the ownership is immaterial.
(Martin on the Rev. Adm. Code, 1961,
Vol. II, p. 487, citing Apostolic Prefect
of Mt. Province vs. Treasurer of
Baguio City, 71 Phil. 547). In the
instant case, although the property
was still in the name of the GSIS
pending the payment of the full price,
its use and possession was already
transferred to the defendant.' Such
contractual stipulation that the
purchaser on installment pay the real
estate taxes pending completion of
payments, although the seller who
retained title is exempt from such
taxes, is valid and binding, absent any
law to the contrary and none has been
cited by appellant. x x x.
Similarly, therefore, we also deemed it
essentially wrong being without congressional
authority for UP to assume the real property tax
liability of the Ayala Land, Inc. over the subject
property. Hence, we opine that the Ayala Land,
Inc., being the lessee, is the legally accountable
party to the unpaid real property taxes due on
the government-owned UP
property. 26 (Underscoring, boldfacing and
italicization in the original)
On 24 September 2013, the City Treasurer issued a
Statement of Delinquency 27 to UP North Property Holdings,
Inc. The City Treasurer demanded payment of real property
tax on the subject land in the amount of P102,747,150.00 for
the years 2009 to 2012 and the first three quarters of 2013.
 On 27 May 2014, the City Treasurer issued a Notice of
Delinquency 28 to UP for the years 2009 to 2013 and the first
quarter of 2014 in the total amount of P106,992,900.00. The
total amount included the tax due and penalty. This was the
first time that the City Treasurer demanded payment from
UP of real property tax on the subject land. The City
Treasurer sent the Notice of Delinquency to UP without any
prior issuance of a Notice of Assessment.
On 13 June 2014, then UP President Alfredo E.
Pascual (UP President Pascual) wrote then City Treasurer
Edgar T. Villanueva (City Treasurer Villanueva) to address
the Statement of Delinquency dated 27 May 2014. The
pertinent portions of the letter read:
We write in connection with the Statement of
Delinquency dated 27 May 2014 issued by your
office, which the University received on 3 June
2014. In the Statement of Delinquency, the
University was required to pay the real estate taxes
on its property/ies, specifically on Tax Declaration
E-128-00051, for the period from 2009 to the 1st
quarter of 2014, which was noted to be in the total
amount of Php106,992,900.00, including penalties.
The University was given a period of ten (10) days
from receipt of the Statement of Delinquency, or
until 13 June 2014, to pay the said real estate taxes.
We respectfully take exception to the Statement of
Delinquency dated 27 May 2014 and the alleged
delinquency of the University with respect to the
payment of real estate taxes. The University of the
Philippines, as the National University, has been
granted tax exemptions under Republic Act No.
9500, otherwise known as the University of the
Philippines Charter of 2008, that are express,
patent, and unambiguous. The grant is exceedingly
extensive that it provided the University exemption
from all taxes and duties vis-à-vis all its revenues
and assets used for educational purposes or in
support thereof.
Moreover, in the letter of the Bureau of Local
Government Finance ("BLGF") dated 1 August
2013, addressed to the Hon. City Mayor, Herbert M.
Bautista, the BLGF opined on the issue as to which
party shall be held accountable for the unpaid real
estate taxes due on the thirty-seven (37) hectares of
 land owned by the University and being leased out
to Ayala Land, Inc., the same property which is [the]
subject of the Statement of Delinquency dated 27
May 2014. The BLGF concluded that "Ayala Land,
Inc., being the lessee, is the legally accountable
party to the unpaid real property taxes due on the
government-owned UP property." The foregoing
opinion of the BLGF confirms that the University is
exempt from real estate taxes, an absolute right that
the University enjoys under [Republic Act] No. 9500.
Finally, while maintaining the position that the
University is exempt from real estate taxes, we wish
to point out that the University was not furnished
any Notice of Assessment prior to the issuance of
the Statement of Delinquency dated 27 May
2014. 29 
acEHCD

On 11 July 2014, the City Treasurer issued a Final

Notice of Delinquency 30 to UP for the years 2009 to 2013
and the first three quarters of 2014 in the total amount of
P117,182,700.00. The total amount also included the tax
due and penalty.
We reiterate that UP is a chartered academic
institution with specific legislated tax exemptions. These tax
exemptions come from the Local Government Code, as well
as from its legislative charter, Republic Act No. 9500.
Tax Exemption from
the Local Government Code

One source of UP's exemption from tax comes from its

character as a government instrumentality. Section 133 (o)
of the Local Government Code states that, unless otherwise
provided by the Code, the exercise of taxing powers of the
local government units shall not extend to levy of taxes, fees
or charges of any kind on government instrumentalities. 31
However, a combined reading of Sections 205 and
234 of the Local Government Code, previously quoted
above, also provides for removal of the exemption to
government instrumentalities when beneficial use of a real
property owned by a government instrumentality is granted
to a taxable person. Stated differently, when beneficial use
of a real property owned by a government instrumentality is
granted to a taxable person, then the taxable person is not
exempted from paying real property tax on such property.
This is the doctrine used by the City Assessor and the City
Treasurer in the present set of facts. The City Assessor and
the City Treasurer concluded that ALI is liable for the real
property tax on the land that it leased from UP.
Republic Act No. 9500, however, gave a specific tax
exemption to UP which covers the land subject of the
present case. The City Assessor and the City Treasurer
overlooked this specific exemption awarded to UP
by Republic Act No. 9500. The legislative authority given to
UP by Republic Act No. 9500 is the point where the present
case differs from our ruling in National Power Corporation v.
Province of Quezon (NPC case) 32 which the BLGF-DOF
cited in its letter addressed to Mayor Bautista.
Tax Exemption from
Republic Act No. 9500

It is clear from the timeline above that the date of

effectivity of UP's legislative charter lies between the date of
effectivity of the lease contract between UP and ALI and the
dates of issuance of the Statement of Delinquency and Final
Notice of Delinquency from the City Treasurer. Republic Act
No. 9500, which took effect in 2008, was not yet enacted
when UP and ALI entered into their lease contract in 2006.
However, Republic Act No. 9500 was already operative
when the City Treasurer issued the Statement of
Delinquency and Final Notice of Delinquency to UP in
2014. Republic Act No. 9500 was also operative when the
City Assessor issued a Notice of Assessment to ALI in 2012,
a Statement of Delinquency to UP North Property Holdings,
Inc. in 2012, and a Statement of Delinquency to UP North
Property Holdings, Inc. in 2013.
The enactment and passage of Republic Act No.
9500 in 2008 superseded Sections 205 (d) and 234 (a)
of the Local Government Code. Before the passage
of Republic Act No. 9500, there was a need to determine
who had beneficial use of UP's property before the property
may be subjected to real property tax. After the passage
of Republic Act No. 9500, there is a need to determine
whether UP's property is used for educational purposes or in
support thereof before the property may be subjected to real
property tax.
In University of the Phils. v. Judge Dizon, 33 we stated:
The UP was founded on June 18, 1908
through Act 1870 to provide advanced instruction in
literature, philosophy, the sciences, and arts, and to
 give professional and technical training to deserving
students. Despite its establishment as a body
corporate, the UP remains to be a "chartered
institution" performing a legitimate government
function. It is an institution of higher learning, not a
corporation established for profit and declaring any
dividends. In enacting Republic Act No.
9500 (The University of the Philippines Charter of
2008), Congress has declared the UP as the
national university "dedicated to the search for truth
and knowledge as well as the development of future
leaders."
Irrefragably, the UP is a government
instrumentality, performing the State's constitutional
mandate of promoting quality and accessible
education. As a government instrumentality, the UP
administers special funds sourced from the fees and
income enumerated under Act No. 1870 and
Section 1 of Executive Order No. 714, and from the
yearly appropriations, to achieve the purposes laid
down by Section 2 of Act 1870, as expanded
in Republic Act No. 9500. All the funds going into
the possession of the UP, including any interest
accruing from the deposit of such funds in any
banking institution, constitute a "special trust fund,"
the disbursement of which should always be aligned
with the UP's mission and purpose, and should
always be subject to auditing by the
COA. 34 (Citations omitted)  SDHTEC

In the present set of facts, both parties agree that UP

owns the land subject of this case.
Section 22 of Republic Act No. 9500, previously
quoted above, allows UP to lease and develop its land
subject to certain conditions. The Contract of Lease between
UP and ALI shows that there is an intent to develop "a
prestigious and dynamic science and technology park,
where research and technology-based collaborative projects
between technology and the academe thrive, thereby
becoming a catalyst for the development of the information
technology and information technology-enabled
service." 35 The development of the subject land is clearly for
an educational purpose, or at the very least, in support of an
educational purpose.
 UP President Pascual pointed out to City Treasurer
Villanueva that Republic Act No. 9500 granted extensive tax
exemptions to UP. More specifically, Section 25 (a)
of Republic Act No. 9500, previously quoted above, provided
that all of UP's "revenues and assets used for educational
purposes or in support thereof shall be exempt from all
taxes and duties." Republic Act No. 9500 bases UP's tax
exemption upon compliance with the condition that UP's
revenues and assets must be used for educational purposes
or in support thereof. There is no longer any need to
determine the tax status of the possessor or of the beneficial
user to further ascertain whether UP's revenue or asset is
exempt from tax.
Apart from the rule in statutory construction that a law
that is enacted later prevails over a law that is enacted
earlier because it is the latest expression of legislative
will, 36 Sections 27 and 30 of Republic Act No. 9500 provide
for rules of construction in favor of Republic Act No. 9500:
SEC. 27. Rules of Construction. — No
statutory or other issuances shall diminish the
powers, rights, privileges and benefits accorded to
the national university under this Act or enjoyed at
present, by it under other issuances not otherwise
modified or repealed under this Act, unless
subsequent legislation expressly provides for their
repeal, amendment or modification. Any case of
doubt in the interpretation of any of the provisions of
this Charter shall be resolved in favor of the
academic freedom and fiscal autonomy of the
University of the Philippines.
SEC. 30. Repealing Clause. — Act No. 1870,
as amended, and all laws, decrees, orders, rules,
and regulations or other issuances or parts
inconsistent with the provisions of this Act are
hereby repealed or modified accordingly.
Non-Applicability of
the NPC Case

The facts of the present case are not on all fours with
the facts in the NPC case. In the NPC case, the NPC
assumed in its build-operate-transfer (BOT) contract with
Mirant Pagbilao Corporation (Mirant) "all real estate taxes
and assessments, rates and other charges in respect of the
site, the buildings and improvements thereon and the [power
plant]." 37 The Municipality of Pagbilao, Quezon assessed
Mirant's tax liabilities and furnished the NPC with a copy of
the assessment letter. The NPC filed a petition before the
Local Board of Assessment Appeals and objected to the
assessment against Mirant. The NPC claimed tax
exemptions or at least a reassessment for lower tax liability
due to depreciation allowance and lower assessment level.
The Local Board of Assessment Appeals, the Central Board
of Assessment Appeals, and the Court of Tax Appeals all
ruled against the NPC.
We ruled in the NPC case that the NPC has no right to
protest the assessment on Mirant because the NPC is
neither the owner nor the possessor or user of the subject
machineries. Under the law, Mirant is liable for the said taxes
based on its "ownership, use, and possession of the plant
and its machineries." 38 We further stated in the NPC case
that the contractual stipulation between NPC and Mirant is
entirely between them, and "does not bind third persons who
are not privy to the contract x x x." 39 Only Mirant can
demand compliance from the NPC for the payment of the
said taxes, and the Municipality of Pagbilao and the Province
of Quezon cannot demand payment from the NPC. Neither
can these local government units be compelled to recognize
the NPC's protest of the assessment.
We declared in the NPC case that it is "essentially
wrong to allow the NPC to assume in its BOT contracts the
liability of the other contracting party for taxes that the
government can impose on that other party, and at the same
time allow NPC to turn around and say that no taxes should
be collected because the NPC is tax-exempt as a
government-owned and controlled corporation." This was the
situation set up by UP with ALI in 2008, before the passage
of Republic Act No. 9500. Before the passage of Republic
Act No. 9500, it was essentially wrong for UP to assume in
its lease contract with ALI the liability of ALI for real property
taxes based on its beneficial use of the land, and then turn
around and tell the City Treasurer that UP is exempt from
paying taxes on the land because it is a government
instrumentality.
We also declared in the NPC case that if we continue
to allow what NPC did to the Province of Quezon without
congressional authority, we "intrude into the realm of policy
and to debase the tax system that the Legislature
established." The passage of Republic Act No. 9500 in 2008
obliterated what was essentially wrong in the lease contract
between UP and ALI. The legislature established a tax
system that allows UP to validly claim exemption from real
property taxes on the land leased to ALI. Republic Act No.
9500 is UP's congressional authority for this particular
exemption from real property tax. Thus, when the City
Treasurer addressed to UP the Statement of Delinquency
dated 27 May 2014 and the Final Notice of Delinquency
dated 11 July 2014 and required UP to pay real property tax
on the subject land, UP was already authorized by the
legislature to validly claim exemption from real property
taxes on the land leased to ALI. 
AScHCD

Considering that the subject land and the revenue

derived from the lease thereof are used by UP for
educational purposes and in support of its educational
purposes, UP should not be assessed, and should not be
made liable for real property tax on the land subject of this
case. Under Republic Act No. 9500, this tax exemption,
however, applies only to "assets of the University of the
Philippines," referring to assets owned by UP. Under the
Contract of Lease between UP and ALI, all improvements on
the leased land "shall be owned by, and shall be for the
account of the LESSEE [ALI]" during the term of the lease.
The improvements are not "assets" owned by UP; and thus,
UP's tax exemption under Republic Act No. 9500 does not
extend to these improvements during the term of the lease.
WHEREFORE, the petition is GRANTED.
We DECLARE the University of the
Philippines EXEMPT from real property tax imposed by the
City Treasurer of Quezon City on the parcel of land covered
by TCT No. RT-107350 (192689), which is currently leased
to Ayala Land, Inc. Accordingly, we declare VOID the
Statement of Delinquency dated 27 May 2014 as well as the
Final Notice of Delinquency dated 11 July 2014 issued by
the City Treasurer of Quezon City to the University of the
Philippines in connection with the parcel of land covered by
TCT No. RT-107350 (192689). Furthermore, the City
Treasurer of Quezon City is permanently restrained from
levying on or selling at public auction the parcel of land
covered by TCT No. RT-107350 (192689) to satisfy the
payment of the real property tax delinquency.
SO ORDERED.
Perlas-Bernabe, Caguioa, J.C. Reyes,
Jr. and Lazaro-Javier, JJ., concur.
 
 Footnotes

1.Under Rule 65 of the 1997 Rules of Civil Procedure.

2.Rollo, pp. 3, 126.
3.Id. at 3-5.
4.Id. at 3.
5.Id. at 71-72.
6.Id. at 95.
7.Id. at 99-100.
8.Id. at 104-105.
9.Id. at 114-119.
10.Id. at 114-115.
11.Id. at 124-128.
12.Id. at 124-126.
13.Id. at 131-132.
14.Id. at 142-152.
15.Also, University of the Philippines Charter of 2008.
16.Section 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxx xxx xxx
   (o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units.
17.Rollo, p. 5.
18.Id. at 22.
19.Id. at 33-34.
20.Id. at 45.
21.Id. at 61-62.
22.Id. at 60.
23.Id. at 63.
24.Id. at 65-67.
25.Id. at 67.
 26.Id. at 66-67.
27.Id. at 68.
28.Id. at 16.
29.Id. at 69-70.
30.Id. at 17.
31.Supra note 16.
32.610 Phil. 456 (2009).
33.693 Phil. 226 (2012).
34.Id. at 248-249.
35.Rollo, p. 22.
36.See Development Bank of the Philippines v. Court of Appeals, 259
Phil. 1096 (1989).
37.NPC v. Province of Quezon, supra note 32, at 470.
38.Id.
39.Id. at 472.

|||  
 SECOND DIVISION

[G.R. No. 231581. April 10, 2019.]

COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. UNIVATION MOTOR
PHILIPPINES, INC. (formerly NISSAN MOTOR
PHILIPPINES, INC.), respondent.

DECISION

J.C. REYES, JR., J  :

p

This resolves the Petition for Review

on Certiorari  1 seeking to nullify the December 22,
2016 Decision 2 and the April 27, 2017 Resolution 3 of the
Court of Tax Appeals (CTA) En Banc, which respectively
dismissed petitioner Commissioner for Internal Revenue's
(petitioner CIR's) Petition for Review thereby partially
granting respondent's judicial claim for refund and/or
issuance of Tax Credit Certificate for its excess creditable
income tax, and denied petitioner CIR's Motion for
Reconsideration, in CTA EB No. 1333.
On July 8, 2011, Univation Motor Philippines, Inc.
(respondent) filed its amended Annual Income Tax Return
(ITR) for 2010 4 showing a total gross income of
P117,084,174.00 and an overpayment of income taxes
amounting to P26,103,898.52. Respondent opted to claim its
overpayment of income tax through the issuance of a tax
credit certificate. On March 12, 2012, respondent filed its
administrative claim 5 with the Bureau of Internal Revenue
(BIR) explaining that the overpayment of P26,103,898.52
consists of prior year's excess credits in the amount of
P15,576,837.00 less Minimum Corporate Income Tax
amounting to P2,341,683.48 and creditable withholding
taxes accumulated during the four quarters of 2010 in the
amount of P12,868,745.00. Respondent filed its Application
for Tax Credit 6 in the amount of P12,868,745.00. Since the
BIR has not yet acted upon respondent's administrative
claim, petitioner filed a Petition for Review with the CTA on
April 12, 2013. 7
In its Answer, petitioner CIR raised the following
special and affirmative defenses: (a) respondent's claim for
refund is tainted with procedural infirmity due to petitioner's
failure to submit complete documents in support of its
administrative claim for refund; (b) petitioner miserably failed
to exhaust administrative remedies before elevating the case
to this Court; and (c) claims for refund are construed strictly
against the taxpayer and in favor of the government.
During trial, respondent presented and formally
offered its testimonial and documentary evidence which
were all admitted in the Resolutions dated May 22, 2014 and
August 11, 2014. Petitioner CIR's counsel manifested during
hearing that he will no longer present any evidence.
On March 10, 2015, the CTA First Division rendered a
Decision 8 which partially granted respondent's Petition for
Review and ordered petitioner CIR to issue a tax credit
certificate in the amount of P12,729,617.90 representing
respondent's unutilized or excess creditable withholding
taxes for taxable year ending December 21, 2010. Petitioner
CIR filed a Motion for Reconsideration but the CTA First
Division denied the said Motion in a Resolution 9 dated June
30, 2015.
Petitioner CIR elevated the case to the CTA En Banc.
Finding respondent's documentary evidence as sufficient,
the CTA En Banc issued the now appealed Decision dated
December 22, 2016 affirming the Decision of the CTA First
Division. Petitioner CIR moved to reconsider but just the
same, its motion was denied in a Resolution dated April 27,
2017. CAIHTE

Dissatisfied with the Decision of the CTA En Banc,

petitioner CIR filed the instant petition with this Court raising
the following issues, to wit:
I.
WHETHER THE CTA HAS PREMATURELY
ASSUMED JURISDICTION ON RESPONDENT'S
 JUDICIAL CLAIM FOR TAX REFUND OR CREDIT
WITHOUT WAITING FOR THE DECISION OF
PETITIONER.
II.
WHETHER THE CTA EN BANC ERRED IN
GRANTING RESPONDENT'S CLAIM FOR
REFUND DESPITE ITS FAILURE TO
SUBSTANTIATE ITS CLAIM BY SUFFICIENT
DOCUMENTARY PROOF.
Petitioner CIR argued that respondent prematurely
filed its judicial claim with the CTA depriving it with the
opportunity to act on the administrative claim for refund/tax
credit in violation of the doctrine of exhaustion of
administrative remedies. Petitioner CIR also argued that
respondent's administrative claim should be considered pro-
forma for failure to submit the complete supporting
documents as required by Revenue Memorandum Order
(RMO) No. 53-98 and Revenue Regulations No. 2-2006.
Respondent, however, explained that if it waited for
the CIR's decision on its claim for refund, it would have
suffered irreparable damage as it would have been barred
from seeking judicial recourse.
The issue is not novel.
Sections 204 and 229 of the National Internal
Revenue Code (NIRC) provide for the refund
of erroneously or illegally collected taxes. Section 204
applies to administrative claims for refund, while Section 229
to judicial claims for refund. 10 Thus:
SEC. 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit
Taxes. — The Commissioner may —
xxx xxx xxx
(c) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority,
refund the value of internal revenue stamps when
they are returned in good condition by the
purchaser, and, in his discretion, redeem or change
unused stamps that have been rendered unfit for
use and refund their value upon proof of
destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim
 for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however,
That a return filed showing an overpayment shall be
considered as a written claim for credit or refund. 11
Section 229 of the 1997 NIRC provides:
Sec. 229. Recovery of Tax Erroneously or
Illegally Collected. — No suit or proceeding shall
be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding
shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty
regardless of any supervening cause that may
arise after payment. Provided, however, That the
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face
of the return upon which payment was made, such
payment appears clearly to have been erroneously
paid. (Emphasis supplied)
Indeed, the two-year period in filing a claim for tax
refund is crucial. While the law provides that the two-year
period is counted from the date of payment of the tax,
jurisprudence, however, clarified that the two-year
prescriptive period to claim a refund actually commences to
run, at the earliest, on the date of the filing of the adjusted
final tax return 12 because this is where the figures of the
gross receipts and deductions have been audited and
adjusted, reflective of the results of the operations of a
business enterprise. 13 "Thus, it is only when the Adjustment
Return covering the whole year is filed that the taxpayer
would know whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures." 14
 In the instant case, the two-year period to file a claim
for refund is reckoned from April 15, 2011, the date
respondent filed its Final Adjustment Return. Since
respondent filed its administrative claim on March 12, 2012
and its judicial claim on April 12, 2013, therefore, both of
respondent's administrative and judicial claim for refund
were filed on time or within the two-year prescriptive period
provided by law. Under the circumstances, if respondent
awaited for the commissioner to act on its administrative
claim (before resort to the Court), chances are, the two-year
prescriptive period will lapse effectively resulting to the loss
of respondent's right to seek judicial recourse and worse, its
right to recover the taxes it erroneously paid to the
government. Hence, respondent's immediate resort to the
Court is justified.
Contrary to petitioner CIR's assertion, there was no
violation of the doctrine of exhaustion of administrative
remedies. The Court ruled:  DETACa

x x x the Court agrees with the ratiocination

of the CTA En Banc in debunking the alleged failure
to exhaust administrative remedies. Had CBK
Power awaited the action of the Commissioner on
its claim for refund prior to taking court action
knowing fully well that the prescriptive period was
about to end, it would have lost not only its right to
seek judicial recourse but its right to recover the
final withholding taxes it erroneously paid to the
government thereby suffering irreparable
damage. 15 (Citation omitted)
The law only requires that an administrative claim be
priorly filed. 16 That is, to give the BIR at the administrative
level an opportunity to act on said claim. 17 In other words,
for as long as the administrative claim and the judicial claim
were filed within the two-year prescriptive period, then there
was exhaustion of the administrative remedies.
At any rate, Section 7 of Republic Act No. 9282,
amending Republic Act No. 1125, provides that the CTA has
exclusive appellate jurisdiction over tax refund claims in case
the Commissioner fails to act on them:
Sec. 7. Jurisdiction. — The CTA shall
exercise:
(a) Exclusive appellate jurisdiction to review
by appeal, as herein provided:
 (1) Decisions of the
Commissioner of Internal Revenue in
cases involving disputed
assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National
Internal Revenue or other laws
administered by the Bureau of Internal
Revenue;
(2) Inaction by the
Commissioner of Internal Revenue
in cases involving disputed
assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National
Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue, where the National Internal
Revenue Code provides a specific
period of action, in which case the
inaction shall be deemed a denial;
(3) Decisions, orders or
resolutions of the Regional Trial
Courts in local tax cases originally
decided or resolved by them in the
exercise of their original or appellate
jurisdiction. (Emphasis supplied)
This means that while the Commissioner has the right
to hear a refund claim first, if he or she fails to act on it, it will
be treated as a denial of the refund, and the CTA is the only
entity that may review this ruling. 18 Respondent need not
wait for the Commissioner to act on its administrative claim
for refund. Thus, in the old case of P.J. Kiener Co., Ltd. v.
David, 19 the Court held:
x x x Nowhere and in no wise does the law
imply that the Collector of Internal Revenue must
act upon the claim, or that the taxpayer shall not go
to court before he is notified of the Collector's
action. Having filed his claim and the Collector of
Internal Revenue having had ample time to study it,
the claimant may, indeed should, within the
statutory period of two years proceed with his suit
 without waiting for the Collector's decision. We
understand the filing of the claim with the Collector
of Internal Revenue to be intended primarily as a
notice or warning that unless the tax or penalty
alleged to have been collected erroneously or
illegally is refunded, court action will follow. x x x 20
Petitioner CIR argued that failure of the respondent to
submit the required complete documents as required
by Revenue Memorandum Order No. 53-98 and Revenue
Regulations No. 2-2006 rendered the petition with the CTA
dismissible on the ground of lack of jurisdiction. It reasoned
out that when a taxpayer prematurely filed a judicial claim
with the CTA, the latter has no jurisdiction over the appeal.
In the instant case, respondent's failure to submit the
complete documents at the administrative level did not
render its petition for review with the CTA dismissible for lack
of jurisdiction. At this point, it is necessary to determine the
grounds relied upon by a taxpayer in filing its judicial claim
with the CTA. The case of Pilipinas Total Gas, Inc. v.
Commissioner of Internal Revenue 21 is instructive, thus:
A distinction must, thus, be made between
administrative cases appealed due to inaction and
those dismissed at the administrative level due to
the failure of the taxpayer to submit supporting
documents. If an administrative claim was
dismissed by the CIR due to the taxpayer's failure to
submit complete documents despite notice/request,
then the judicial claim before the CTA would be
dismissible, not for lack of jurisdiction, but for the
taxpayer's failure to substantiate the claim at the
administrative level. When a judicial claim for refund
or tax credit in the CTA is an appeal of an
unsuccessful administrative claim, the taxpayer has
to convince the CTA that the CIR had no reason to
deny its claim. It, thus, becomes imperative for the
taxpayer to show the CTA that not only is he entitled
under substantive law to his claim for refund or tax
credit, but also that he satisfied all the documentary
and evidentiary requirements for an administrative
claim. It is, thus, crucial for a taxpayer in a judicial
claim for refund or tax credit to show that its
administrative claim should have been granted in
the first place. Consequently, a taxpayer cannot
cure its failure to submit a document requested by
 the BIR at the administrative level by filing the said
document before the CTA. 22  aDSIHc

In this case, it was the inaction of petitioner CIR which

prompted respondent to seek judicial recourse with the CTA.
Petitioner CIR did not send any written notice to respondent
informing it that the documents it submitted were incomplete
or at least require respondent to submit additional
documents. As a matter of fact, petitioner CIR did not even
render a Decision denying respondent's administrative claim
on the ground that it had failed to submit all the required
documents.
Considering that the administrative claim was never
acted upon, there was no decision for the CTA to review on
appeal per se. However, this does not preclude the CTA
from considering evidence that was not presented in the
administrative claim with the BIR. 23 Thus, RA No.
1125 states:
Section 8. Court of record; seal;
proceedings. — The Court of Tax Appeals shall be
a court of record and shall have a seal which shall
be judicially noticed. It shall prescribe the form of its
writs and other processes. It shall have the power to
promulgate rules and regulations for the conduct of
the business of the Court, and as may be needful
for the uniformity of decisions within its jurisdiction
as conferred by law, but such proceedings shall not
be governed strictly by technical rules of evidence.
The law creating the CTA specifically provides that
proceedings before it shall not be governed strictly by the
technical rules of evidence. 24 The paramount consideration
remains the ascertainment of truth. 25 Thus, the CTA is not
limited by the evidence presented in the administrative claim
in the Bureau of Internal Revenue. 26 The claimant may
present new and additional evidence to the CTA to support
its case for tax refund. 27
Cases filed in the CTA are litigated de novo as such,
respondent "should prove every minute aspect of its case by
presenting, formally offering and submitting x x x to the Court
of Tax Appeals all evidence x x x required for the successful
prosecution of its administrative claim." 28 Consequently, the
CTA may give credence to all evidence presented by
respondent, including those that may not have been
submitted to the CIR as the case is being essentially decided
in the first instance. 29
 The issue of whether or not respondent was able to
prove by preponderance of evidence its entitlement to the
issuance of a Tax Credit certificate, the same is a factual
matter. "It is doctrinal that the Court will not lightly set aside
the conclusions reached by the CTA which, by the very
nature of its function of being dedicated exclusively to the
resolution of tax problems, has developed an expertise on
the subject, unless there has been an abuse or improvident
exercise of authority." 30
Jurisprudence laid down the basic requirements in
order for a taxpayer to claim tax credit or refund of creditable
withholding tax, thus: (1) The claim must be filed with the
CIR within the two-year period from the date of payment of
the tax, as prescribed under Section 229 of the NIRC of
1997; (2) The fact of withholding is established by a copy of
a statement duly issued by the payor to the payee showing
the amount paid and the amount of tax withheld; and (3) It
must be shown on the return of the recipient that the income
received was declared as part of the gross income. 31 The
second and third requirements are found under Section
2.58.3 (B) of Revenue Regulations No. 2-98, 32 as amended,
which reads:
Section 2.58.3. Claim for tax credit or
refund. — (B) Claims for tax credit or refund of any
creditable income tax which was deducted and
withheld on income payment shall be given due
course only when it is shown that the income
payment has been declared as part of the gross
income and the fact of withholding is established by
a copy of the withholding tax statement duly issued
by the payor to the payee showing the amount paid
and the amount of tax withheld therefrom.
Petitioner CIR insisted on the absence of the second
and third requirements. It argued that respondent failed to
prove the fact of withholding, showing the amount paid and
the amount of tax withheld and that the income it received
was declared as part of the gross income. Specifically,
petitioner CIR questioned respondent when it included the
creditable withholding taxes pertaining to income payments
for the years 2006, 2008 and 2009 to form part of its claim
for refund for the year 2010.
In this case, respondent was able to establish through
the documentary evidence it submitted compliance with the
second and third requisites. As correctly evaluated by the
CTA 1st division:
To prove its compliance with the second
requisite, petitioner [now respondent] presented
Schedule/Summary of Creditable Taxes Withheld
for the year 2010 and the related Certificates of
Creditable Taxes Withheld at Source (BIR Form No.
2307) duly issued to it by various withholding agents
for the year 2010, reflecting creditable withholding
taxes in the total amount of P12,868,745.87.
Anent the third requisite, the court was able
to trace the income payments related to the
substantiated CWT of P12,868,745.87 (save for the
amount of P139,127.97 CWT) to petitioner's
General Ledger (GL) for CY 2010, 2009, 2008 and
2006 and noted that the same were reported in
petitioner's Annual ITRs for the years 2010, 2009,
2008 and 2006. 33
It must be noted that while the income payments from
which the CWTs which were declared in its return covered
the years 2006, 2008, 2009 and 2010, there was nothing
wrong with it as what is important is that the respondent
complied with the third requisite, that is, the income which
the taxes were withheld was included in the returns of the
respondent. ETHIDa

The CTA En Banc correctly appreciated the

explanation of the independent CPA (ICPA) why the income
payments from which the CWT amounting to
P12,729,617.90 were withheld, were declared in its returns
covering the years 2006, 2008, 2009 and 2010. In gist, the
ICPA suggests that there were delays in collection of certain
income payments to respondent. For one, certain sales
made by respondent to its dealers in 2008 and 2009 were
only paid in 2010. In other words, there were certain income
payments which, although respondent expected to receive in
2006, 2008 and 2009, were only remitted to it in 2010. As
concluded by the CTA En Banc, the delay in collection of
certain income payments of respondent caused the timing
difference between the actual reporting of the income by
respondent and the actual withholding of the corresponding
creditable income tax by respondent's customers. 34 What is
important is that the creditable withholding taxes
corresponding to the related income in the respondent's
books for CY's 2006, 2008 and 2009 were not yet claimed
as income tax credits in respondent's annual ITRs
corresponding to the said years. Hence, it is just proper that
these income payments should form part of respondent's tax
credit for 2010.
Again, we reiterate the well-established doctrine that
as a matter of practice and principle, we will not set aside the
conclusion reached by an agency, like the CTA x x x. By the
very nature of its function, it has dedicated itself to the study
and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority on its
part x x x. 35 On this score, we give highest respect to the
factual findings of the CTA, which can only be disturbed on
appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the
CTA. 36 No such exception obtains in this case and thus, we
presume that the CTA rendered a decision which is valid in
every respect.
WHEREFORE, the instant Petition is DENIED. The
December 22, 2016 Decision and the April 27,
2017 Resolution of the Court of Tax Appeals En Banc,
respectively sustaining the findings of the CTA 1st Division
and denying petitioner CIR's Motion for Reconsideration, in
CTA EB No. 1333, are AFFIRMED. Accordingly, the
Commissioner of the Bureau of Internal Revenue
is DIRECTED to issue a Tax Credit Certificate in favor of
Univation Motor Philippines, Inc. in the amount of
P12,729,617.90 representing its unutilized or excess
creditable withholding tax for the taxable year 2010.
SO ORDERED.
Carpio, Caguioa and Lazaro-Javier, JJ., concur.
Perlas-Bernabe,  * J., is on leave.
 
Footnotes

*On leave.
1.Rollo, pp. 30-62.
2.Penned by Associate Justice Caesar A. Casanova, with Associate
Justices Roman G. Del Rosario (Presiding Justice), Juanito C.
Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Esperanza R.
Fabon-Victorino, Cielito N. Mindaro-Grulla, Ma. Belen M. Ringpis-
 Liban (on leave), and Catherine T. Manahan (on leave),
concurring; id. at 10-20.
3.Id. at 22-24.
4.Rollo, pp. 184-189.
5.Id. at 191-192.
6.Id. at 193.
7.Id. at 12.
8.Id. at 284-297.
9.Id. at 298-300.
10.CBK Power Company Limited v. Commissioner of Internal Revenue,
750 Phil. 748 (2015).
11.Id. at 763.
12.ACCRA Investments Corp. v. Court of Appeals, 281 Phil. 1060, 1068-
1069 (1991).
13.Commissioner of Internal Revenue v. TMX Sales, Inc., 282 Phil. 199,
207 (1992).
14.Id.
15.CBK Power Company Limited v. Commissioner of Internal
Revenue, supra note 10, at 764.
16.Id. at 765.
17.Id. at 764.
18.Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R.
Nos. 206079-80 and 206309, January 17, 2018.
19.92 Phil. 945 (1953).
20.Id. at 947.
21.774 Phil. 473 (2015).
22.Id. at 504.
23.Commissioner of Internal Revenue v. Philippine National Bank, 744
Phil. 299, 312 (2014).
24.Filinvest Development Corporation v. Commissioner of Internal
Revenue, 556 Phil. 439, 447-448 (2007).
25.Id. at 450.
26.Philippine Airlines, Inc. v. Commissioner of Internal
Revenue, supra note 18.
27.Id.
28.Supra note 23.
29.Pilipinas Total Gas, Inc. v. Commissioner of Internal
Revenue, supra note 21, at 505.
30.Commissioner of Internal Revenue v. Bank of the Philippine Islands,
G.R. No. 224327, June 11, 2018.
31.Commissioner of Internal Revenue v. TeaM (Philippines) Operations
Corp., 719 Phil. 513, 520-521 (2013).
32.Implementing Republic Act No. 8424, "An Act Amending the National
Internal Revenue Code, as Amended, and for Other Purposes."
Relative to the Withholding on Income Subject to the Expanded
Withholding Tax and Final Withholding Tax, Withholding on
Income Tax on Compensation, Withholding of Creditable Value-
Added Tax and Other Percentage Taxes.
33.Rollo, p. 293.
34.Id. at 18.
35.Commissioner of Internal Revenue v. Philippine Bank of
Communications, G.R. Nos. 198522 and 199057, Second Division
Resolution dated March 14, 2018, citing CIR v. United Salvage
and Towage (Phils.), Inc., 738 Phil. 335, 342-343 (2014).
36.Philippine Airlines, Inc. v. Commissioner of Internal
Revenue, supra note 18 at 540.
 THIRD DIVISION

[G.R. No. 221780. March 25, 2019.]

COMMISSIONER OF INTERNAL
REVENUE,petitioner,vs. V.Y. DOMINGO
JEWELLERS, INC.,respondent.

DECISION

PERALTA, J  : p

This is petition for review on certiorari under Rule 45

seeking to reverse and set aside the Court of Tax Appeals
(CTA) En Banc Decision 1 dated July 1, 2015 in CTA EB
Case No. 1170, which granted respondent V.Y. Domingo
Jewellers, Inc.'s (V.Y. Domingo) petition for review, and
ordered the remand of the case to the CTA First Division for
further proceedings; and the Resolution 2 dated December 3,
2015 which denied petitioner Commissioner of Internal
Revenue's (CIR) motion for reconsideration.
The facts are as follows:
On September 9, 2009, the Bureau of Internal
Revenue (BIR) issued a Preliminary Assessment
Notice 3 (PAN) against V.Y. Domingo, a corporation primarily
engaged in manufacturing and selling emblematic jewelry,
assessing the latter the total amount of P2,781,844.21
representing deficiency income tax and value-added tax,
inclusive of interest, for the taxable year 2006.
V.Y. Domingo filed a Request for Re-evaluation/Re-
investigation and Reconsideration 4 dated September 17,
2009 with the Regional Director of BIR-Revenue Region No.
6, requesting a "thorough re-evaluation and re-investigation
to verify the accuracy of the computation as well as the
accounts included in the Preliminary Assessment Notice."
V.Y. Domingo then received a Preliminary Collection
Letter 5 (PCL) dated August 10, 2011 from the Revenue
District Office (RDO) No. 28-Novaliches, informing it of the
existence of Assessment Notice No. 32-06-IT-0242 and
Assessment Notice No. 32-06-VT-0243, both dated
November 18, 2010, for collection of its tax liabilities in the
amounts of P1,798,889.80 and P1,365,727.63, respectively,
for a total amount of P3,164,617.43. The PCL likewise
stated:
If you want to know the details and/or settle
this assessment, may we invite you to come to this
office, within ten (10) days from receipt of this
notice. However, if payment had already been
made, please send or bring us copies of the receipts
of payment together with this letter to be our basis
for canceling/closing your liability/ies.
We will highly appreciate if you can give this
matter your preferential attention, otherwise we shall
be constrained to enforce the collection thereof thru
Administrative Summary Remedies provided for by
the law, without further notice. 6 
cDSAEI

On September 12, 2011, V.Y. Domingo sent a letter to

the BIR Revenue District Office No. 28 in Quezon City,
requesting certified true copies of Assessment Notice Nos.
32-06-IT-0242 and 32-06-VT-0243. Upon receipt of the
requested copies of the notices on September 15, 2011,
V.Y. Domingo filed on September 16, 2011 a Petition for
Review 7 with the CTA in Division, under Section 7 (1) of RA
No. 1125 and Section 4, Rule 8 of the Revised Rules of the
Court of Tax Appeals (RRCTA),praying that Assessment
Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated
November 18, 2010 and the PCL dated August 10, 2011 be
declared null and void, cancelled, withdrawn, and with no
force and effect, for allegedly having been issued beyond the
prescriptive period for assessment and collection of internal
revenue taxes.
During trial, the CIR filed her Motion to Dismiss 8 the
petition for lack of jurisdiction. She argued that
under Republic Act (R.A.) No. 1125 ("An Act Creating the
Court of Tax Appeals"), as amended, and the RRCTA, it is
neither the assessment nor the formal letter of demand that
is appealable to the CTA but the decision of the CIR on a
disputed assessment. Claiming that V.Y. Domingo's petition
was anchored on its receipt of the PCL, which it treated as a
denial of its Request for Re-evaluation/Re-investigation and
Reconsideration, the CIR further argued that there was no
disputed assessment to speak of, and that the CTA had no
jurisdiction to entertain the said Petition for Review.
In a Resolution 9 dated January 29, 2014, the CTA
First Division granted the CIR's motion and dismissed V.Y.
Domingo's Petition for Review. It held that it was without
jurisdiction to entertain the petition, as the rule is that for the
CTA to acquire jurisdiction, as assessment must first be
disputed by the taxpayer and either ruled upon by the CIR to
warrant a decision, or denied by the CIR through inaction.
The CTA First Division ruled that what were appealed to it
were the subject assessments, not a decision or the CIR's
denial of its protest; thus, the said assessments had attained
finality, and the CTA in Division was without jurisdiction to
entertain the appeal.
V.Y. Domingo's motion for reconsideration having
been denied in a Resolution dated April 23, 2014, it filed on
May 30, 2014 a petition for review before the CTA En Banc.It
argued that the CTA First Division erred when it upheld the
CIR's position that V.Y. Domingo should have
administratively protested the Assessment Notices first
before filing its Petition for Review. Furthermore, V.Y.
Domingo claimed that it was denied due process when the
CIR failed to send the Notice of Final Assessment to it.
In its Decision dated July 1, 2015, the CTA En
Banc granted V.Y. Domingo's Petition for Review, reversing
and setting aside the January 29, 2014 and April 23, 2014
Resolutions of the CTA First Division. It remanded the case
to the CTA First Division for further proceedings to afford the
CIR full opportunity to present her evidence. It held —
Petitioner's case did not fall within the usual
procedure in the issuance of an assessment as
 respondent failed to serve or send the FAN to
petitioner. Section 228 of the NIRC of 1997, as
amended, and Section 3 of Revenue Regulations
No. 12-99 are silent as to the procedure to be
followed in case the taxpayer did not receive the
FAN but instead receives a preliminary collection
letter or a warrant of distraint/levy or similar
communications, informing the taxpayer of the
existence of a FAN for the first time.
Understandably, this would cause some confusion
as to what the next step it. Hence, petitioner cannot
be faulted for not filing an administrative protest
before filing a petition for review before the Court in
Division since it did not receive the FAN and the
language of the PCL shows that the respondent is
already demanding payment from petitioner
presupposing that the assessment has become
final. 10
Thus, the present petition raising the sole issue of
whether the First Division of the CTA has jurisdiction to
entertain V.Y. Domingo's petition for review.
The CIR argues that assessment notices are not
appealable to the CTA as the power to decide disputed
assessments is vested in the CIR, subject only to the
exclusive appellate jurisdiction of the CTA. The CIR adds
that a thorough review of V.Y. Domingo's petition for review
before the CTA First Division would readily show that it was
an original protest on the assessment made by the
petitioner, a matter that, under R.A. No. 1125, is not within
the jurisdiction of the CTA. SIcCTD

The CIR likewise claims that a close scrutiny of V.Y.

Domingo's petition for review before the CTA would reveal
that it was anchored on its receipt of the PCL issued by the
BIR, which V.Y. Domingo mistakenly treated as a denial of
its motion for reinvestigation of the PAN. 11 Before V.Y.
Domingo filed its petition for review before the CTA First
Division on September 16, 2011, it had already received
copies of Assessment Notice Nos. 32-06-IT-0242 and 32-06-
VT-0243 and the Formal Letter of Demand (FLD) dated
September 9, 2010. However, instead of challenging the
contents of the said assessment notices by filing the
appropriate protest or motion for reinvestigation within thirty
(30) days from September 15, 2011, the date it received the
copies of the notices, the CIR laments that V.Y. Domingo
opted to immediately institute a petition for review on the
basis of the PCL. 12 This, argues the CIR, is in clear violation
of the doctrine of exhaustion of administrative remedies.
This Court, through a Resolution 13 dated March 7,
2016, required respondent V.Y. Domingo to comment on the
Petition for Review.
In its Comment, 14 V.Y. Domingo contends that
contrary to the CIR's allegation, the CTA has jurisdiction to
take cognizance of its Petition for Review. Citing Section 7
of R.A. No. 1125, as amended, V.Y. Domingo suggests that
the CIR may have disregarded the fact that the jurisdiction of
the CTA is not limited to review of decisions of the CIR in
cases involving disputed assessments only, but also
includes "other matters arising under the National Internal
Revenue or other laws administered by the Bureau of
Internal Revenue." 15 V.Y. Domingo reiterates that its case
does not involve an appeal from a decision of the CIR on a
disputed assessment since in the first place, there is no
"disputed" assessment to speak of. 16
Furthermore, V.Y. Domingo also claims that the tenor
of the PCL forecloses any opportunity for it to file its
administrative protest as a reading of the same will show
that the CIR had already decided to deny any protest as
regards the assessment made against the respondent
taxpayer. 17
We rule for the petitioner.
At the outset, it bears emphasis that the CTA, being a
court of special jurisdiction, can take cognizance only of
matters that are clearly within its jurisdiction. 18 Section 7
of R.A. No. 1125, as amended by R.A. No. 9282, specifically
provides:
SEC. 7. Jurisdiction. — The CTA shall
exercise:
(a) Exclusive appellate jurisdiction to
review by appeal,as herein provided:
(1) Decisions of the
Commissioner of Internal Revenue
in cases involving disputed
assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National
Internal Revenue Code or other laws
 administered by the Bureau of Internal
Revenue;
(2) Inaction by the
Commissioner of Internal Revenue in
cases involving disputed assessments,
refunds of internal revenue taxes, fees
or other charges, penalties in relation
thereto, or other matters arising under
the National Internal Revenue Code or
other laws administered by the Bureau
of Internal Revenue, where
the National Internal Revenue
Code provides a specific period of
action, in which case the inaction shall
be deemed a denial;
xxx xxx xxx. 19
In relation thereto, Section 228 of R.A. No.
8424 or The Tax Reform Act of 1997, as amended,
implemented by Revenue Regulations No. 12-99, 20 provides
for the procedure to be followed in issuing tax assessments
and in protesting the same. Thus:  aTcSID

Section 228. Protesting of
Assessment. — When the Commissioner or his
duly authorized representative finds that proper
taxes should be assessed, he shall first notify
the taxpayer of his findings: Provided,
however,That a pre-assessment notice shall not be
required in the following cases:
(a) When the finding for any deficiency
tax is the result of mathematical error
in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been
determined between the tax withheld
and the amount actually remitted by
the withholding agent; or
(c) When a taxpayer who opted to
claim a refund or tax credit of excess
creditable withholding tax for a taxable
period was determined to have carried
over and automatically applied the
same amount claimed against the
estimated tax liabilities for the taxable
 quarter or quarters of the succeeding
taxable year; or
(d) When the excise tax due on
excisable articles has not been paid;
or
(e) When an article locally purchased
or imported by an exempt person,
such as, but not limited to, vehicles,
capital equipment, machineries and
spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Within a period to be prescribed by implementing
rules and regulations, the taxpayer shall be required
to respond to said notice.
If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested
administratively by filing a request for
reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such
form and manner as may be prescribed by
implementing rules and regulations.
Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been
submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is
not acted upon within one hundred eighty (180)
days from submission of documents, the
taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred
eighty (180)-day period; otherwise, the decision
shall become final, executory and
demandable. 21
 On the other hand, Section 3.1.5 of Revenue
Regulations No. 12-99, 22 implementing Section 228 above,
provides:
3.1.5. Disputed Assessment. — The
taxpayer or his duly authorized representative
may protest administratively against the
aforesaid formal letter of demand and
assessment notice within thirty (30) days from
date of receipt thereof ...
xxx xxx xxx
If the taxpayer fails to file a valid protest
against the formal letter of demand and
assessment notice within thirty (30) days from
date of receipt thereof, the assessment shall
become final, executory and demandable.
If the protest is denied, in whole or in part, by
the Commissioner, the taxpayer may appeal to the
Court of Tax Appeals within thirty (30) days from the
date of receipt of the said decision, otherwise, the
assessment shall become final, executory and
demandable.
In general, if the protest is denied, in whole or
in part, by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the
Court of Tax Appeals within thirty (30) days from
date of receipt of the said decision, otherwise, the
assessment shall become final executory and
demandable: Provided,however, that if the taxpayer
elevates his protest to the Commissioner within
thirty (30) days from date of receipt of the final
decision of the Commissioner's duly authorized
representative, the latter's decision shall not be
considered final, executory and demandable, in
which case, the protest shall be decided by the
Commissioner.  CDHaET

If the Commissioner or his duly authorized

representative fails to act on the taxpayer's protest
within one hundred eighty (180) days from date of
submission, by the taxpayer, of the required
documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within thirty
(30) days from the lapse of the said 180-day period,
otherwise the assessment shall become final,
executory and demandable. (Emphasis ours)
 It is clear from the said provisions of the law that a
protesting taxpayer like V.Y. Domingo has only three options
to dispute an assessment:
1. If the protest is wholly or partially denied by the CIR
or his authorized representative, then the taxpayer may
appeal to the CTA within 30 days from receipt of the whole
or partial denial of the protest;
2. If the protest is wholly or partially denied by the
CIR's authorized representative, then the taxpayer may
appeal to the CIR within 30 days from receipt of the whole or
partial denial of the protest;
3. If the CIR or his authorized representative failed to
act upon the protest within 180 days from submission of the
required supporting documents, then the taxpayer may
appeal to the CTA within 30 days from the lapse of the 180-
day period. 23
In this case, records show that on August 11, 2011,
V.Y. Domingo received the PCL issued by petitioner CIR
informing it of Assessment Notice Nos. 32-06-IT-0242 and
32-06-VT-0243 dated November 18, 2010. On September
12, 2011, the former sent a letter request to the BIR
requesting for certified true copies of the said Assessment
Notices.
However, instead of filing an administrative protest
against the assessment notice within thirty (30) days from its
receipt of the requested copies of the Assessment Notices
on September 15, 2011, V.Y. Domingo elected to file its
petition for review before the CTA First Division on
September 16, 2011, ratiocinating that the issuance of the
PCL and the alleged finality of the terms used for demanding
payment therein proved that its Request for Re-
evaluation/Re-investigation and Reconsideration had been
denied by the CIR.
That V.Y. Domingo believed that the PCL "undeniably
shows" the intention of the CIR to make it as its final
"decision" did not give it cause of action to disregard the
procedure set forth by the law in protesting tax assessments
and act prematurely by filing a petition for review before the
courts. The word "decisions" in the aforementioned provision
of R.A. No. 9282 has been interpreted to mean the decisions
of the CIR on the protest of the taxpayer against the
assessments. 24 Definitely, said word does not signify the
assessment itself. 25 Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel
the same because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a "disputed assessment"
that the Collector must decide, and the taxpayer can appeal
to the CTA only upon receipt of the decision of the Collector
on the disputed assessment. 26
Admitting for the sake of argument the claim of V.Y.
Domingo in its Comment — that its case does not involve an
appeal from a decision of the CIR on a disputed assessment
since in the first place, there is no "'disputed' assessment to
speak of" — admits the veracity of petitioner CIR's claim:
there being no disputed assessment to speak of when V.Y.
Domingo filed its petition for review before the CTA First
Division, the latter had no jurisdiction to entertain the same.
Thus, the latter's dismissal of the petition for review was
proper.
Evidently, V.Y. Domingo's immediate recourse to the
CTA First Division was in violation of the doctrine of
exhaustion of administrative remedies.
Under the doctrine of exhaustion of administrative
remedies, before a party is allowed to seek the intervention
of the court, he or she should have availed himself or herself
of all the means of administrative processes afforded him or
her. 27 Section 228 of the Tax Code requires taxpayers to
exhaust administrative remedies by filing a request for
reconsideration or reinvestigation within 30 days from receipt
of the assessment. 28 Exhaustion of administrative remedies
is required prior to resort to the CTA precisely to give the
Commissioner the opportunity to "re-examine its findings and
conclusions" and to decide the issues raised within her
competence. 29  HASDcC

V.Y. Domingo posits that its case is an exception to

the rule on exhaustion of administrative remedies and the
rule on primary jurisdiction as it cannot be expected to be
able to file an administrative protest to the Assessment
Notices which it never received. 30 It expressly admitted that
it did not file an administrative protest, based on its alleged
non-receipt of the same. 31 Citing the case of Allied Banking
Corporation v. CIR,32 wherein this Court ruled that the filing
of therein petitioner of a petition for review with the CTA
without first contesting the FAN issued against it was an
exception to the rule on exhaustion of administrative
remedies, V.Y. Domingo maintains that in its case, the CIR
was similarly estopped from claiming that the filing of the
petition for review was premature.
 However, as previously mentioned, the records of the
case show that V.Y. Domingo did receive the certified true
copies of the Assessment Notices it requested on
September 15, 2011, the day before it filed its petition for
review before the CTA First Division. V.Y. Domingo cannot
now assert that its recourse to the court was based on its
non-receipt of the Assessment Notices that it requested.
Likewise, this Court cannot apply the ruling in Allied
Banking Corporation v. CIR,33 wherein the demand letter
sent by the CIR was worded as follows:
It is requested that the above deficiency tax
be paid immediately upon receipt hereof, inclusive
of penalties incident to delinquency. This is our final
decision based on investigation. If you disagree, you
may appeal the final decision within thirty (30) days
from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and
demandable. 34
The ruling of this Court in the said case was grounded
on the language used and the tenor of the demand letter,
which indicate that it was the final decision of the CIR on the
matter. The words used, specifically the words "final
decision" and "appeal," taken together led therein petitioner
to believe that the Formal Letter of Demand with
Assessment Notices was, in fact, the final decision of the
CIR on the letter-protest it filed and that the available remedy
was to appeal the same to the CTA. 35
Comparing the wording of the above-quoted demand
letter with that sent by the CIR to V.Y. Domingo in the instant
case, it becomes apparent that the latter's invocation of the
ruling in the Allied Banking Corporation case is misguided as
the foregoing statements and terms are not present in the
subject PCL dated August 10, 2011.
What is evident in the instant case is that Assessment
Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated
November 18, 2010 have not been disputed by V.Y.
Domingo at the administrative level without any valid basis
therefor, in violation of the doctrine of exhaustion of
administrative remedies. To reiterate, what is appealable to
the CTA are decisions of the CIR on the protest of the
taxpayer against the assessments. There being no protest
ruling by the CIR when V.Y. Domingo's petition for review
was filed, the dismissal of the same by the CTA First
Division was proper. As correctly put by Associate Justice
Roman G. Del Rosario in his Dissenting Opinion, "(C)learly,
petitioner did not exhaust the administrative remedy
provided under Section 228 of the NIRC of 1997, as
amended, and RR No. 12-99 which is fatal to its cause.
Consequently, the non-filing of the protest against the FLD
led to the finality of the assessment." 36
WHEREFORE,in view of the foregoing, the
Court GRANTS the petition for review on certiorari.The
assailed July 1, 2015 Decision and December 3, 2015
Resolution of the Court of Tax Appeals En Banc are
hereby REVERSED and SET ASIDE,and the January 29,
2014 and April 23, 2014 Resolutions of the First Division of
the Court of Tax Appeals are REINSTATED.  STaAcC

SO ORDERED.
A.B. Reyes,
Jr.,Hernando and Carandang,  ** JJ.,concur.
Leonen,  * J.,is on wellness leave.
 
 

Footnotes

*On wellness leave.

**Designated Additional Member per Special Order No. 2624 dated
November 28, 2018.
1.Penned by Associate Justice Amelia R. Cotangco-Manalastas, with
Associate Justices Juanito C. Castañeda, Jr.,Lovell R. Bautista,
Caesar A. Casanova, Esperanza R. Fabon-Victorino, and Ma.
Belen M. Ringpis-Liban concurring, with Presiding Justice Roman
G. Del Rosario, and Associate Justices Erlinda P. Uy, and Cielito
N. Mindaro-Grulla dissenting; rollo,pp. 37-51.
2.Id. at 56-62.
3.Rollo,pp. 63-64.
4.Id. at 66.
5.Id. at 68.
6.Id.
7.Id. at 69-89.
8.Id. at 92-99.
9. Penned by Associate Justice Erlinda P. Uy, with Associate Justices
Roman G. Del Rosario and Cielito N. Mindaro-Grulla
concurring, id. at 105-115.
10. Id. at 49.
11. Id. at 23.
12. Id. at 24-25.
13. Id. at 116.
14. Id. at 117-149.
15. Id. at 122.
16. Id. at 124-125.
17. Id. at 125-126.
18. CIR v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc.,746 Phil. 139, 152 (2014).
19. Emphasis supplied.
20. Dated September 6, 1999.
21. Emphasis ours.
22. Implementing the Provisions of the National Internal Revenue Code
of 1997 Governing the Rules on Assessment of National Internal
Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial
Settlement of a Taxpayer's Criminal Violation of the Code through
Payment of a Suggested Compromise Penalty. September 6,
1999.
23. Philippine Amusement and Gaming Corp. v. Bureau of Internal
Revenue, et al.,779 Phil. 547, 558 (2016).
24. Allied Banking Corporation v. Commissioner of Internal Revenue,625
Phil. 530, 538 (2010).
25. Lascona Land Co., Inc. v. Commissioner of Internal Revenue,683
Phil. 430, 440 (2012).
26. Id.
27. Public Hearing Committee of the Laguna Lake Development
Authority v. SM Prime Holdings, Inc.,645 Phil. 324, 331 (2010).
28. CIR v. Avon Products Manufacturing, Inc.,G.R. Nos. 201398-99 &
201418-19, October 3, 2018.
29. Id.
30. Rollo,p. 125.
 31. Id. at 124.
32. Supra note 24, at 541-542.
33. Allied Banking Corporation v. CIR,supra note 24.
34. Id. at 535.
35. Id. at 544.
36. Rollo,p. 54.

|||  

SECOND DIVISION

[G.R. No. 211839. March 18, 2019.]

PRIVATIZATION AND MANAGEMENT

OFFICE, petitioner, vs. COURT OF TAX
APPEALS AND CITY GOVERNMENT OF
TACLOBAN, respondents.

DECISION

J.C. REYES, JR., J  : p

This Petition for Certiorari under Rule 65 of the 1997

Rules of Court assails the Resolutions of the Court of Tax
Appeals (CTA) En Banc in C.T.A. EB Case No. 901, as
follows:
a) Resolution dated February 7, 2013 1 which,
although it granted petitioner Privatization and
Management Office's (PMO's) Motion for
Suspension of Collection of Real Property Tax
and Cancellation of Warrants of Levy, it
however required the posting/filing of a surety
bond equivalent to one and one-half of the
amount sought to be collected;
b) Resolution dated March 1, 2013 2 which declared
as moot the Motion for Exemption from Posting
of Surety Bond filed by PMO and the Philippine
Tourism Authority (PTA, now Tourism
Infrastructure and Enterprise Zone Authority
[TIEZA]), as the latter had already posted the
required surety bond; and
c) Resolution dated January 29, 2014, 3 which denied
PMO's Motion for Reconsideration.
The PMO (petitioner), the Province of Leyte and the
PTA are the owners of the Leyte Park Hotel, Inc. (LPHI), a
real property with improvement situated within the territorial
and taxing jurisdiction of private respondent City
Government of Tacloban (respondent City). 4
The facilities of LPHI were leased out to Unimaster
Conglomeration, Inc. (UCI) for a monthly rental of
P300,000.00 for a period of 12 years. 5 Meanwhile,
respondent City sent several demand letters to UCI for it to
pay the real property taxes of LPHI in the amount of
P23,377,353.08. 6
However, despite repeated demands by respondent
City, the real property taxes remained unpaid. Hence, on
December 15, 2004, respondent City filed a complaint for
Collection of Sum of Money before the CTA Special First
Division, against the LPHI and UCI. Thereafter, respondent
City amended its complaint and impleaded additional
defendants, namely: The Province of Leyte, the PTA and the
petitioner. Petitioner filed its Answer and argued, among
others, that the liability to pay real property taxes devolves
on UCI pursuant to Section 234 of the Local Government
Code.
After trial, the CTA Special First Division rendered a
Decision 7 dated November 15, 2011 in CTA OC No. 012
holding UCI liable for the payment of the unpaid real
property taxes. UCI moved to reconsider but the same was
denied. Aggrieved, UCI filed a Petition for Review with the
CTA En Banc. During the pendency of the aforesaid petition,
respondent City filed a Motion for Execution Pending Appeal
before the CTA Special First Division but the motion was
denied. Despite the CTA denial, respondent City still issued
warrants of levy against the properties of petitioner, allegedly
to place the subject properties for auction.
On December 6, 2012, petitioner filed a Motion for
Suspension of Collection of Real Property Tax and
Cancellation of Warrants of Levy before the CTA En Banc.
On February 7, 2013, the CTA En Banc issued the
now assailed Resolution granting petitioner's Motion for
Suspension of Collection of Real Property Tax and
Cancellation of Warrants of Levy conditioned on its filing of a
surety bond equivalent to one and one-half of the amount
sought to be collected by respondent City.
On February 14, 2013, petitioner filed a Motion for
Exemption from Posting of Surety Bond on the ground that
national government agencies and instrumentalities, such as
petitioner, are not, and should not be required to file any
bond as there should be no doubt as to the solvency of the
Republic of the Philippines. However, as a precautionary
measure, petitioner filed on February 15, 2013 its
Compliance Ad Cautelam and filed a Government Service
Insurance System (GSIS) Surety Bond in order to ensure
suspension of the collection of the real property tax being
sought by the respondent City and prevent execution of the
warrants of levy.
On March 1, 2013, the CTA En Banc issued the
assailed Resolution which considered petitioner's Motion for
Exemption from Posting of Surety Bond as moot by virtue of
the latter's filing of the aforementioned surety bond. On April
3, 2013, petitioner filed a Motion for Reconsideration but the
same was denied in another assailed Resolution dated
January 29, 2014.
Dissatisfied, petitioner filed the instant petition
for certiorari on the ground that respondent CTA committed
grave abuse of discretion amounting to lack or in excess of
jurisdiction in:
A. DIRECTING PETITIONER, THROUGH ITS
RESOLUTION DATED FEBRUARY 7, 2013,
TO POST A SURETY BOND IN ORDER TO
 STAY THE COLLECTION OF REAL
PROPERTY TAX SOUGHT BY RESPONDENT
CITY GOVERNMENT OF TACLOBAN AND
PREVENT EXECUTION ON THE WARRANTS
OF LEVY[;]
B. HOLDING, IN ITS RESOLUTION DATED MARCH
1, 2013, THAT PETITIONER'S MOTION FOR
EXEMPTION FROM POSTING OF SURETY
BOND HAS BEEN RENDERED MOOT[; and]
C. DENYING, IN ITS RESOLUTION DATED
JANUARY 29, 2014, PETITIONER'S MOTION
FOR RECONSIDERATION. 8
Central to the instant petition is the issue of whether or
not petitioner, as an agency of the government, is exempt
from posting a surety bond as a condition to the suspension
of collection of real property tax.
Section 9 of Republic Act (R.A.) No. 9282 9 amending
Section 11 of R.A. No. 1125, 10 provides as follows:
SEC. 9. Section 11 of the same Act is hereby
amended to read as follows:
SEC. 11. Who May Appeal;
Mode of Appeal; Effect of Appeal. — x
xx
xxx xxx xxx
No appeal taken to the CTA
from the decision of the Commissioner
of Internal Revenue or the
Commissioner of Customs or the
Regional Trial Court, provincial, city or
municipal treasurer or the Secretary of
Finance, the Secretary of Trade and
Industry or the Secretary of
Agriculture, as the case may be, shall
suspend the payment, levy, distraint,
and/or sale of any property of the
taxpayer for the satisfaction of his tax
liability as provided by existing
law: Provided, however, That when in
the opinion of the Court the collection
by the aforementioned government
agencies may jeopardize the interest
of the Government and/or the
taxpayer[,] the Court[, at] any stage of
 the proceeding may suspend the said
collection and require the taxpayer
either to deposit the amount claimed
or to file a surety bond for not more
than double the amount with the
Court.
xxx xxx xxx
With the expansion of the jurisdiction of the CTA, it
has now the power to take cognizance of cases appealed to
it involving real property taxation. The foregoing provision
provides for the rule that an appeal to the CTA from the
decision of the City Treasurer of a Local Government Unit
(as in this case) will not suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the
satisfaction of his tax liability, as provided by existing law.
However, when, in the view of the CTA, the collection may
jeopardize the interest of the Government and/or the
taxpayer, it may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a
surety bond.
It is clear from the foregoing that the CTA may order
the suspension of the collection of taxes, provided that the
taxpayer either: (1) deposits the amount claimed; or (2) files
a surety bond for not more than double the amount. 11 These
condition precedents were required by law in order to
guarantee the payment of the deficiency taxes assessed
against the taxpayer, if and when the case is finally decided
against the said taxpayer.
Petitioner sought that it be exempted from the filing of
the surety bond. Petitioner relied on the case of The
Collector of Internal Revenue v. Reyes, 12 where the Court
sustained the CTA's exercise of discretion when it did not
require the taxpayer to post a surety bond despite
suspending the collection of the tax. It also relied on
numerous cases 13 where this Court held that the state is not
required to put up a bond because it is presumed solvent.
The petitioner opined that since it is an agency of the
national government, then there is no doubt as to its
solvency. 14 Petitioner finally argued that its compliance with
the posting of the GSIS Surety Bond did not render the case
moot. A final resolution of the issue of petitioner's exemption
from posting a surety bond must be finally settled.
In the said Reyes case, as cited by petitioner, the CTA
issued the injunction on the basis of the findings that the tax
to be collected has already prescribed. The CTA, however,
found that it was no longer necessary for the taxpayer to file
a surety bond. The Court justified it in this wise:
It certainly would be an absurdity on the part of the
Court of Tax Appeals to declare that the collection
by the summary methods of distraint and levy was
violative of the law, and then, on the same breath
require the petitioner to deposit or file a bond as a
prerequisite for the issuance of a writ of injunction.
Let us suppose, for the sake of argument, that the
Court a quo would have required the petitioner to
post the bond in question and that the taxpayer
would refuse or fail to furnish said bond, would the
Court a quo be obliged to authorize or allow the
Collector of Internal Revenue to proceed with the
collection from the petitioner of the taxes due by a
means it previously declared to be contrary to
law? 15
From the foregoing, the Court concluded then that the
requirement of the bond as a condition precedent to the
issuance of the writ of injunction applies only in cases where
the processes by which the collection sought to be made by
means thereof are carried out in consonance with the law for
such cases provided and not when said processes are
obviously in violation of the law to the extreme that they have
to be suspended for jeopardizing the interests of taxpayer. 16
This principle was echoed in the recent case
of Spouses Pacquiao v. Court of Tax Appeals, 17 when the
Court held:
From all the foregoing, it is clear that the
authority of the courts to issue injunctive writs to
restrain the collection of tax and to dispense with
the deposit of the amount claimed or the filing of the
required bond is not simply confined to cases where
prescription has set in. As explained by the Court in
those cases, whenever it is determined by the
courts that the method employed by the
Collector of Internal Revenue in the collection of
tax is not sanctioned by law, the bond
requirement under Section 11 of R.A. No.
1125 should be dispensed with. (Emphasis and
italics in the original)
In the instant case, there was a clear showing that the
method employed by the respondent City in the collection of
the real property taxes contravened existing law and
jurisprudence. It must be underscored that the petitioner filed
the motion to suspend the collection of tax, not so much to
stay the collection thereof, but actually to thwart the threat of
the property being sold in public auction which may
effectively divest the petitioner, the PTA and the Province of
Leyte of the ownership over the property.
The petitioner recognized the fact — which was
affirmed in the CTA En Banc Decision dated August 22,
2014, that as a government entity, it is exempt from payment
of real property taxes pursuant to Section 234 (a) of
the 1991 Local Government Code or R.A. No. 7160. 18 The
said provision also provides that when the beneficial use of
the real property owned by the Republic or any of its political
subdivision, is vested to a taxable person, the real property
is subject to tax. Petitioner, together with the PTA and the
Province of Leyte, had already admitted that they are co-
owners of the subject property and they were leasing the
same to UCI, a private entity pursuant to a Contract of Lease
dated September 15, 1994. Thus, pursuant to the
aforementioned Local Government Code provision and also
in the case of National Power Corporation v. Province of
Quezon, 19 where this Court ruled:
The liability for taxes generally rests on the
owner of the real property at the time the tax
accrues. This is a necessary consequence that
proceeds from the fact of ownership. However,
personal liability for realty taxes may also expressly
rest on the entity with the beneficial use of the real
property, such as the tax on property owned by the
government but leased to private persons or
entities, or when the tax assessment is made on the
basis of the actual use of the property. In either
case, the unpaid realty tax attaches to the
property but is directly chargeable against the
taxable person who has actual and beneficial
use and possession of the property regardless
of whether or not that person is the
owner. (Emphasis and italics in the original)
But, without, however, prejudging the appealed case on the
merits, UCI, the actual and beneficial user of subject
property can be said to be directly liable for the real property
taxes on the property owned by the government.
 On the basis of the foregoing law and jurisprudence,
while it is correct for the respondent City to assess UCI of
the unpaid real property taxes, it is, however, a clear
contravention of the law to proceed with the issuance of the
warrant of levy against the subject property in order to place
it for public auction. This method of collection of the
deficiency of real property taxes prejudiced not UCI, the
private entity who is directly charged with the payment of the
tax, but the petitioner, the PTA and the Province of Leyte,
the government entities who owned the land.
It is a settled rule that property of public dominion,
being outside the commerce of man, cannot be the subject
of an auction sale, levy, encumbrance or disposition through
public or private sale. 20 Any encumbrance, levy on
execution or auction sale of any property of public dominion
is void for being contrary to public policy. 21
Under Article 420 of the Civil Code, the subject
property (the LPHI) is a property of the public dominion
owned by the State, through its agents and instrumentalities.
Thus, Article 420 of the Civil Code, provides:
Art. 420. The following things are property of public
dominion:
(1) Those intended for public use, such as
roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without
being for public use, and are intended for some
public service or for the development of the
national wealth. (Emphases supplied)
Thus, being a property of public dominion, the subject
property cannot be subject of public auction sale,
notwithstanding its realty tax delinquency. This means that
the respondent City has to satisfy its realty tax claims by
serving the accrued realty tax assessment upon UCI, as the
taxable beneficial user of the subject property and in case of
UCI's non-payment, through any means other than the sale
at public auction of the leased property. The case
of Philippine Fisheries Development Authority v. Court of
Appeals 22 instructs, thus:
In sum, the Court finds that the Authority is
an instrumentality of the national government,
hence, it is liable to pay real property taxes
 assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private
entities. Notwithstanding said tax delinquency on
the leased portions of the IFPC, the latter or any
part thereof, being a property of public domain,
cannot be sold at public auction. This means that
the City of Iloilo has to satisfy the tax delinquency
through means other than the sale at public auction
of the IFPC.
Verily, since the method employed by the respondent
City in collecting the realty taxes due — through the warrant
of levy and the eventual public auction of a property of public
dominion — is not sanctioned by law, then it is no longer
necessary for the petitioner to file a surety bond as a
condition precedent to suspend the tax collection.
To repeat, the purpose of the surety bond is to ensure
that the tax due will be paid if and when the case is finally
decided against the taxpayer. Indeed, the Republic of the
Philippines need not give this security as it is presumed to
be always solvent and able to meet its obligations. 23 Thus,
the petitioner, being an agent of the national
government, 24 is not required to put up a bond because to
do so would be to indirectly require the state to submit such
bond. Since the petitioner had already filed the required
surety bond with the CTA, it is just proper to order the CTA
to release the same for reasons as discussed in this
decision.
WHEREFORE, the Petition
for Certiorari is GRANTED. The assailed Resolutions dated
February 7, 2013, March 1, 2013 and January 29, 2014 of
the Court of Tax Appeals En Banc in C.T.A. EB Case No.
901 are SET ASIDE insofar as it required the PMO to file a
surety bond as a condition precedent in suspending the real
property tax collection. Accordingly, the CTA is
hereby ORDERED to release the GSIS Surety Bond earlier
filed by the PMO.
SO ORDERED.
Carpio, Perlas-Bernabe, Caguioa and Lazaro-Javier,
JJ., concur.
 
Footnotes
1. Concurred in by Acting Presiding Justice Juanito C. Castañeda, Jr.
and Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar
A. Casanova, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-
Grulla and Amelia Cotangco-Manalastas; rollo, pp. 35-42.
2. Penned by Associate Justice Esperanza R. Fabon-Victorino, with
Acting Presiding Justice Juanito C. Castañeda, Jr. and Associate
Justices Lovell R. Baustista, Erlinda P. Uy, Caesar A. Casanova.
Cielito N. Mindaro-Grulla and Amelia R. Cotangco-Manalastas,
concurring; id. at 45-46.
3. Penned by Associate Justice Esperanza R. Fabon-Victorino, with
Presiding Justice Roman G. Del Rosario and Associate Justices
Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy,
Caesar A. Casanova, Cielito N. Mindaro-Grulla, Amelia R.
Cotangco-Manalastas and Ma. Belen M. Ringpis-Liban,
concurring; id. at 49-56.
4. Id. at 287.
5. Id. at 12.
6. Id.
7. Penned by Associate Justice Lovell R. Bautista, with Associate
Justices Ernesto D. Acosta and Caesar A. Casanova,
concurring; id. at 362-405.
8. Id. at 16-17.
9. AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX
APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A
COLLEGIATE COURT WITH SPECIAL JURISDICTION AND
ENLARGING ITS MEMBERSHIP, AMENDING FOR THE
PURPOSE CERTAIN SECTIONS OF REPUBLIC ACT NO. 1125,
AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING
THE COURT OF TAX APPEALS, AND FOR OTHER
PURPOSES, March 30, 2004.
10. AN ACT CREATING THE COURT OF TAX APPEALS, June 16,
1954.
11. Tridharma Marketing Corp. v. Court of Tax Appeals, 787 Phil. 638,
646 (2016).
12. 100 Phil. 822 (1957).
13. Republic v. Garcia, 554 Phil. 371, 376 (2007); Republic v. Court of
Appeals, 160-A Phil. 465, 473 (1975); Araneta v. Gatmaitan, 101
Phil. 328, 340 (1957); and Spouses Badillo v. Tayag, 448 Phil.
606, 617 (2003).
14. Rollo, p. 27.
15. The Collector of Internal Revenue v. Reyes, supra note 12, at 829.
16. Id. at 828.
17. 784 Phil. 220, 246 (2016).
18. SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
   (a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person[.] (Underscoring supplied)
19. 610 Phil. 456, 467-468 (2009).
20. Manila International Airport Authority v. Court of Appeals, 528 Phil.
181, 219 (2006).
21. Id.
22. 555 Phil. 661, 674 (2007).
23. Republic v. Garcia, 554 Phil. 371, 377 (2007).
24. Organized under the Department of Finance by virtue of E.O. No.
323 dated December 6, 2000.

SECOND DIVISION

[G.R. No. 212699. March 13, 2019.]

 COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. PHILIPPINE
NATIONAL BANK, respondent.

DECISION

J.C. REYES, JR., J  : p

This petition for review on certiorari 1 under Rule 45 of

the Rules of Court assails the Amended Decision 2 dated
February 4, 2014 of the Court of Tax Appeals (CTA) En
Banc in CTA EB Case No. 859, which ordered petitioner
Commissioner of Internal Revenue (CIR) to refund
respondent Philippine National Bank's (PNB's) excess and
unutilized creditable withholding taxes (CWT) for the taxable
year 2005, or to issue a tax credit certificate therefor in favor
of PNB. The CTA's Resolution 3 dated May 27, 2014, which
denied the CIR's motion for reconsideration is likewise
impugned herein.

Factual Antecedents

On April 17, 2006, PNB electronically filed its Annual

Income Tax Return (ITR) for taxable year 2005. The
following day, it manually filed the same with the required
attachments thereto. 4
Through letters with attachments dated February 12,
2007, June 22, 2007, and March 10, 2008, which were
received by the CIR on February 22, 2007, June 25, 2007,
and March 13, 2008, respectively, PNB filed its claim for
refund or issuance of tax credit certificate of its excess CWT
in the amount of P74,598,430.47. 5
Due to the CIR's inaction to the said claim, PNB filed a
petition for review for its claim on April 11, 2008 before the
CTA. 6
On September 30, 2011, the CTA Third Division
rendered a Decision, 7 finding PNB's evidence to be
insufficient to support its claim for refund or the issuance of a
tax credit certificate. Specifically, the CTA Third Division
pointed out that the presentation of PNB's Annual ITR for
2006 is not enough to prove that it did not carry over the
claimed excess or unutilized CWT to the subsequent
quarters of 2006, ruling that the presentation of the
succeeding Quarterly ITRs is vital to its claim for refund. It
disposed, thus:
WHEREFORE, the Petition for Review is
hereby DENIED.
SO ORDERED. 8
PNB filed a motion for reconsideration but the same
was denied in a Resolution 9 dated December 29, 2011.
PNB then appealed to the CTA En Banc, raising the
sole issue of whether or not the presentation of the 2006
Quarterly ITRs is indispensable to PNB's claim for refund of
its excess or unutilized CWT for 2005.
By a vote of 4-4-1 in its June 5, 2013 Decision, 10 the
CTA denied the appeal, thus:
WHEREFORE, premises considered, the
Petition for Review is hereby DENIED. The Decision
and Resolution of the former Third Division of this
Court in CTA Case No. 7760 dated September 30,
2011 and December 29, 2011, respectively, are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED. 11  CAIHTE

Undaunted, PNB filed a Motion for

Reconsideration 12 dated June 28, 2013.
On February 4, 2014, the CTA En Banc rendered the
assailed Amended Decision, 13 granting PNB's motion for
reconsideration. The CTA En Banc ruled that there is
nothing in our tax laws that requires the presentation of the
Quarterly ITRs for succeeding years to establish entitlement
to the refund of excess or unutilized CWT. 14
Further, this time, the CTA En Banc recognized that
the Supreme Court had, in several occasions, already
passed upon this issue. It cited the cases of Philam Asset
Management, Inc. v. Commissioner of Internal
Revenue, 15 State Land Investment Corporation v.
Commissioner of Internal Revenue, 16 and Commissioner of
Internal Revenue v. PERF Realty Corporation, 17 wherein
this Court ruled that the presentation of ITRs for the
succeeding taxable years is not an essential requisite in
proving a claim for refund of excess or unutilized
CWT. 18 The Court elucidated that the presentation or non-
presentation of the said document is not fatal to the refund
claim as it is the duty of the CIR to verify whether or not the
taxpayer carried over its excess CWT to the succeeding
year. 19
The CTA En Banc also found that PNB complied with
all the requisites for the filing of such claim. First, there is no
dispute that PNB filed its claim within the two-year
prescriptive period. Second, that the income related to the
P74,026,451.67 CWT formed part of PNB's taxable income
for the years 1999 to 2006 were evidenced by the
documents presented by PNB, which were evaluated by the
Independent Certified Public Accountant (ICPA), to wit:
original accounting tickets or input sheets; original deeds of
absolute/conditional sale; general ledgers for the years 1999
to 2006; audited financial statements; and ITRs for the years
1999 to 2006. Third, PNB presented Certificates of
Creditable Tax Withheld at Source duly issued to it by
various withholding agents for the year 2005, which were
examined by the Court-commissioned ICPA, SGV & Co.,
through its partner, Ms. Mary Ann C. Capuchino, to establish
the fact of withholding. The ICPA noted, however, that out of
the P74,598,430.47 CWT claimed for refund, only the
amount of P74,026,451.67 was properly supported by
original Certificates of Creditable Tax Withheld at Source
issued in the name of PNB and dated within the calendar
year 2005. 20
In all, the CTA held that PNB was able to sufficiently
prove its claim for refund, albeit for the reduced amount of
P74,026,451.67, disposing as follows:
WHEREFORE, premises considered, [PNB's]
Motion for Reconsideration (of the 05 June 2013
Decision) is hereby GRANTED. Accordingly, the
Assailed Decision dated June 5, 2013 is
hereby REVERSED and SET ASIDE. [The CIR]
is ORDERED TO REFUND, or in the
alternative, ISSUE A TAX CREDIT
CERTIFICATE in favor of [PNB] in the amount
of Seventy-Four Million Twenty-Six Thousand
Four Hundred Fifty-One Pesos and 67/100
(P74,026,451.67), representing excess and
unutilized creditable withholding taxes for the
taxable year 2005.
SO ORDERED. 21
Insisting that the presentation of the Quarterly ITRs for
the succeeding taxable year is incumbent upon claimants of
CWT refund to prove its entitlement thereto, the CIR filed a
motion for reconsideration, which was denied by the CTA En
Banc in its May 27, 2014 assailed Resolution: 22
WHEREFORE, there being no new matters
or issues advanced by [the CIR] in [its] Motion which
may compel this Court to reverse, modify or amend
the Amended Decision, the instant Motion for
Reconsideration is hereby DENIED for lack of merit.
SO ORDERED. 23
Hence, this petition.
In the main, the CIR maintains that the presentation of
the Quarterly ITRs for 2006 is indispensable to PNB's refund
claim to prove its entitlement thereto. The CIR argues in this
wise: under Section 76 of the National Internal Revenue
Code (NIRC),the taxpayer has the option to either carry over
the excess CWT to the succeeding taxable quarters or to
claim for a refund of, or tax credit for such excess amount
paid; once the taxpayer opted for the carry over, the same
shall be irrevocable and it will not be entitled to a refund
anymore; the Quarterly ITRs would establish whether or not
such carry over happened; hence, such Quarterly ITRs are
indispensable for the refund claim. 24  DETACa

The CIR further argues that, assuming the

presentation of the Quarterly ITRs is not necessary, PNB's
claim for refund must still be denied because the Certificates
of Creditable Taxes Withheld presented were not properly
identified. Specifically, the CIR avers that the authenticity of
such document should have been proved by identification of
a person who saw the same executed or by evidence of the
genuineness of the signature or handwriting of the maker. 25
In fine, the CIR asserts that the PNB failed to
discharge its burden to prove entitlement to the claimed
refund.

The Issue

Ultimately, the issue here is whether or not the PNB

proved its entitlement to the refund. Of crucial importance for
the resolution thereof, however, is whether the presentation
of the Quarterly ITRs of the succeeding quarters of a taxable
year is indispensable for such claim.

The Court's Ruling

 The instant petition presents no novel issue. In the
more recent case of Winebrenner & Iñigo Insurance
Brokers, Inc. v. Commissioner of Internal
Revenue, 26 consistent with the settled jurisprudence on the
matter, the Court specifically ruled that the presentation of
the claimant's quarterly returns is not a requirement to prove
entitlement to the refund. Notably, said case applies
squarely to the instant petition and we find no good reason
to deviate from its tenets as it remains to be a good law.
To be sure, this Court is not in disagreement with the
CIR in recognizing that the burden of proof to establish
entitlement to a refund is on the claimant. This is why in
every case for such claims, the Court has always ruled that
the claimant should positively show compliance with the
statutory requirements provided under the NIRC and the
relevant BIR rules and regulations. 27 We, however, cannot
subscribe to the CIR's contention that the presentation of the
Quarterly ITRs is indispensable to the claimant's case.
The CTA correctly ruled that there is nothing under the
NIRC that requires the submission of the Quarterly ITRs of
the succeeding taxable year in a claim for refund. Even the
BIR's own regulations do not provide for such requirement.
Section 76 of the NIRC provides:
SEC. 76. Final Adjustment Return. — Every
corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable
income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments
made during the said taxable year is not equal to
the total tax due on the entire taxable income of that
year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the
excess amount paid, as the case may
be.
In case the corporation is entitled to a tax
credit or refund of the excess estimated quarterly
income taxes paid, the excess amount shown on its
final adjustment return may be carried over and
credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding
taxable years.
 Once the option to carry-over and apply the
excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable
years has been made, such option shall be
considered irrevocable for that taxable period and
no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor. 
aDSIHc

Relatively, as implemented by the applicable rules and

regulations, and as interpreted in a vast array of decisions, a
taxpayer who seeks a refund of excess and unutilized CWT
must:
1) File the claim with the CIR within the two-
year period from the date of payment of the tax;
2) Show on the return that the income
received was declared as part of the gross income;
and
3) Establish the fact of withholding by a copy
of a statement duly issued by the payor to the payee
showing the amount paid and the amount of tax
withheld. 28
Verily, as consistently held by this Court, once the
minimum statutory requirements have been complied with,
the claimant should be considered to have successfully
discharged its burden to prove its entitlement to the
refund. 29 After the claimant has successfully established
a prima facie right to the refund by complying with the
requirements laid down by law, the burden is shifted to the
opposing party, i.e., the BIR, to disprove such claim. 30 To
rule otherwise would be to unduly burden the claimant with
additional requirements which has no statutory nor
jurisprudential basis.
Thus, once the claimant has successfully established
that its claim was filed within the two-year prescriptive
period; that the income related to the claimed CWT formed
part of the return during the taxable year when the refund is
claimed for; and the fact of withholding of said taxes, it shall
be deemed to be entitled to its claimed CWT refund. If the
CIR, as the one mandated to examine and decide matters of
taxes and refunds, 31 finds otherwise, it is then incumbent
upon it to prove the propriety of denying the claim before the
court. Specifically, if the BIR asserts that the claimant is not
entitled to the refund as the claimed CWT were already
carried over to the succeeding taxable quarters, it is up to
the BIR to prove such assertion.
 In the case of Republic v. Team Energy (Phils.)
Corporation, 32 the Court even stressed on the fact that the
BIR ought to have its own copies, originals at that, of the
claimant's quarterly returns on file, on the basis of which it
could have easily rebut the claim that the excess or
unutilized CWT sought for refund were carried over to the
immediately succeeding taxable quarters. The Court even
went further to emphatically rule in the said case that the
failure to present such document during the trial is fatal
against the BIR's case rather than the claimant's.
It bears stressing that the power to decide matters
concerning refunds of internal revenue taxes, among others,
is vested in the CIR. 33 It has the duty to ascertain the
veracity of such claims and should not just wait and hope for
the burden to fall on the claimant when the issue reaches the
court. 34 In Commissioner of Internal Revenue v. PERF
Realty Corporation, 35 the Court ruled that it is the duty of the
CIR to verify whether or not the claimant had carried over its
excess CWT. The CTA's jurisdiction is appellate, meaning it
merely has the authority to review the CIR's decisions on
such matters. In the exercise of its authority to review, the
CTA cannot dictate what particular evidence the parties must
present to prove their respective cases. The means of
ascertainment of a fact is best left to the party that alleges
the same. The court's power is limited only to the
appreciation of that means pursuant to the prevailing rules of
evidence. 36
Thus, this Court finds no basis to rule for the
indispensability presenting the Quarterly ITRs for a CWT
refund or tax credit claim.
At this juncture, it is imperative to focus the
disquisition on the fact that PNB proffered its Annual ITR for
2006 to prove that it did not carry over its 2005 CWT to
2006. This Court is confounded by the CIR's submission that
said ITR is not enough to fully ascertain that there was no
carry over.
In Winebrenner, the Court explained that an Annual
ITR contains the total taxable income earned for the four
quarters of the taxable year, as well as deductions and tax
credits previously reported or carried over in the Quarterly
ITRs for the subject period. The Annual ITR or Final
Adjustment Return for the taxable year subsequent to the
year when the CWT forms part, perforce, can sufficiently
reveal whether a carry over to the succeeding quarters was
made even if the claimant has previously chosen the option
of refund of, or tax credit for the claimed CWT. The Court, in
the said case, proceeded to explain in detail, viz.:  ETHIDa

If the excess tax credits of the preceding year

were deducted, whether in whole or in part, from the
estimated income tax liabilities of any of the taxable
quarters of the succeeding taxable year, the total
amount of the tax credits deducted for the entire
taxable year should appear in the Annual ITR under
the item "Prior Year's Excess Credits." Otherwise, or
if the tax credits were carried over to the succeeding
quarters and the corporation did not report it in the
annual ITR, there would be a discrepancy in the
amounts of combined income and tax credits carried
over for all quarters and the corporation would end
up shouldering a bigger tax payable. It must be
remembered that taxes computed in the
quarterly returns are mere estimates. It is the
annual ITR which shows the aggregate amounts
of income, deductions, and credits for all
quarters of the taxable year. It is the final
adjustment return which shows whether a
corporation incurred a loss or gained a profit
during the taxable quarter. Thus, the
presentation of the annual ITR would suffice in
proving that prior year's excess credits were not
utilized for the taxable year in order to make a
final determination of the total tax
due. 37 (Emphasis supplied; citation omitted)
Thus, despite PNB's failure to present at the onset its
Quarterly ITRs for 2006, its Annual ITR for 2006 is apt and
sufficient to show that no CWT carry over was made in 2006.
Besides, even if a contrary ruling would be issued by
this Court in the case at bar, PNB cannot be prejudiced for
relying on the prevailing rule that presentation of succeeding
ITRs is not necessary. It is noteworthy that PNB attempted
to file its 2006 Quarterly ITRs through a Motion to Reopen
(To Allow [PNB's] Additional Evidence 38 dated March 16,
2010, which was actually granted by the CTA Third Division
in its Resolution 39 dated May 5, 2010. Relying, however,
upon Philam, 40 and other pertinent jurisprudence also relied
upon by the CTA En Banc in its assailed Amended Decision,
PNB realized that the presentation of its 2006 Quarterly ITRs
is not necessary. Hence, it filed a Motion to Withdraw 41 its
previous motion to submit its 2006 Quarterly ITRs. Said
withdrawal was also granted by the CTA Third Division in the
same Resolution dated May 5, 2010. 42
Anent, the CIR's argument, questioning the
authenticity and due execution of the Certificates of
Creditable Taxes Withheld, the same should be given scant
consideration. Foremost, said argument is belatedly raised
before this Court. These documents were admitted at the
initial stage of the proceedings before the CTA Third Division
and records show that no such objection was made during
the formal offer of said documents. Moreover, these
Certificates of Final Tax Withheld, complete in relevant
details, were declared under the penalty of perjury. As such,
they may be taken at face value. 43
Besides, resolving this issue would necessitate a re-
examination of evidence on record, which is not within the
purview of a review under Rule 45 of the Rules of
Court. 44 Further, it is well settled that factual findings of the
CTA when supported by substantial evidence, will not be
disturbed on appeal. Due to the nature of its functions, the
tax court dedicates itself to the study and consideration of
tax problems and necessarily develops expertise thereon.
Unless there has been an abuse of discretion on its part, the
Court accords the highest respect to the factual findings of
the CTA. 45
In all, having established that PNB complied with the
minimum statutory requirements above-enumerated, and
that the submission of its Quarterly ITRs are not
indispensable to its claim, we find no reversible error on the
part of the CTA En Banc in ruling that PNB is entitled to the
claimed refund or tax credit.
WHEREFORE, premises considered, the instant
petition is DENIED. Accordingly, the Amended
Decision dated February 4, 2014 and the Resolution dated
May 27, 2014 of the Court of Tax Appeals En Banc in CTA
EB Case No. 859 are hereby AFFIRMED.  cSEDTC

SO ORDERED.
Carpio, Perlas-Bernabe, Caguioa and Lazaro-Javier,
JJ., concur.
 
Footnotes

1. Rollo, pp. 45-72.

2. Penned by Court of Tax Appeals Associate Justice Caesar A.
Casanova, with Presiding Justice Roman G. Del Rosario, and
Associate Justices Juanito C. Castañeda, Jr., Esperanza R.
Fabon-Victorino, and Ma. Belen M. Ringpis-Liban, concurring; and
Associate Justices Lovell R. Bautista, Erlinda P. Uy, Cielito N.
Mindaro-Grulla and Amelia R. Cotangco-Manalastas,
dissenting; id. at 13-33.
3. Associate Justice Erlinda P. Uy, on leave; id. at 35-43.
4. Id. at 48.
5. Id.
6. Id.
7. Penned by Associate Justice Lovell R. Bautista, with Associate Justice
Amelia R. Cotangco-Manalastas, concurring and Associate
Justice Olga Palanca-Enriquez, dissenting; id. at 114-140.
8. Id. at 126.
9. Id. at 171-174.
10. Penned by Associate Justice Cielito N. Mindaro-Grulla, with
Associate Justices Lovell R. Bautista, Erlinda P. Uy and Amelia R.
Cotangco-Manalastas, concurring; Presiding Justice Roman G.
Del Rosario and Associate Justices Juanito C. Castañeda, Jr.,
Caesar A. Casanova and Esperanza R. Fabon-Victorino,
dissenting; and Associate Justice Ma. Belen M. Ringpis-Liban, no
part; id. at 248-275.
11. Id. at 263.
12. Id. at 276-286.
13. Supra note 2.
14. Id. at 16.
15. 514 Phil. 147 (2005).
16. 566 Phil. 113 (2008).
17. 579 Phil. 442 (2008).
18. Rollo, pp. 16-19.
19. Id. at 18.
20. Id. at 19-26.
21. Id. at 27.
22. Supra note 3.
23. Rollo, p. 42.
24.Id. at 59-62.
25.Id. at 67.
26.752 Phil. 375 (2015).
27.Team Sual Corporation (Formerly Mirant Sual Corporation) v.
Commissioner of Internal Revenue, G.R. Nos. 201225-26, April
18, 2018.
28.Winebrenner & Iñigo Insurance Brokers, Inc. v. Commissioner of
Internal Revenue, supra note 26, at 388.
29.See Commissioner of Internal Revenue v. PERF Realty
Corporation, supra note 17, at 453.
30.See Republic v. Team (Phils.) Energy Corporation, 750 Phil. 700
(2015).
31.NIRC,Section 4.
32.Supra note 30, at 710.
33.Supra note 31.
34.See Winebrenner & Iñigo Insurance Brokers, Inc. v. Commissioner of
Internal Revenue, supra note 26, at 396.
35.Supra note 17, at 454.
36.Winebrenner & Iñigo Insurance Brokers, Inc. v. Commissioner of
Internal Revenue, supra note 26, at 391.
37.Id. at 393.
38.Rollo, pp. 203-207.
39.Id. at 213.
40.Philam Asset Management, Inc. v. Commissioner of Internal
Revenue, supra note 15.
41.Rollo, pp. 208-211.
42.Supra note 39.
43.Philippine Airlines, Inc. v. Commissioner of Internal Revenue, G.R.
Nos. 206079-80, January 17, 2018.
44.Yap v. Lagtapon, G.R. No. 196347, January 23, 2017, 815 SCRA 94,
104-105.
45.Team Sual Corporation (Formerly Mirant Sual Corporation) v.
Commissioner of Internal Revenue, supra note 27.
 SECOND DIVISION

[G.R. No. 210191. March 4, 2019.]

NATIONAL POWER
CORPORATION, petitioner, vs. THE PROVINCE
OF PANGASINAN and THE PROVINCIAL
ASSESSOR OF PANGASINAN, respondents.

DECISION

J.C. REYES, JR., J  :p

This is a Petition for Review on Certiorari 1 under Rule

45 of the Rules of Court, questioning the Decision 2 dated
November 11, 2013 of the Court of Tax Appeals (CTA) En
Banc in CTA EB Case No. 937, which affirmed the uniform
rulings of the Local Board of Assessment Appeals (LBAA) in
LBAA Case Nos. P-03-001 and P-06-001 and Central Board
of Assessment Appeals (CBAA) in CBAA Case Nos. L-52
and L-81.

Factual Antecedents

Petitioner National Power Corporation (NPC) is a

government-owned and controlled corporation, created and
existing under Republic Act (R.A.) No. 6395, as amended.
NPC is mandated to undertake the production of electricity
from nuclear, geothermal, other sources, and the
transmission of electric power nationwide. 3
Pursuant to its mandate, on May 20, 1994, NPC
entered into an Energy Conversion Agreement 4 (ECA) with
CEPA Pangasinan Electric Limited (CEPA), a private
corporation, for the construction, operation, and
maintenance of the Sual Coal-Fired Thermal Power Plant,
whereby CEPA agreed to supply a coal-fired thermal power
station to NPC on a Build-Operate-Transfer (BOT) basis to
generate electricity, which electricity will in turn be sold
exclusively to NPC. CEPA subsequently became Mirant Sual
Corporation (Mirant) and now also known as Team Energy
Power Holdings Corporation (Team Energy). For purposes
of this case, we shall use "Mirant" to refer to CEPA, Mirant,
or Team Energy as the company was called "Mirant" when
this case started with the LBAA. 5
Among the obligations undertaken by the NPC under
the ECA was the assumption of all real property taxes.
Paragraph 11.1, Article 11 of the ECA, viz.:
11.1 Tax Responsibilities. NPC shall be responsible
for the payment of x x x (ii) all real estate taxes and
assessments, rates and other charges in respect of
the Site, the Ash Disposal Sites, the Pipelines, the
buildings and improvements thereon, the
Infrastructure and the Power Station. 6  aTHCSE

On December 3, 1994, a Memorandum of

Agreement 7 (MOA) was entered into by Pangasinan Electric
Corporation (PEC) (Mirant's predecessor-in-interest) with
NPC, the Province of Pangasinan, the Municipality of Sual,
and the Barangay of Pangascasan. 8
Pertinent provisions of the MOA state:
A. RESPONSIBILITIES OF NPC, DENR, PEC,
PROVINCE/MUNICIPALITY/BARANGA
Y
NPC
xxx xxx xxx
6. Conform with the Local Government Code's
regulations on the payment of the
following taxes:
— Realty tax to be paid upon the project
site acquisition by NPC.
xxx xxx xxx
PEC started operating the power plant sometime in
1998. 9
NPC religiously paid real property taxes from 1998 up
to the first quarter of 2003 for the land, buildings, machinery,
and equipment pertaining to the power plant. Notably, said
machinery and equipment were declared in the name of
Mirant under Tax Declaration No. 3694. On the second
quarter of 2003, NPC stopped paying said taxes, purportedly
pursuant to the provisions of R.A. No. 7160, which grants
certain exemptions from real property tax liabilities. 10
 This prompted the Office of the Municipal Treasurer of
Sual, Pangasinan to issue a Notice of Assessment dated
September 10, 2003 for the payment of real property taxes
thereon. 11
Invoking its entitlement to an exemption under the
provisions of R.A. No. 7160, NPC filed a petition for
exemption with the LBAA, docketed as LBAA Case No. P-
03-001, praying for an order to be issued: (a) recalling the
Notice of Assessment dated September 10, 2003; (b)
declaring the machinery and equipment of the power to be
exempt from real property tax, arguing that the same are
actually, directly, and exclusively used for power generation,
and as such are exempted from said taxes under Section
234 (c) 12 of R.A. No. 7160; and (c) if not exempt, declaring
that the subject properties be classified as special under
Section 216 13 of the same Act and as such be given a lower
assessment level. 14 cAaDHT

LBAA Ruling

In its Resolution 15 dated April 15, 2004, the LBAA

dismissed NPC's petition for exemption for lack of merit. The
LBAA ruled that NPC and/or Mirant's failure to file any claim
for exemption within the 30 days from the date of the
declaration of the real property under Section 206 16 of R.A.
No. 7160, coupled with the fact that NPC used to pay the
real property taxes thereon from 1998 up to the first quarter
of 2003, estopped NPC from claiming an exemption. More
importantly, the LBAA found Mirant to be the actual, direct,
exclusive, and beneficial owner and user of the power,
buildings, machinery, and equipment, not NPC. Hence, the
subject real properties do not come under the coverage of
Section 234 (c) of R.A. No. 7160 nor to the special
assessment providing for a lower assessment level of ten
percent (10%) under Section 216 of the same Act.
Accordingly, the subject real properties are not
exempted from payment of real property tax and, likewise,
cannot be classified as a special class with an assessment
level of ten percent (10%) but should be assigned with the
assessment level of eighty percent (80%).
Aggrieved, NPC filed an appeal to the CBAA,
docketed as CBAA Case No. L-52. 17
In the meantime, the Municipal Treasurer of Sual
issued a letter with the Updated Notice of Assessment and
Tax Bill. Thus, NPC filed another petition before the LBAA,
docketed as LBAA Case No. P-06-001, which was likewise
dismissed by the LBAA in its Order dated July 18, 2007. 18
NPC also appealed the said Order to the CBAA,
docketed as CBAA Case No. L-81. 19  HCaDIS

CBAA Ruling

On April 2, 2009, the CBAA issued an Order

consolidating the two appeals. 20
After evaluation of the arguments of both parties, the
CBAA rendered the assailed Decision 21 dated April 12,
2012, dismissing the appeals for lack of merit. In the main,
the CBAA ruled that NPC has no personality to claim real
property tax exemption for the subject machinery and
equipment considering that said machinery and equipment
are actually, directly, and exclusively used by Mirant, not
NPC. In fact, Mirant is the owner of said facilities until they
were turned over to NPC.
The same reasoning was used in ruling that the
subject machinery and equipment cannot be classified as a
special class of real property for purposes of being subject to
a lower assessment level of ten percent (10%) under Section
216 of the same Act. The subject facilities are owned by
Mirant, a private entity, hence, not covered by the special
privilege under the said provision.
Likewise, the CBAA ruled that NPC has no legal
personality to claim for exemption under Section 234
(e) 22 of R.A. No. 7160, as well as the depreciation
allowance under Section 225 thereof, as the subject facilities
are not owned by NPC but by Mirant.
NPC's motion for reconsideration of the said Decision
was also denied by the CBAA in its Order 23 dated July 31,
2012. AHCETa

CTA Ruling

The CTA scrutinized the agreement between NPC and

Mirant under the BOT system and found that the ownership
of the subject machinery and equipment is clearly vested
with Mirant until the transfer of the project to NPC. Since the
ownership and actual use of the subject facilities are with
Mirant, a non-exempt entity, the CTA sustained the LBAA
and CBAA ruling that NPC may not rightfully claim that it has
the requisite legal interest to question the assessment and
assert tax exemptions under Sections 234 (c) and (e) of R.A.
No. 7160, as well as the privilege under Section 225 thereof.
Neither was there basis, according to the CTA, for
NPC to claim that respondents are estopped from
questioning NPC's legal interest as respondents already
acknowledged the same in their MOA. The CTA found that
apart from the enumeration of the parties' respective
obligations under the MOA, there was nothing therein that
says respondents acknowledged NPC as the owner and
user of the power plant and the equipment therein.
Further, the stipulated undertaking of NPC to pay the
real property taxes does not justify the exemption as it has
already been previously ruled by the Supreme Court that
such undertaking is essentially wrong as to rule otherwise
would be tantamount to allowing an exempt entity to use its
privilege to favor a non-exempt entity and debase our tax
system, citing this Court's ruling in National Power
Corporation v. Province of Quezon and Municipality of
Pagbilao. 24
Finding that NPC is not the actual owner nor the
beneficial owner or possessor of the subject machinery and
equipment, the CTA came to the same conclusion as the
LBAA and the CBAA, that NPC has no legal personality to
claim for exemptions and privileges under Sections 234 (c)
and (e), as well as Section 225 25 of R.A. No. 7160.
Thus, the CTA sustained the findings and conclusions
of the LBAA and the CBAA and dismissed the appeal for
lack of merit.
Hence, this petition.

Issue

The issues raised by NPC in this petition — whether

the subject machinery and equipment are exempted from
real property tax under Section 234 (c) or Section 234 (e)
of R.A. 7160; whether the same can be considered as a
special class of real property under Section 216 of the same
Act for a lower assessment of real property tax; or whether
NPC is entitled to the depreciation allowance under Section
225 thereof — all boil down to the pivotal issue of whether
NPC has legal personality and interest to claim for such
exemptions and privileges.  ScHADI

Our Ruling

This case is definitely not of first impression. In NPC's

previous cases with this Court, i.e., FELS Energy, Inc. v.
The Province of Batangas, 26 National Power Corporation v.
Central Board of Assessment Appeals 27 and National
Power Corporation v. Province of Quezon, 28 the implications
of a contract and/or a BOT agreement between a
government-owned and controlled corporation that enjoy tax
exemption, and a private corporation with regard to real
property tax liabilities, have already been exhaustively
explained and discussed by this Court. Specifically, the
Court has concluded that the tax exemptions and privileges
claimed by NPC cannot be recognized since it is not the
actual, direct, and exclusive user of the facilities, machinery
and equipment subject of the cases.
The Court emphasized therein its guiding principle in
resolving the said cases, i.e., taxation is the rule and
exemption is the exception.
Guided by Our pronouncements in the said strikingly
similar cases, we find this petition bereft of merit.
NPC argues that the CTA erred in denying its claim for
exemption on the ground that it is not the owner of the
subject facilities. NPC insists that, as project owner, it has
legal interest over the power plant and as such, it has the
legal personality to question the assessment and claim for
exemption therefor. NPC argues that legal interest over the
properties subject of real property tax is not limited to
ownership considering that for such tax purposes, real
properties are classified, valued, and assessed on the basis
of their actual use, highlighting the phrase "regardless of
where located, whoever owns it, and whoever uses it" in
Section 217 of R.A. No. 7160.
Indeed, real property tax liability rests on the owner of
the property or on the person with the beneficial use thereof
such as taxes on government property leased to private
persons or when tax assessment is made on the basis of the
actual use of the property. 29 In either case, the unpaid realty
tax attaches to the property but is directly chargeable against
the taxable person who has actual and beneficial use and
possession of the property regardless of whether or not that
person is the owner. 30 NPC was, therefore, correct in
arguing that a beneficial user may also be legally burdened
with the obligation to pay for the tax imposed on a property
and as such, has legal interest therein and the personality to
protest an assessment or claim exemption from tax
liability. 31 
aICcHA

In this case, however, NPC is neither the owner nor

the possessor or beneficial user of the subject facilities.
Hence, it cannot be considered to have any legal interest in
the subject property to clothe it with the personality to
question the assessment and claim for exemptions and
privileges.
Records clearly show that NPC is yet to be the owner
of the subject facilities. Provisions of the ECA unequivocally
support this conclusion, viz.:
2.10 Ownership of Power Station. From the
date hereof until the Transfer Date, [Mirant] shall
directly or indirectly, own the Power Station and all
the fixtures, fittings, machinery and equipment on
the Site and the Ash Disposal Sites or used in
connection with the Power Station which have been
supplied by it or at its cost. [Mirant] shall operate
and maintain the Power Station for the purpose of
converting Fuel of NPC into electricity.
2.11 Transfer. On the Transfer Date, the
Power Station shall be transferred by [Mirant] to
NPC without the payment of any compensation and
otherwise in accordance with the provisions of
Article 8. 32
Further, as correctly observed by the LBAA, there is
nothing in the ECA which expressly grants the NPC the right
or authority to use directly or indirectly the power plant and
the facilities therein during the cooperation period. Article 5
of the ECA specifically provides that Mirant has the
responsibility to manage, operate, and maintain the power
plant until the Transfer Date. Such acts of management,
operation, maintenance, and repair are inherent in and are
necessary and incidental to Mirant's ownership and actual
use of the power plant and the facilities therein.
Clearly, as it is, during the subject taxable period,
Mirant is still the owner and actual user of the subject
facilities.
 NPC, however, insists on its ownership and beneficial
use of the power plant. NPC posits that Mirant was a mere
service contractor that NPC employed to construct and
operate the power plant to implement NPC's mandate to
generate electricity. This assertion has already been
squarely addressed and confuted by this Court in the case
of National Power Corporation v. Central Board of
Assessment Appeals (CBAA), 33 which we reiterate and
adopt in this case, thus:
As in the fact of ownership, NAPOCOR's
assertion is belied by the documented
arrangements between the contracting parties,
viewed particularly from the prism of the BOT law.
The underlying concept behind a BOT
agreement is defined and described in the BOT law
as follows:
Build-operate-and-transfer. — A
contractual arrangement whereby the
project proponent undertakes the
construction, including financing, of a
given infrastructure facility, and the
operation and maintenance thereof.
The project proponent operates the
facility over a fixed term during which it
is allowed to charge facility users
appropriate tolls, fees, rentals, and
charges not exceeding those
proposed in its bid or as negotiated
and incorporated in the contract to
enable the project proponent to
recover its investment, and operating
and maintenance expenses in the
project. The project proponent
transfers the facility to the government
agency or local government unit
concerned at the end of the fixed term
which shall not exceed fifty (50) years
x x x. 
IDTSEH

Under this concept, it is the project proponent

who constructs the project at its own cost and
subsequently operates and manages it. The
proponent secures the return on its investments
from those using the project facilities through
appropriate tolls, fees, rentals, and charges not
 exceeding those proposed in its bid or as
negotiated. At the end of the fixed term agreed
upon, the project proponent transfers the ownership
of the facility to the government agency. Thus, the
government is able to put up projects and provide
immediate services without the burden of the heavy
expenditures that a project start up requires.
A reading of the provisions of the parties'
BOT Agreement shows that it fully conforms to this
concept. By its express terms, BPPC has complete
ownership — both legal and beneficial of the project
— including the machineries and equipment used,
subject only to the transfer of these properties
without cost to NAPOCOR after the lapse of the
period agreed upon. As agreed upon, BPPC
provided the funds for the construction of the power
plant, including the machineries and equipment
needed for power generation; thereafter, it actually
operated and still operates the power plant, uses its
machineries and equipment, and receives payment
for these activities and the electricity generated
under a defined compensation scheme. Notably,
BPPC — as owner-user — is responsible for any
defect in the machineries and equipment. (Citation
omitted)
xxx xxx xxx
Consistent with the BOT concept and as
implemented, BPPC — the owner-manager-
operator of the project — is the actual user of its
machineries and equipment. BPPC's ownership and
use of the machineries and equipment are actual,
direct, and immediate, while NAPOCOR's is
contingent and, at this stage of the BOT Agreement,
not sufficient to support its claim for tax exemption.
Thus, the CTA committed no reversible error in
denying NAPOCOR's claim for tax
exemption. 34 (Citation omitted)
Similar to the above-cited case, the agreement
between NPC and Mirant is consistent with the BOT
concept. Mirant undertakes to build and operate a power
plant, which undertaking expressly includes the responsibility
to supply the consumables and spare parts, and maintain
the power plant until the transfer thereof to NPC. To be sure,
this arrangement goes beyond a mere service contractor
agreement. In a BOT arrangement, the private entity
constructs and buys the necessary assets to put up the
project and thereafter, operates and manages it during an
agreed period that would allow it to recover its basic costs
and earn profits until the project's transfer to the government
or government-owned and controlled entity. In other words,
the private sector proponent goes into business for itself,
assuming risks and incurring costs for its account. 35 On the
other hand, service contracting is nothing more than an
undertaking to perform a certain task for which the contractor
is paid after its completion. 
SICDAa

Thus, until the transfer of the project to NPC, it does

not have anything to do with the use and operation of the
power plant. The direct, actual, exclusive, and beneficial
owner and user of the power station, machineries, and
equipment certainly pertains to Mirant. NPC, therefore, has
no legal personality to question on the assessment or claim
for exemption and privileges with regard to the tax liability
attached to the subject properties.
That NPC assumed the tax liabilities in the agreement
is of no moment. Such undertaking does not justify the
exemption or entitlement to privileges. The privilege granted
to NPC cannot be extended to Mirant. To rule otherwise
would be to allow the circumvention of our law on
exemptions and grant of privileges.
The provisions invoked by NPC for entitlement to
exemption and privilege are clear and unambiguous. To
successfully claim exemption under Section 234 (c) of R.A.
No. 7160, the claimant must prove that (a) the machinery
and equipment are actually, directly and exclusively used by
local water districts and government-owned and controlled
corporations; and (b) the local water districts and
government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of
water and/or the generation and transmission of electric
power. 36
Likewise, to successfully claim for differential
treatment or a lower assessment level under Section 216, in
relation to Section 218 of the same Act, the claimant must
prove that the subject lands, buildings, and other
improvements are (a) actually, directly, and exclusively used
for hospitals, cultural, or scientific purposes; or (b) owned
and used by local water districts and government-owned and
controlled corporations rendering essential public services in
the supply and distribution of water and/or generation and
transmission of electric power. 37
It is important to emphasize that the government-
owned and controlled corporation claiming exemption and
entitlement to the privilege must be the entity actually,
directly, and exclusively using the real properties, and the
use must be devoted to the generation and transmission of
electric power. As can be gleaned from the above
disquisition, NPC miserably failed to satisfy said
requirements. Although the subject machinery and
equipment are devoted to generation of electricity, the
ownership, use, operation, and maintenance thereof pertain
to Mirant.
Neither will NPC find justification in its claim that it is
NPC, not Mirant, which utilizes the generated electricity for
transmission or distribution to the customers. The clear
wordings of the above-cited provisions state that it is the
machinery and equipment which are exempted from the
payment of real property tax, not the water or electricity that
such facilities generate for distribution. 38
For the same reason that NPC has no legal
personality to question the assessment and claim for
exemptions and privileges, there is likewise no basis for
NPC to claim and be granted the depreciation allowance
under Section 225 of R.A. No. 7160.  DHIcET

Similarly, having no such legal personality, NPC

cannot claim the exemption under Section 234 (e) of the
same Act. While it may be true that ownership of the
machinery and equipment used for pollution control and
environmental protection, is not relevant to the determination
of entitlement to exemption, NPC still has no basis to assert
such privilege. The LBAA did not err in ruling that it is Mirant,
not NPC, which should claim for such tax exemption, if at all.
At any rate, a claim for exemption under Section 234 (e)
of R.A. No. 7160, should be supported by evidence that the
property sought to be exempt is actually, directly, and
exclusively used for pollution control and environmental
protection during the period covered by the
assessment. 39 Verily, the determination of the actual, direct,
and exclusive use of the properties subject of the claim for
exemption requires the examination of evidence and
assessment of the probative value of such evidence, if any
— a factual determination therefore, which this Court cannot
go into, not only because such endeavor is not allowed
under a petition for review on certiorari under Rule 45, 40 but
more importantly because of the lack of such necessary
evidence for this Court to be able to make an accurate, valid,
and judicious conclusion.
In all, the LBAA and the CBAA, as affirmed by the
CTA, correctly denied NPC's claim for exemptions and
entitlement to privileges under R.A. No. 7160.
In conclusion, we reiterate this Court's observation in
NPC's previous cases with this Court above-cited. It must be
pointed out that protracted and circuitous litigation has
seriously resulted in the local governments' deprivation of
revenues. The power to tax is the most potent instrument to
raise the needed revenues to finance and support myriad
activities of local government units for the delivery of basic
services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of
the people. Thus, the right of local government units to
collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy
to guarantee the autonomy of local governments and the
objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to
achieve their fullest development as self-reliant communities
and make them effective partners in the attainment of
national goals. 41
WHEREFORE, premises considered, the petition
is DENIED. The Decision dated November 11, 2013 of the
Court of Tax Appeals En Banc in CTA EB Case No. 937 is
hereby AFFIRMED.  HcDSaT

SO ORDERED.
Carpio, Caguioa and Hernando, * JJ., concur.
Perlas-Bernabe, * J., is on wellness leave.
 
Footnotes

*On wellness leave.

*Additional Member per S.O. No. 2630 dated December 18, 2018.
1.Rollo, pp. 27-71.
2.Penned by Court of Tax Appeals Associate Justice Caesar A.
Casanova, with Presiding Justice Roman G. Del Rosario,
concurring and dissenting, Associate Justices Juanito C.
 Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Esperanza R.
Fabon-Victorino, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-
Manalastas, and Ma. Belen M. Ringpis-Liban, concurring; id. at
10-22.
3.Id. at 11.
4.Id. at 235-265.
5.Id. at 30.
6.Id. at 334 of the Agreement.
7.Id. at 196-203.
8.Id. at 196.
9.Id. at 334.
10.Id. at 335.
11.Id. at 335.
12.Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
xxx xxx xxx
   (c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
xxx xxx xxx.
13.Sec. 216. Special Classes of Real Property. — All lands, buildings,
and other improvements thereon actually, directly and exclusively
used for hospitals, cultural, or scientific purposes, and those
owned and used by local water districts, and government-owned
or controlled corporations rendering essential public services in
the supply and distribution of water and/or generation and
transmission of electric power shall be classified as special.
14.LOCAL GOVERNMENT CODE OF 1991, approved on October 10,
1991.
15.Rollo, pp. 333-349.
16.Sec. 206. Proof of Exemption of Real Property from Taxation. —
Every person by or for whom real property is declared, who shall
claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days
from the date of the declaration of real property sufficient
documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation, by-
 laws, contracts, affidavits, certifications and mortgage deeds, and
similar documents.
17.Rollo, p. 13.
18.Id.
19.Id.
20.Id. at 13-14.
21.Id. at 172-192.
22.Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
xxx xxx xxx
   e) Machinery and equipment used for pollution control and
environmental protection.
23.Rollo, pp. 194-195.
24.624 Phil. 738 (2010).
25.Sec. 225. Depreciation Allowance for Machinery. — For purposes of
assessment, a depreciation allowance shall be made for
machinery at a rate not exceeding five percent (5%) of its original
cost or its replacement or reproduction cost, as the case may be,
for each year of use: Provided, however, That the remaining value
for all kinds of machinery shall be fixed at not less than twenty
percent (20%) of such original, replacement, or reproduction cost
for so long as the machinery is useful and in operation.
26.545 Phil. 92 (2007).
27.597 Phil. 413 (2009).
28.Supra note 24.
29.National Power Corporation v. Province of Quezon, supra note 24.
30.Id.
31.Id.
32.Rollo, p. 240.
33.597 Phil. 413 (2009).
34.Id. at 430-433.
35.Id. at 432-433.
36.National Power Corporation v. Province of Quezon, supra note 24, at
743.
37.National Power Corporation v. Central Board and Assessment
Appeals (CBAA), supra note 27, at 434.
38.National Power Corporation v. Province of Quezon, supra note 24.
39.Provincial Assessor of Marinduque v. Hon. Court of Appeals, 605 Phil.
357, 371-372 (2009).
40.Carbonell v. Carbonell-Mendes, 762 Phil. 529 (2015).
41.FELS Energy, Inc. v. The Province of Batangas, supra note 26, at
114-115.

THIRD DIVISION

[G.R. Nos. 199729-30. February 27, 2019.]

MANILA BANKERS' LIFE INSURANCE

CORPORATION,petitioner,vs. COMMISSIONER
OF INTERNAL REVENUE,respondent.

[G.R. Nos. 199732-33. February 27, 2019.]

COMMISSIONER OF INTERNAL
REVENUE,petitioner,vs. MANILA BANKERS'
LIFE INSURANCE CORPORATION,respondent.

DECISION

A.B. REYES, JR., J  : p

Nature of the Case

Before the Court are the consolidated petitions of
Manila Bankers' Life Insurance Corporation (MBLIC) and the
Commissioner of Internal Revenue (CIR) filed under Rule 45
of the Rules of Court. Both parties appealed from the August
18, 2011 Decision 1 and December 9, 2011 Resolution 2 of
the Court of Tax Appeals (CTA) En Banc in CTA EB Case
Nos. 620 and 621. Said rulings held (a) that premium taxes
on insurance policies are considered "costs of service" in
computing the Minimum Corporate Income Tax (MCIT);(b)
that Documentary Stamp Taxes (DSTs) paid on the
insurance policies are not considered "costs of service" in
the MCIT computation; (c) that the DST may be assessed on
 the increase in the assured coverage of an insurance policy,
even when no new policy is issued; (d) that MBLIC belatedly
raised the defense of prescription; and (e) that compromise
penalties cannot be imposed.
The Facts
CTA Case No. 7266

On June 8, 2004, MBLIC received a Preliminary

Assessment Notice from the Bureau of Internal Revenue
(BIR),assessing the following alleged deficiency taxes for the
year 2001: 3
 

Item No. Tax Type Amount (Php)

1 MCIT 929,474.20

2 Expanded Withholding Tax 167,871.77

3 Premium Tax 1,004,636.84

4 Percentage Tax — Rental Income 25,991.70

5 DST on Loans 13,301.86

6 MCIT — Disallowed Direct Costs 586,788.11

7 DST — Increased Policies 7,189,683.70

Total Deficiency Taxes Assessed 9,917,748.18

 
On June 23, 2004, MBLIC settled items 1 to 5 of the
deficiency assessments with the BIR's Large Taxpayers
Service (LTS),but moved for reconsideration of items 6 and
7. 4
However, on August 17, 2004, MBLIC received from
the CIR a Formal Letter of Demand with Formal Assessment
Notices (FAN),dated August 4, 2004, for its alleged MCIT
and DST deficiencies for 2001 in the aggregate amount of
P7,951,462.28, broken down as follows: 5
 

Item Details Amounts (Php) Total (Php)

MCIT Basic MCIT Due 398,233.52  

 Interest as of August 11, 2004 185,855.58  

Compromise Penalty 16,000.00 600,089.10

DST Basic DST Due 4,841,002.50  

Interest as of August 11, 2004 2,485,370.68  

Compromise Penalty 25,000.00 7,351,373.18

Grand Total 7,951,462.28

 
The basic MCIT for 2001 in the amount of
P398,233.52 was based on the disallowances from MBLIC's
claimed deductions. Essentially, according to the CIR,
premium taxes and DSTs on insurance policies are not
deemed "costs of service" that can be deducted from gross
receipts for purposes of computing MCIT. The CIR cited
Section 27 (E) (4) of the National Internal Revenue Code of
1997 (NIRC)and Revenue Memorandum Circular No. 4-
2003 (RMC 4-2003). Under RMC 4-2003, premium taxes
and DSTs are not included in the enumeration of an
insurance company's direct costs. Thus, MBLIC's basic
deficiency MCIT due for 2001 was computed as follows: 6
 

Disallowances: DST Php1,508,128.17

 Premium Tax 18,403,548.01

Subtotal 19,911,676.18

MCIT Rate 2%

MCIT Dues Php398,233.52

 
As regards the DST portion of the assessment, the
base amount of P4,841,002.50 was arrived at by applying
the rate of P0.50 for every P200.00 of P1,936,401,000.00,
which pertains to the total increase in the sum assured under
the existing insurance policies in 2001 as reported by MBLIC
to the Insurance Commission. It was noted that the increase
in the assured amount under the policies entailed a
corresponding increase in the DST due. Inclusive of interest
and penalties, the total amount of DST due
is P7,351,373.18.7
On September 15, 2004, MBLIC filed its letter protest
before the LTS, contesting the assessment of the subject
deficiencies. On November 12, 2004, MBLIC submitted
before the LTS Audit and Investigation Division all the
documents requested by the office. Thereafter, on June 7,
2005, MBLIC filed a petition for review with the CTA to
protect its right to refute the assessment. The case was
docketed as CTA Case No. 7266. The CIR filed his Answer
on August 30, 2005. 8
Subsequently, on October 12, 2005, MBLIC prayed for
leave of court to file a Supplemental Petition, alleging therein
that the deficiency DST on transactions made from January
to June 2001 is null and void for having been issued beyond
the three-year prescriptive period. The CTA admitted the
Supplemental Petition over the opposition of the CIR. 9
In turn, the CIR filed his Amended Answer, 10 alleging
that the assessments were issued in accordance with
existing law and regulations, and that they were issued
within the prescriptive period. In any event, issues and
defenses not raised in the administrative level, such as
prescription herein, cannot be raised for the first time on
appeal.
Anent the assessed deficiency MCIT, the CIR argued
that RMC 4-2003 is applicable even though the assessment
is for deficiencies in the year 2001 since it merely clarified an
existing NIRC provision; that MBLIC failed to rebut the
findings of the CIR that premium taxes and DSTs are not
direct costs; and that the alleged expenses are not
deductions from gross receipts for computing MCIT, but from
gross income for computing the basic domestic corporate
tax.
Regarding the deficiency DST, the CIR justified its
assessment of the increased assured amount by citing
Section 198 of the NIRC,which specifically provides that any
alteration on any instrument or agreement subject to DST, a
policy insurance included, shall be subject to incremental
DST at the same rate as that imposed on the original
instrument. Reliance was likewise made on CIR v. Lincoln
Philippine Life Insurance Company, Inc. (Lincoln).11
Lastly, the CIR argued that claims for tax exemption
ought to be construed strictissimi juris against the claimant
MBLIC, and that the assessments are prima facie correct
and presumed to have been made in good faith. Absent
proof of irregularities in the performance of official duties, an
assessment should not be disturbed.
CTA Case Nos. 7324 and 7378

CTA Case Nos. 7324 and 7378 arose from

circumstances similar to CTA Case No. 7266. These pertain
to deficiency DSTs assessed on the increases in the sums
assured under existing insurance policies, this time for the
years 2002 and 2003. A summary of the assessments is as
follows:
 

CTA Case
No. Fiscal Year Deficiency DST Due (Php)

7324 2002 2,528,424.74 12

7378 2003 2,083,203.48 13

 
Upon due observance of the procedure for
administrative remedies, resulting in either the failure of the
CIR to resolve the protest within the reglementary period or
in the denial of MBLIC's protest, MBLIC filed petitions for
review with the CTA, docketed as CTA Case Nos. 7324 and
7378. Upon motion of MBLIC, these cases were
consolidated with CTA Case No. 7266. 14 Trial on the merits
thereafter ensued.
Ruling of the CTA Second Division
On November 6, 2009, the CTA Second Division
rendered a Decision 15 on the consolidated petitions of
MBLIC, upholding the assessments made by the CIR with
modifications.
According to the CTA Second Division, premium taxes
are deemed cost of services deductible from gross receipts
in computing for MCIT. It ruled, however, that DSTs are not
so deductible. To quote: 16
In light of the foregoing, premium tax may be
considered as a direct cost and/or expense
necessary to provide the service of insurance
considering that insurance companies, such as
petitioner, cannot effectively issue insurance
policies without incurring the said tax. It must be
pointed out that in the issuance of a policy or
 contract of insurance, its validity and binding effect
depends (sic) upon the payment of the premium,
which is closely intertwined with the payment of the
premium tax that is accruing thereto.
xxx xxx xxx
However, [W]e can not say the same as
regards the DST.
Unlike the premium tax, which is the direct
liability of the insurance company, the DST x x x is
imposed upon "the person making, signing, issuing,
accepting or transferring" the document or facility
evidencing the transaction. Thus, DST may be
imposed upon either of the parties to the transaction
in a contract of insurance, or upon either the
insurance company or the insured.
It is not disputed herein that the
corresponding DST (like the consequent premium
tax) was included in the premiums charged to
petitioner's clients. Thus, the latter are the ones who
were made liable to pay the DST, and not the
petitioner. This being the case, DST cannot be
deemed as a direct cost or expense of petitioner
necessary to provide the insurance service.
Consequently, the same DST cannot form part of
petitioner's costs of service for purposes of
computing its MCIT for taxable year 2001. (Citations
omitted)
Furthermore, the CTA Second Division ruled that the
CIR erred in utilizing RMC 4-2003 as the basis for the
disallowances of the deductions from gross receipts in
computing for the MCIT, for the issuance, issued on
December 31, 2002, cannot be applied retroactively to
assess MBLIC for deficiency taxes for taxable year 2001. 17
Anent the deficiency DST due, the CTA Second
Division sided with the CIR and applied the Lincoln ruling.
Thus, it was held that an increase in the coverage or the
sum assured by an insurance policy is subject to DST even
though no new policy for such an increase was issued. 18
On the issue of prescription, the CTA Second Division
cited Aguinaldo Industries Corp. (Fishing Nets Division) v.
CIR, et al.,19 (Aguinaldo) and ruled that the defense cannot
be considered, asserted as it was for the first time in
 MBLIC's Supplemental Petition instead of during the
administrative stages of the proceeding. 20
Lastly, the compromise penalties imposed by the CIR
were cancelled because there was no mutual agreement
between the parties to compromise. A 25% surcharge was
imposed in its stead. 21
In sum, the CTA Second Division disposed of MBLIC's
petitions in the following manner: 22
WHEREFORE,in view of the foregoing
considerations, the consolidated Petitions for
Review seeking the cancellation of respondent's
assessments for; deficiency Minimum Corporate
Income Tax (MCIT) and deficiency Documentary
Stamp Tax (DST) and increments for taxable year
2001 in CTA Case No. 7266;deficiency DST and
increments for taxable year 2002 in CTA Case No.
7324;and deficiency DST and increments for
taxable year 2003 in CTA Case No.
7378 are DENIED.The Formal Assessment Notices
issued by respondent against petitioner covering
deficiency MCIT for taxable year 2001 and
deficiency DST for taxable years 2001, 2002 and
2003 are hereby AFFIRMED WITH
MODIFICATIONS.The compromise penalties
are CANCELLED. However, a twenty-five percent
(25%) surcharge is imposed, pursuant to Section
248(A) of the NIRC of 1997.
Accordingly, petitioner is hereby ORDERED
TO PAY respondent the amount of FOURTEEN
MILLION SIXTY-THREE THOUSAND SIX
HUNDRED SEVEN PESOS AND 51/100
(P14,063,607.51),representing its deficiency MCIT
for taxable year 2001 and deficiency DST for
taxable years 2001, 2002, and 2003, inclusive of
increments, computed as follows:
 

  2001 2002 2003 Grand Total

MCIT        

Basic MCIT
Due P30,162.56      

25% 7,540.64      
 Surcharge

20% Interest 14,076.86      

  P51,780.06     P51,780.06

DST        

Basic DST
Due P4,841,002.50 P1,764,579.41 P1,689,709.49  

25%
Surcharge 1,210,250.63 441,144.85 422,427.37  

20% Interest 2,485,370.68 763,848.53 393,493.99  

P2,505,630.8
  P8,536,623.81 P2,969,572.79 5 P14,011,827.45

Total Amount P2,505,630.8

Due P8,588,403.87 P2,969,572.79 5 P14,063,607.51

 
In addition, petitioner is hereby ORDERED
TO PAY twenty percent (20%) delinquency interest
on P8,588,403.87, representing the total amount
due for taxable year 2001, computed from August
11, 2004; as well as on the P2,969,572.79 and
P2,505,630.85 total amounts due for taxable years
2002 and 2003, respectively, computed from March
5, 2005 until full payment thereof, pursuant to
Section 249(C)(3) of the NIRC of 1997.
SO ORDERED.
The CTA Second Division would affirm the
said Decision through its Resolution 23 dated April 6, 2010.
Ruling of the CTA En Banc
Unsatisfied, both parties assailed the rulings of the
CTA Second Division. MBLIC maintained its posturing in its
petitions. The CIR, on the other hand, alleged that the CTA
Second Division erred (a) in allowing MBLIC to deduct
premium taxes from gross receipts for the purpose of
computing the MCIT due, and (b) in cancelling the
compromise penalties assessed in the FANs.
The CTA En Banc,however, found no cogent reason
to disturb the findings and conclusions spelled out in the
assailed rulings of the CTA Second Division. In its
discussion, the CTA En Banc merely amplified the
justification for barring MBLIC from raising prescription as a
defense. Thus, the CTA En Banc disposed of both petitions
in the following wise: 24
WHEREFORE, the assailed Decision dated
November 6, 2009 and Resolution dated April 6,
2010 of the CTA Former Second Division are
hereby AFFIRMED in toto,and the instant Petitions
for Review are hereby DISMISSED for lack of merit.
SO ORDERED.
The parties' respective motions for reconsideration
were denied by the CTA En Banc through its December 9,
2011 Resolution. 25
Hence, the instant recourses.
The Issues
MBLIC framed the issues thusly: 26
A. WHETHER OR NOT THE CTA EN BANC IN
UPHOLDING
THE DECISION AND RESOLUTION OF THE
CTA-DIVISION COMMITTED REVERSIBLE
ERROR IN HOLDING THAT PETITIONER
CANNOT RAISE THE ISSUE OF
PRESCRIPTION FOR THE FIRST TIME ON
APPEAL IN ITS PETITION FOR REVIEW
FILED BEFORE THE CTA-DIVISION IN CTA
CASE NO. 7266
B. WHETHER OR NOT THE CTA EN BANC IN
UPHOLDING
THE DECISION AND RESOLUTION OF THE
CTA-DIVISION COMMITTED REVERSIBLE
ERROR IN HOLDING THAT DST IS NOT
PART OF COST OF SERVICE FOR
PURPOSES OF COMPUTING [THE] MINIMUM
CORPORATE INCOME TAX ("MCIT")
C. WHETHER OR NOT THE CTA EN BANC IN
UPHOLDING
THE DECISION AND RESOLUTION OF THE
CTA-DIVISION COMMITTED REVERSIBLE
ERROR IN HOLDING THAT AN INCREASE IN
THE COVERAGE OR THE SUM ASSURED BY
AN INSURANCE POLICY IS SUBJECT TO
 DST ALTHOUGH NO NEW POLICY FOR
SUCH INCREASE IS ISSUED
On the other hand, the CIR assigned the following
errors: 27
THE HONORABLE COURT [OF] TAX
APPEAL[S] EN BANC ERRED ON A QUESTION
OF LAW WHEN (1) IT AFFIRMED
THE DECISION DATED NOVEMBER 6, 2009
AND RESOLUTION DATED APRIL 6, 2010
RENDERED BY THE FORMER COURT OF TAX
APPEALS SECOND DIVISION FINDING THAT
THE PREMIUM TAX IS DEEMED PART OF THE
COST OF SERVICE FOR PURPOSES OF
PETITIONER'S ASSESSMENT FOR DEFICIENCY
MINIMUM CORPORATE INCOME TAX BUT NOT
FOR PETITIONER'S ASSESSMENT FOR
DEFICIENCY DOCUMENTARY STAMP TAX AND
(2) WHEN IT CANCELLED THE COMPROMISE
PENALTIES AGAINST RESPONDENT.
To synthesize, the pivotal issue in the case at bar is
whether or not the CIR erred in assessing MBLIC for
deficiency taxes. Subsumed under this general statement
are the following issues:
1. Whether or not MBLIC is liable for deficiency MCIT
in 2001.
a. Whether or not RMC 4-2003 can be
retroactively applied as basis for the
purported deficiency taxes in 2001.
b. Whether or not premium taxes constitute
"cost of services" deductible from gross
receipts.
c. Whether or not DSTs constitute "cost of
services" deductible from gross receipts.
2. Whether or not MBLIC is liable for deficiency DST
for increases in the assured or covered amount
stated in its insurance policies even though no
new instrument is issued.
3. Whether or not prescription was properly raised as
a defense.
4. Whether or not compromise penalty could be
imposed against MBLIC.
The Court's Ruling
 The petition of the CIR is meritorious in part, while that
of MBLIC deserves scant consideration. The Court shall now
discuss the aforementioned issues in seriatim.
Liability for deficiency MCIT

Of particular importance to the case at bar is Section

27 (E) of the NIRC,which provides for the imposition of MCIT
in the following manner:
SEC. 27. Rates of Income tax on Domestic
Corporations.—
xxx xxx xxx
(E) Minimum Corporate Income Tax on Domestic
Corporations.—
(1) Imposition of Tax.— A minimum corporate
income tax of two percent (2%) of the gross income
as of the end of the taxable year, as defined herein,
is hereby imposed on a corporation taxable under
this Title, beginning on the fourth taxable year
immediately following the year in which such
corporation commenced its business operations,
when the minimum income tax is greater than the
tax computed under Subsection (A) of this Section
for the taxable year.
xxx xxx xxx
(4) Gross Income Defined.— For purposes of
applying the minimum corporate income tax
provided under Subsection (E) hereof, the term
'gross income' shall mean gross sales less sales
returns, discounts and allowances and cost of
goods sold. 'Cost of goods sold' shall include all
business expenses directly incurred to produce the
merchandise to bring them to their present location
and use.
xxx xxx xxx
In the case of taxpayers engaged in the sale of
service, 'gross income' means gross receipts less
sales returns, allowances, discounts and cost of
services. 'Cost of services' shall mean all direct
costs and expenses necessarily incurred to provide
the services required by the customers and clients
including (A) salaries and employee benefits of
personnel, consultants and specialists directly
rendering the service and (B) cost of facilities
 directly utilized in providing the service such as
depreciation or rental of equipment used and cost of
supplies: Provided, however, That in the case of
banks, 'cost of services' shall include interest
expense. (Emphasis supplied)
The provision allows the government to collect from
corporations MCIT equivalent to 2% of "gross income" in lieu
of the 30% of "gross income" basic income tax for domestic
corporations, 28 whenever the former is higher. It must be
borne in mind, however, that although both rates of taxes are
applied to "gross income" as tax base, the definition of
"gross income," for purposes of MCIT and basic corporate
income tax, varies.
Under Section 27 (E) (4) above-quoted, "gross
income" as used in determining MCIT means "gross receipts
less sales returns, allowances, discounts and cost of
services." This definition is much more limited in terms of
inclusions, exclusions, and deductions, compared to the
definition of "gross income" for purposes for computing basic
corporate tax under Sections 32 29 and 34 31
 

Gross Receipts

Less: Sales Returns

Sales Allowances

Sales Discounts

Cost of Services

Gross Income

MCIT Rate: 2%

Total MCIT Due

 
To refresh, the issue pertaining to MBLIC's deficiency
MCIT assessment stemmed from its alleged excessive claim
of deductible "cost of services," resulting in the CIR's
perceived understatement of the MCIT due. Specifically, the
CIR argues that premium taxes on insurance and DSTs
cannot be considered as deductible from gross receipts
since they are not among those identified under RMC 4-
2003 as costs of services.
 i. RMC 4-2003 cannot be retroactively
applied
The first point of contention is the applicability of RMC
4-2003. 32 The circular reads:
Gross Receipts and Cost of Services Per
Industry.— For purposes of applying the MCIT, the
'gross receipts' and 'cost of services' of taxpayers
engaged in the following types of services, or any
other kind but of a similar nature, shall be
determined as follows:
xxx xxx xxx
(ii) Insurance and pension funding
companies refer to those engaged in life and non-
life insurance business as defined under the
Insurance Code and pre-need companies, including
health maintenance organizations. Their gross
receipts shall mean actual or constructive receipts
representing: net retained premiums (gross
premiums net of returns, cancellations, and
premiums ceded)/gross premium or collection from
planholders; membership fees (in the case of
HMOs); miscellaneous income; investment income
not subject to final tax; released reserve and, in the
case of pre-need companies, gross withdrawals
from the trust funds set up independently as
mandated by the Securities and Exchange
Commission (SEC); and, all other items treated as
gross income under Section 32 of the Tax
Code.Their costs of services shall refer to those
incurred directly and exclusively in the
insurance and pre-need business, including the
generation of investment income not subject to
final taxes, and shall be limited to the following:
01. Salaries, wages and other employee
benefits of personnel directly
engaged in said activities;
02. Commissions on direct writings/agents
of pre-need companies;
03. Claims, losses, maturities and benefits
net of reinsurance recoveries; and,
04. Net additions required by law to reserve
fund (for insurance companies) and
in the case of pre-need companies,
 contributions to the trust funds to be
set up independently as mandated by
the SEC. (emphasis added)
MBLIC claims that the restrictive language of RMC 4-
2003 limits what constitutes "cost of service," compared to
the more inclusive wording of the provision the issuance
seeks to implement. Because RMC 4-2003 would preclude
MBLIC from claiming deductions from gross receipts other
than those expressly enumerated, the company claims that
the retroactive application of RMC 4-2003 to its 2001 taxes
is not only prejudicial but, in fact, violative of Section 246 of
the NIRC,which provides:
SEC. 246. Non-Retroactivity of Rulings. — Any
revocation, modification or reversal of any of
the rules and regulations promulgated in
accordance with the preceding Sections or any of
the rulings or circulars promulgated by the
Commissioner shall not be given retroactive
application if the revocation, modification or
reversal will be prejudicial to the
taxpayers,except in the following cases:
(a) Where the taxpayer deliberately
misstates or omits material facts from
his return or any document required of
him by the Bureau of Internal
Revenue;
(b) Where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different from
the facts on which the ruling is based;
or
(c) Where the taxpayer acted in bad
faith. (emphasis added)
Meanwhile, the CIR argues that invoking RMC 4-
2003 herein is proper since it merely clarified what
constitutes "cost of service" as defined under Section 27 (E)
(4). Since premium taxes and DSTs do not form part of the
exhaustive enumeration in the issuance, the CIR therefore
assessed MBLIC for deficiency MCIT.
We concur with MBLIC.
Well-entrenched is the rule that statutes, including
administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest
by express terms or by necessary implication. In the present
case, there is no indication that the revenue regulation may
operate retroactively. 33
Similarly, the Court held in Pilipinas Total Gas, Inc. v.
CIR 34 that RMC 54-2014, requiring that the application for
VAT refund or credit must already be accompanied by
complete supporting documents, cannot be applied
retroactively since it imposes new obligations upon
taxpayers in order to perfect their administrative claim. To
rule otherwise would unduly prejudice taxpayers who had
already filed their claims before RMC 54-2014 was issued, in
violation of Section 246 afore-quoted.
RMC 4-2003 cannot therefore be invoked in assessing
MBLIC's deficiency MCIT for 2001. Rather, the deductibility
of premium taxes and DSTs from gross receipts ought to be
measured against the standard set under Section 27 (E) (4)
of the NIRC itself.
ii. Premium taxes are NOT deductible
costs of services
Section 123 of the NIRC serves as basis for the
imposition of premium taxes. Pertinently, the provision
reads:
SEC. 123. Tax on Life Insurance Premiums.—
There shall be collected from every person,
company or corporation (except purely cooperative
companies or associations) doing life insurance
business of any sort in the Philippines a tax of five
percent (5%) of the total premium collected, whether
such premiums are paid in money, notes, credits or
any substitute for money; x x x[.]
Without the availability of RMC 4-2003, we can only
evaluate the deductibility of premium taxes (i.e.,) whether or
not they constitute cost of services) based solely on the
wording of Section 27 (E) (4).As per the provision, "cost of
services" means all direct costs and expenses necessarily
incurred to provide the services required by the customers
and clients, including (A) salaries and employee benefits of
personnel, consultants and specialists directly rendering the
service and (B) cost of facilities directly utilized in providing
the service such as depreciation or rental of equipment used
and cost of supplies.
In ruling that premium taxes are deductible from gross
receipts, the CTA relied on the permissive wording of the
provision. It held that the phrase "including" meant that "cost
of services" could pertain to expenses other than salaries
and production costs. On the premise that premium taxes
are expenses incurred by MBLIC to further its business, the
CTA then ruled that the same can be considered as part of
its cost of services, though not specifically mentioned. 35
While we agree that the enumeration in the provision
is not exhaustive, the CTA paid little to no attention to one of
the express requirements for deductibility — that the claimed
deduction should be a direct cost or expense. A cost or
expense is deemed "direct" when it is readily attributable to
the production of the goods or for the rendition of the
service.
Measured against this standard, it is then easy to
discern that premium taxes, though payable by MBLIC,
are not direct costs within the contemplation of the phrase
"cost of services," incurred as they are after the sale of
service had already transpired. This cannot therefore be
considered as the equivalent of raw materials, labor, and
manufacturing cost of deductible "cost of sales" in the sale of
goods.
Contrarily, to accede to the CTA's rationalization
would virtually allow all expenses to be deductible from
gross receipts, erasing the distinction between "gross
income" for purposes of MCIT and "gross income" for
purposes of basic corporate taxes. The CIR's contention —
that premium taxes are not deductions from gross receipts
when determining the MCIT, but from "gross income" in
calculating corporate taxes — should therefore be given due
credence.
iii. DSTs are NOT deductible costs of services
The CTA did not, however, err in holding that DSTs
are not deductible costs of services. The general provision
on DST states:
SEC. 173. Stamp Taxes Upon Documents, Loan
Agreements, Instruments and Papers.— Upon
documents, instruments, loan agreements and
papers, and upon acceptances, assignments, sales
and transfers of the obligation, right or property
incident thereto, there shall be levied, collected and
paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary
stamp taxes prescribed in the following Sections of
this Title, by the person making, signing, issuing,
 accepting, or transferring the same wherever the
document is made, signed, issued, accepted or
transferred when the obligation or right arises from
Philippine sources or the property is situated in the
Philippines, and the same time such act is done
or transaction had:Provided, That whenever one
party to the taxable document enjoys exemption
from the tax herein imposed, the other party who is
not exempt shall be the one directly liable for the
tax. (emphasis added)
As can be gleaned, DST is incurred "by the person
making, signing, issuing, accepting, or transferring" the
document subject to the tax. And since a contract of
insurance is mutual in character, either the insurer or the
insured may shoulder the cost of the DST.
In this case, it was duly noted by the CTA that MBLIC
never disputed charging DSTs from its clients as part of their
premiums. Hence, it cannot readily be said that it was
MBLIC who "necessarily incurred" the expense. 36 Moreover,
DSTs cannot also qualify as direct costs "to provide the
services required by the customers and clients" since, just
like premium taxes, they are incurred after the service had
been rendered. No error is then attributable to the CTA in
this regard.
Liability for DST

We now proceed to the assessed deficiency DST

liability of MBLIC for increases in the assured amount of the
insurance policies it issued. MBLIC had been reporting the
said increases to the Insurance Commission. The veracity of
these reports utilized by the CIR in its assessment was
neither disputed nor denied by MBLIC. Instead, the company
merely argued that it cannot be made liable for additional
DST unless a new policy is issued.
We do not agree.
The imposition of DST on insurance policies is
sourced on Section 183 of the NIRC,which states:
SEC. 183. Stamp Tax on Life Insurance Policies.
— On all policies of insurance or other instruments
by whatever name the same may be called,
whereby any insurance shall be made or renewed
upon any life or lives, there shall be collected a one-
time documentary stamp tax at the following rates:
  

If the amount of insurance does not exceed P100,000 Exempt

If the amount of insurance exceeds P100,000 but

does not exceed P300,000 Php10.00

If the amount of insurance exceeds P300,000 but

does not exceed P500,000 Php25.00

If the amount of insurance exceeds P150,000 but

does not exceed P750,000 Php50.00

If the amount of insurance exceeds P750,000 but

does not exceed P1,000,000 Php75.00

If the amount of insurance exceeds P1,000,000 Php100.00

 
Synthesized with Section 173 earlier quoted, DST
becomes due at the same time the insurance policy is
executed or had. By way of exception, however, Section 198
reads:
SEC. 198. Stamp Tax on Assignments and
Renewals of Certain Instruments.— Upon each
and every assignment or transfer of any mortgage,
lease or policy of insurance, or the renewal or
continuance of any agreement,contract, charter,
or any evidence of obligation or indebtedness by
altering or otherwise,there shall be levied,
collected and paid a documentary stamp tax, at the
same rate as that imposed on the original
instrument. (emphasis added)
Plainly, an insurance contract may again attract DST
at the same rate when it is (a) assigned or transferred, or (b)
renewed or continued by alteration or otherwise. Under the
latter circumstance, an alteration of the policy may result in
attracting DST, though no new policy is issued. MBLIC is
then mistaken in its claim that it can only be liable under
Section 183 whenever a new policy is issued. For the pivotal
question is not the issuance or non-issuance of a new policy,
but whether or not an increase in the assured amount
amounted to a renewal or continuance by alteration or
otherwise.
We approve the ruling of the CTA. Increases in the
amount fixed in the policy by virtue of the automatic increase
clause necessarily altered or affected the subject policies,
and therefore, created or granted existing policyholders new
and additional rights. 37 This finding is in consonance with
the Court's resolution in Lincoln.
In Lincoln,it was held that an increase in the assured
amount of an insurance policy would yield a corresponding
increase in the DST due. In the said case, private
respondent issued a special kind of life insurance policy
known as the Junior Estate Builder Policy. Its distinguishing
feature is a clause providing for an automatic increase in the
amount of life insurance coverage upon attainment of a
certain age by the insured without the need of issuing a new
policy. The clause was to take effect in the year 1984. DSTs
due were paid by petitioner only on the initial sum assured.
Nevertheless, the Court held that therein private respondent
is liable for DST on the increase of the amount insured upon
the effectivity of the automatic increase clause in 1984. As
the Court ratiocinated: 38
It is clear from Section 173 that the payment
of documentary stamp taxes is done at the time the
act is done or transaction had and the tax base for
the computation of documentary stamp taxes on life
insurance policies under Section 183 is the amount
fixed in policy, unless the interest of a person
insured is susceptible of exact pecuniary
measurement. What then is the amount fixed in
the policy? Logically, we believe that the amount
fixed in the policy is the figure written on its
face and whatever increases will take effect in
the future by reason of the "automatic increase
clause" embodied in the policy without the need
of another contract.
Here, although the automatic increase in the
amount of life insurance coverage was to take effect
later on, the date of its effectivity, as well as the
amount of the increase, was already definite at the
time of the issuance of the policy. Thus, the amount
insured by the policy at the time of its issuance
necessarily included the additional sum covered by
the automatic increase clause because it was
already determinable at the time the transaction was
entered into and formed part of the policy.
The "automatic increase clause" in the policy
is in the nature of a conditional obligation under
Article 1181, by which the increase of the insurance
 coverage shall depend upon the happening of the
event which constitutes the obligation. In the instant
case, the additional insurance that took effect in
1984 was an obligation subject to a suspensive
obligation, but still a part of the insurance sold to
which private respondent was liable for the payment
of the documentary stamp tax. (Citations omitted;
emphasis supplied)
The case ended with a warning that tax laws cannot
be circumvented in order to evade the payment of just taxes.
And to claim that the increase in the amount insured should
not be included in the computation of the documentary
stamp taxes due would be a clear evasion of the law
requiring that the tax be computed on the basis of the
amount insured. 39
On Prescription

MBLIC next argues that, even assuming for the sake

of argument that it is liable for deficiency DST for guaranteed
increases in the covered amount of its policies, it cannot be
assessed deficiency DST for the entire fiscal year of 2001.
More particularly, MBLIC averred that it had religiously been
filing monthly DST returns. And since the CIR only has three
years 40 from the filing of the return to collect any deficiency
thereon, he is precluded from recovering deficiency DST for
the January-June 2001 period covered by returns filed
earlier than August 4, 2001 or three years from the issuance
of the FAN.
The CIR, for its part, counters that the defense of
prescription was belatedly raised in MBLIC's supplemental
petition, and was not invoked during the protest before the
CIR. MBLIC refuted, however, that the defense of
prescription may be raised at any time.
The Court rules that although MBLIC is correct in
saying that it may still raise prescription as a defense, it
nevertheless failed to establish that the prescriptive period
had already expired.
Under Rule 1, Section 3 of the Revised Rules of
Procedure before the Court of Tax Appeals, the Rules of
Court of the Philippines shall have suppletory application. In
turn, Section 1, Rule 9 of the Rules of Court states:
Section 1. Defenses and objections not pleaded. —
Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed
 waived. However, when it appears from the
pleadings or the evidence on record that the
court has no jurisdiction over the subject matter, that
there is another action pending between the same
parties for the same cause, or that the action is
barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim.
(emphasis added)
Thus, the Court in China Banking Corporation v.
CIR,41 citing Heirs of Valientes v. Ramas,42 ruled that it is
imbued with sufficient discretion to review matters, not
otherwise assigned as errors on appeal, if it finds that their
consideration is necessary in arriving at a complete and just
resolution of the case; more so, when the provisions on
prescription were enacted to benefit and protect taxpayers
from investigation after a reasonable period of time.
Resultantly, the Court therein appreciated the defense of
prescription even though it was raised for the first time
before the Court of last resort.
Indeed, the Court may give credence to the defense of
prescription even though it was raised for the first time on
appeal. However, as mentioned, the defense of prescription,
though timely invoked, was not sufficiently established. For
though MBLIC endeavored to prove that it filed DST returns
covering the months of January-June 2001 before the
August 5, 2004 FAN was issued, there was no showing that
the deficiency DSTs assessed pertained to the said
timeframe.
Stated in the alternative, MBLIC failed to establish that
the increase in coverage that resulted in the increase in DST
due occurred between January and June of 2001. Without
this detail, there is no way of knowing when the
corresponding DST became due, when the tax return
therefor should have been filed, and, consequently, when
the three-year prescriptive period should be reckoned.
Compromise Penalty cannot be imposed

Finally, no error can be attributed to the CTA when it

deleted the compromise penalties that the CIR imposed on
MBLIC. A compromise, by its nature, is mutual in
essence. 43 It cannot therefore be imposed without a
predicate agreement. In this case, the fact that MBLIC
protested the assessment could only signify that there was
no agreement to speak of.
 WHEREFORE,premises considered, the Court hereby
resolves as follows:
a. The Petition for Review on Certiorari of Manila
Bankers' Life Insurance Corporation, docketed
as G.R. Nos. 199729-30, is hereby DENIED for
lack of merit;
b. The Petition of the Commissioner of Internal
Revenue, docketed as G.R. Nos. 199732-33,
is PARTLY MERITORIOUS;and
c. The August 18, 2011 Decision and December 9,
2011 Resolution of the Court of Tax Appeals En
Banc in CTA EB Case Nos. 620 and 621 are
hereby AFFIRMED with
the MODIFICATION that premium taxes are not
deductible from gross receipts for purposes of
determining the minimum corporate income tax
due. As modified, the total deficiency taxes due
from Manila Bankers' Life Insurance Corporation
shall be as follows:
 

  2001 2002 2003 Grand Total

MCIT        

Basic MCIT
Due Php398,233.52      

25% Surcharge 99,558.38      

20% Interest 185,855.58      

  Php683,647.48     Php683,647.48

DST        

Basic DST Due Php4,841,002.50 Php1,764,579.41 Php1,689,709.49  

25% Surcharge 1,210,250.63 441,144.85 422,427.37  

20% Interest 2,485,370.68 763,848.53 393,493.99  

  Php8,536,623.81 Php2,969,572.79 Php2,505,630.85 Php14,011,827.45

Total Amount
Due Php9,220,271.29 Php2,969,572.79 Php2,505,630.85 Php14,695,474.93

 
 Accordingly, Manila Bankers' Life Insurance
Corporation is hereby ORDERED TO PAY the
Commissioner of Internal Revenue the amount
of FOURTEEN MILLION SIX HUNDRED NINETY-FIVE
THOUSAND FOUR HUNDRED SEVENTY-FOUR PESOS
AND 93/100 (P14,695,474.93) representing the deficiency
MCIT for taxable year 2001 and deficiency DST for taxable
years 2001, 2002, and 2003.
In addition, Manila Bankers' Life Insurance
Corporation is hereby ORDERED TO PAY:
(a) Delinquency interest at the rate of twenty percent
(20%) on P9,220,271.29, representing the total
amount due for taxable year 2001, computed
from August 11, 2004 until December 31, 2017;
as well as on the P2,969,572.79 and
P2,505,630.85 total amounts due for taxable
years 2002 and 2003, respectively, computed
from March 5, 2005 until December 31, 2017,
pursuant to Section 249 (C) (3) of the NIRC of
1997, and
(b) From January 1, 2018 until full payment, the rate of
delinquency interest on the total amounts due
stated in the preceding paragraph for taxable
years 2001, 2002 and 2003 shall be twelve
percent (12%) pursuant to Section 249 (C) (3) of
the NIRC of 1997 as amended by Republic Act
No. 10963, otherwise known as the "Tax
Reform for Acceleration and Inclusion (TRAIN)
Law" and implemented by Revenue Regulations
No. 21-2018. 44
SO ORDERED.
Peralta, Leonen,
Hernando and Carandang,  * JJ.,concur.
 
Footnotes

*Designated additional Member as per Special Order No. 2624 dated

November 29, 2018.
1.Penned by Associate Justice Caesar A. Casanova, with Associate
Justices Juanito C. Castañeda, Lovell R. Bautista, Erlinda P. Uy,
Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino and Cielito
N. Mindaro-Grulla and Presiding Justice Ernesto D. Acosta (on
leave) concurring; rollo (G.R. Nos. 199732-33),pp. 36-61.
 2.Id. at 62-69.
3.Id.at 38.
4.Id.
5.Id. at 38-39.
6.Id. at 39.
7.Id. at 40.
8.Id.
9.Id. at 40-41.
10.The pertinent portion of which is quoted in the rollo of G.R. Nos.
199732-33, pp. 41-47.
11.429 Phil. 154 (2002).
12.Rollo (G.R. Nos. 199732-33),pp. 47-48.
 

Total Issued Policies 825,958,000.00

Total Increases in sum assured for Group Insurance 1,169,854,000.00

Total Increases in sum assured for Ordinary Insurance 175,361,000.00

Total sum assured in policies 2,171,173,000.00

Tax Rate 0.50/200.00

Tax Due 5,427,932.50

DST payments made 3,663,353.09

Basic Deficiency DST Due 1,764,579.41

Interest (January 1, 2003 to March 5, 2005) 763,848.53

Total Deficiency DST 2,528,424.74

 
13.Id. at 50.
 

Total Issued Policies 801,548,000.00

Total Increases in sum assured for Group Insurance 1,142,428,000.00

Total Increases in sum assured for Ordinary Insurance 85,137,000.00

Total sum assured in policies 2,029,114,000.00

Tax Rate 0.50/200.00

Tax Due 5,072,785.00

DST payments made 3,383,075.51

Basic Deficiency DST Due 1,689,709.49

Interest (January 5, 2004 to February 5, 2005) 393,493.99

Total Deficiency DST 2,083,203.48

 
14.Id. at 51.
15.Penned by Associate Justice Erlinda P. Uy, and concurred in by
Associate Justices Juanito C. Castañeda, Jr. and Olga Palanca-
Enriquez; id. at 80-113.
16.Id. at 99-100.
17.Id. at 101-104.
18.Id. at 105-108.
19.197 Phil. 822 (1982).
20.Rollo (G.R. Nos. 199732-33),pp. 108-110.
21.Id. at 110.
22.Id. at 110-112. (Emphasis in the original)
23.Id. at 114-126.
24.Id. at 59. (Emphasis in the original)
25.Id. at 62-69.
26.Rollo (G.R. Nos. 199729-30),p. 112.
27.Rollo (G.R. Nos. 199732-33),p. 27.
28.Section 27 (A) of the NIRC.
29.SEC. 32. Gross Income.—
   (A) General Definition.— Except when otherwise provided in this
Title, gross income means all income derived from whatever
source, including (but not limited to) the following items:
   (1) Compensation for services in whatever form paid, including, but
not limited to fees, salaries, wages, commissions, and similar
items;
   (2) Gross income derived from the conduct of trade or business or the
exercise of a profession;
   (3) Gains derived from dealings in property;
   (4) Interests;
   (5) Rents;
   (6) Royalties;
   (7) Dividends;
   (8) Annuities;
   (9) Prizes and winnings;
   (10) Pensions; and
   (11) Partner's distributive share from the net income of the general
professional partnership.
   (B) Exclusions from Gross Income.— The following items shall not
be included in gross income and shall be exempt from taxation
under this title:
   (1) Life Insurance. — x x x
   (2) Amount Received by Insured as Return of Premium. — x x x
   (3) Gifts, Bequests, and Devises. — x x x
   (4) Compensation for Injuries or Sickness. — x x x
   (5) Income Exempt under Treaty. — x x x
   (6) Retirement Benefits, Pensions, Gratuities, etc. — x x x
   (7) Miscellaneous Items. —
   (a) Income Derived by Foreign Government. — x x x
   (b) Income Derived by the Government or its Political Subdivisions.
— x x x
   (c) Prizes and Awards. — x x x
xxx xxx xxx
   (d) Prizes and Awards in sports Competition. — x x x
   (e) 13th Month Pay and Other Benefits. — x x x
xxx xxx xxx
   (f) GSIS, SSS, Medicare and Other Contributions. — x x x
   (g) Gains from the Sale of Bonds, Debentures or other Certificate of
Indebtedness. — x x x
   (h) Gains from Redemption of Shares in Mutual Fund. — x x x
30.SEC. 34. Deductions from Gross Income.x x x
   (A) Expenses.
xxx xxx xxx
   (B) Interest.
xxx xxx xxx
   (C) Taxes.
xxx xxx xxx
   (D) Losses.
xxx xxx xxx
   (E) Bad Debts.
xxx xxx xxx
   (F) Depreciation.
xxx xxx xxx
   (G) Depletion of Oil and Gas Wells and Mines.
xxx xxx xxx
   (H) Charitable and Other Contributions.
xxx xxx xxx
   (I) Research and Development.
xxx xxx xxx
   (J) Pension Trusts.
   (K) Additional Requirements for Deductibility of Certain Payments.
— x x x
   (L) Optional Standard Deduction. — x x x
   (M) Premium Payments on Health and/or Hospitalization Insurance of
an Individual Taxpayer. x x x
31.CIR v. Philippine Airlines,609 Phil. 695, 713 (2009).
32.Clarifying Items That Would Constitute Gross Receipts and Costs in
Determining "Gross Income" on Services for the Purpose of
Computing the Minimum Corporate Income Tax (MCIT) Pursuant
 to Sections 27 (E) and 28 (A) (2) of the National Internal Revenue
Code of 1997; promulgated on December 31, 2002.
33.BPI Leasing Corporation v. Court of Appeals, 461 Phil. 451, 460
(2003).
34.774 Phil. 473 (2015).
35.Rollo (G.R. Nos. 199732-33),pp. 66-67.
36.Id. at 100.
37.Id. at 108.
38.CIR v. Lincoln Philippine Life Insurance Company, Inc.,supra note 11,
at 161-162.
39.Id. at 162.
40.SEC. 203. Period of Limitation upon Assessment and Collection.
— Except as provided in Section 222, internal revenue taxes shall
be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after
the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-
year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed
on such last day.
41.753 Phil. 58 (2015).
42.653 Phil. 111 (2010).
43.417 Phil. 292, 302 (2001).
44.Section 6 of Revenue Regulations No. 21-2018 provides: Section 6.
TRANSITORY PROVISION. — In cases where the tax liability/ies
or deficiency tax/es became due before the effectivity of
the TRAIN Law on January 1, 2018, and where the full payment
thereof will only be accomplished after the said effectivity date, the
interest rates shall be applied as follows:
 

Period Applicable Interest Type and Rate

For the period up to December 31, Deficiency and/or delinquency interest

2017 at 20%

For the period January 1, 2018 until Deficiency and/or delinquency interest
full payment of the tax liability at 12%
 

THIRD DIVISION

[G.R. No. 202792. February 27, 2019.]

LA SALLIAN EDUCATIONAL INNOVATORS

FOUNDATION (DE LA SALLE UNIVERSITY-
COLLEGE OF ST. BENILDE),
INC., petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.

DECISION
 A.B. REYES, JR., J  : p

Before this Court is a Petition for Review

on Certiorari 1 taken under Rule 16 of the Revised Rules of
the Court of Tax Appeals, in relation to Rule 45 of the Rules
of Court seeking to nullify the Decision 2 dated April 19, 2012
and Resolution 3 promulgated on July 17, 2012 of the Court
of Tax Appeals (CTA) En Banc.
The Factual Antecedents
Petitioner La Sallian Educational Innovators
Foundation, Inc. (De La Salle University-College of St.
Benilde Foundation)/for brevity) is a non-stock, non-profit
domestic corporation duly organized and existing under the
laws of the Philippines. 4 Respondent is the Commissioner of
Internal Revenue who has the power to decide, cancel, and
abate tax liabilities pursuant to Section 204 (B) of the Tax
Code, as amended. 5
On June 17, 2005, respondent issued two (2)
Assessment Notices, both numbered 33-FY 05-31-02, for
fiscal year ending May 31, 2002. The notices have demand
letters against petitioner for deficiency income tax. The
alleged deficiency income tax is in the amount of
P122,414,521.70, inclusive of interest, computed as
follows: 6  aScITE

 
Gross Income Per Return on Educational   P618,449,079.00
Less: Expenses Per Return on Educational   459,848,867.00
    –––––––––––––
–
Net Income Per Return   P158,600,212.00
Add: Adjustments Per Investigation    
Interest Expense    
- Disallowed (Sec. 34 (B) NIRC) P21,827,506.66  
Provision for Retirement    
- Not Deductible (Sec. 34 NIRC) 27,059,453.34  
Provision for Doubtful Accounts    
- Not Deductible (Sec. 34 NIRC) 4,252,393.73  
Not Subject to Withholding Tax    
- Sec. 34 NIRC    
Rental 123,147.00  
Income Not Subjected to Income Tax    
- Depository Accounts (Sec. 32 NIRC) 575,702,650.00  
     
Unlocated/Unsupported Invoices & 2,150,270.66 631,170,895.82
Vouchers (Sec. 34 NIRC)
  –––––––––––– –––––––––––––
– –
 Adjusted Taxable Income   P789,771,107.82
    ============
     
Tax Due   P78,977,110.78
    –––––––––––––
–
Less: Tax due per return   -
Deficiency Income Tax (subject to   P78,977,110.78
increments)
Add: 25% surcharge (Sec. 248)    
20% interest from __ to 06-20-05 (Sec. 249)   P43,437,410.92
Compromise Penalty (Sec. 254)    
    –––––––––––––
–
TOTAL AMOUNT DUE &   P122,414,521.70
COLLECTIBLE
    ============
 

The other Assessment Notice is for a deficiency value-

added tax (VAT) in the amount of P2,752,228.54, inclusive
of interest, computed as follows:
 

Taxable Income Subject to VAT      

ICC Revenue   P24,830,069.0  
0
Auxiliary Service Income   637,280.35  
Concessionaire   606,726.00  
Mimeo/Xerox   425,489.60  
Book store-School Supplies   559,140.96  
Parking Fund   2,729,330.75  
Boarding House   2,513,338.02  
Locker Rental   309,172.00 32,610,546.68
    –––––––––––– –––––––––––––
–
VAT Output Tax Due — Sec. 106/08 NIRC     P3,261,054.67
Less: Creditable Input Tax      
Carried Over from Previous Quarter   P770,351.28  
Current Input Tax   943,242.91  
Total      
Less: Excess/To be Applied to P121,991.53    
Succeeding Year — Sec. 110 NIRC
Unsupported — Sec. 110 NIRC 393,240.74    
Pro-rated between Hotel & School — 309,956.13 825,188.40 888,405.79
Sec. 110, NIRC
  ––––––––––– –––––––––––– –––––––––––––
–– –
VAT Due     P2,372,648.88
Less: Payment     652,506.04
      –––––––––––––
Deficiency VAT     P1,720,142.84
Add: 25% surcharge (Sec. 248)      
20% interest from __ to 06-20-05 (Sec. 249)     1,032,085.70
Compromise Penalty (Sec. 254)      
      –––––––––––––
TOTAL AMOUNT DUE &     P2,752,228.54 7
COLLECTIBLE
      ============
 
On the same date, a separate demand letter was also
sent by respondent to petitioner for a compromise penalty in
deficiency VAT in the amount of P25,000.00. 8  HEITAD

To contest the deficiency taxes assessed, petitioner

Foundation filed a Protest or Request for Reconsideration to
respondent on July 20, 2005. 9 After the petitioner
Foundation has submitted all the documents in support of its
protest, and in view of respondent's inaction thereto,
petitioner Foundation filed a Petition for Review before the
Special First Division of the CTA Division. It was sent
through registered mail on April 17, 2006, the last day of
filing the appeal. 10 However, petitioner was only able to pay
the docket and other legal fees nine days after or on April
26, 2006. 11
Notably, petitioner Foundation executed an
Agreement Form with the Bureau of Internal Revenue (BIR)
on April 21, 2006, and paid the deficiency VAT liability of
P601,487.70 on May 9, 2006. 12
However, respondent alleged that the petitioner
Foundation has already lost its tax-exempt status, making it
liable to deficiency income tax. The Details of Discrepancies
issued by the BIR enumerated the following findings, to
wit: 13
a.  The foundation may be a non-stock entity but it is
definitely a profit-oriented organization wherein
majority of its revenue-operating activities are
generating huge amount of profit amounting to P643
million that earned from expensive tuition fees
collected from its students, mostly belong to
a [sic] upper class family.
b.  The foundation's Cash in Bank in the amount of
P775 million comprise of investing activities and has
significant movement in relation to its charitable
purposes, which mean that the foundation
are [sic] not giving sufficient donations which is the
main reasons [sic] for its qualification[s] [sic] for
exemption. During the school year the
foundations [sic] has a total cash receipts of
 approximately 1.222 Billion out of which only 77
Million goes to the revolving fund.
c.  Based on the Cash Flow of the foundation
activities the taxpayer has used 583 Million for
operating activities, 54 Million interest/settlement of
loan and 203 Million for investing activities or 70%
of foundation's earnings goes to the administrative
purposes and improvement of the school to
increase number of its enrollees and increase
further its profit and not to further its charitable
purposes.
Pursuant to section 30 of the NIRC,
"Notwithstanding the provisions in the preceding
Paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit [r]egardless of the
disposition made by such income, shall be subject
to tax imposed under this Code."
d.  The taxpayer's Ruling for exemption from the
BIR was obtained in 1988, hence, all Ruling issued
before the implementations or RA No. 8424 or
CTRP was repealed, thereby, requiring the taxpayer
to apply for new Revenue Ruling for exemption
taking consideration of its income earning
activities. 
ATICcS

On the other hand, petitioner Foundation consistently

argued that it enjoys a tax-exempt status from all taxes as a
non-stock, non-profit educational institution as expressly
provided under Paragraph 4, Section 4, Article XIV of
the 1987 Constitution, which reads:
ARTICLE XIV
EDUCATION, SCIENCE AND TECHNOLOGY,
ARTS, CULTURE, AND SPORTS
EDUCATION
xxx xxx xxx
Section 4.  x x x. —
xxx xxx xxx
(3)  All revenues and assets of non-stock, non-profit
educational institutions used actually, directly and
exclusively for educational purposes shall be
exempt from taxes and duties. x x x.
 Moreover, petitioner Foundation denied the
respondent's allegations that it engaged in disproportionate
profit-earning activities contrary to its educational purpose.
Contrary to the allegations, it explained that the sum of
P643,279,148.00 is not profit, but merely the gross receipts
from school-year 2002. 14
Bearing in mind that the total expenses of the
Foundation is in the amount of P582,903,965.00, the net
receipt of petitioner Foundation is only P60,375,183. 15 This
was corroborated by the Foundation's Audited Financial
Statement. 16 Remarkably, this amount is equivalent to just
9.38% of its total operating receipts. 17
Furthermore, petitioner Foundation's claim that all the
said income is actually, directly and exclusively used or
earmarked for promoting its educational purpose and not a
single centavo inure to the benefit of any of the Foundation's
members, trustees and officers. 18 The Independent Certified
Public Accountant, Mr. Edwin Ramos, also testified and
explained that the administrative expenses of the Foundation
would necessarily be lower than 27.35%.
Thereafter, respondent filed its Answer on June 15,
2006, 19 and petitioner Foundation filed its Reply on June 30,
2006 20 to the CTA Division.
Ruling of CTA Division
On July 16, 2010, the CTA Division promulgated a
Decision 21 ruling in favor of petitioner Foundation, and
cancelling Assessment Notice No. 33-FY 05-31-02 for fiscal
year ending May 31, 2002, with demand letter. The
dispositive portion reads: TIADCc

WHEREFORE, the Petition for Review is

hereby GRANTED. The Assessment Notice No. 33-
FY 05-31-02 for fiscal year ending May 31, 2002,
with demand letter, against petitioner for deficiency
income tax in the amount of ONE HUNDRED
TWENTY-TWO MILLION FOUR HUNDRED
FOURTEEN THOUSAND FIVE HUNDRED
TWENTY-ONE PESOS & 70/100
(P122,414,521.70) is hereby CANCELLED.
SO ORDERED. 22
The CTA Division also ruled that there's nothing in the
Foundation's books that will show that it operated for profit or
that any of its income inured to the benefit of its members or
trustees. 23 The CTA Division found that (1) petitioner
Foundation maintained its tax-exempt status under Section
4, Article XIV of the 1987 Constitution, and (2) the Final
Assessment Notices issued by respondent against petitioner
Foundation are not valid for failing to state their legal and
factual basis hence, all other issues raised are moot and
academic. 24
Dissatisfied with CTA Division's decision, respondent
filed a Motion for Reconsideration dated August 3,
2010, 25 which petitioner Foundation opposed by filing an
Opposition to Motion for Reconsideration dated August 16,
2010. 26
The CTA Division resolved it by promulgating a
Resolution dated November 18, 2010 denying respondent's
motion for reconsideration for lack of merit. 27 In the body of
the resolution, the CTA Division agreed with petitioner
Foundation that respondent's motion for reconsideration
merely raised the same arguments which have been
sufficiently addressed and passed by the CTA Division in the
assailed decision. 28
Thereafter, respondent filed a petition for review
before the CTA En Banc dated December 21, 2010 against
the resolution denying its Motion for Reconsideration, 29 to
which petitioner Foundation filed its Comment on February
3, 2011. 30
Ruling of the CTA En Banc
On April 19, 2012, the CTA En Banc promulgated a
Decision 31 granting respondent's petition for review and
reversing the decision of the CTA Division, to wit:
WHEREFORE, the Petition for Review dated
December 21, 2010, filed by the Commissioner of
Internal Revenue, is hereby GRANTED. The
Decision dated July 16, 2010 and the Resolution
dated November 18, 2010 are REVERSED and
SET ASIDE. Consequently, the Petition for Review
dated April 17, 2006 filed before the Court in
Division is DISMISSED, on jurisdictional grounds.
SO ORDERED. 32
The CTA En Banc ruled that the CTA Division should
not have given due course to petitioner Foundation's petition
for review. 33 Payment of docket fees and other legal fees
within the thirty (30)-day reglementary period to appeal is
mandatory and jurisdictional. The late payment of docket
fees prevented the CTA Division from acquiring
jurisdiction. 34 Petitioner Foundation's appeal was allegedly
not perfected because the payment of the docket fees was
made only on April 26, 2006 or nine (9) days after April 17,
2006, the last day for filing the appeal. 35 As a result, the
assailed assessment has allegedly become final and
executory. 36 
AIDSTE

Moreover, even assuming that the CTA Division had

jurisdiction over the petition, the latter allegedly erred in
cancelling the assessment notice because the presumption
of its correctness has not been overturned. The CTA En
Banc emphasized that petitioner Foundation's tax exempt
status has been impliedly revoked due to its excessive profit-
earning activities. 37
Aggrieved, petitioner Foundation filed its Motion for
Reconsideration 38 dated May 18, 2012, but it was likewise
denied by the CTA En Banc. 39
Hence, this petition for review on certiorari. 40
The Issues
Although the parties raised a number of issues, this
Court shall decide only the pivotal issues which we
summarized as follows: 41
I.  WHETHER THE PETITIONER FOUNDATION HAS
LOST ITS TAX-EXEMPT STATUS UNDER
THE 1987 CONSTITUTION
II.  WHETHER THE CTA EN BANC COMMITTED A
REVERSIBLE ERROR WHEN IT REVERSED
AND SET ASIDE THE DECISION OF THE CTA
DIVISION DATED JULY 16, 2010 AND
RESOLUTION DATED NOVEMBER 18, 2010
Ruling of the Court
The petition is meritorious.
No less than the 1987 Constitution expressly exempt
all revenues and assets of non-stock, non-profit educational
institutions from taxes provided that they are actually,
directly and exclusively used for educational purposes, to
wit: 42
Section 4.  (1) The State recognizes the
complementary roles of public and private
institutions in the educational system and shall
exercise reasonable supervision and regulation of
all educational institutions.
 xxx xxx xxx
(3)  All revenues and assets of non-stock, non-
profit educational institutions used actually,
directly, and exclusively for educational
purposes shall be exempt from taxes and duties.
(Emphasis and underscoring supplied)
This constitutional exemption is reiterated in Section
30 (H) of the 1997 Tax Code, as amended, which provides
as follows:
Sec. 30.  Exemptions from Tax on Corporations. —
The following organizations shall not be taxed under
this Title in respect to income received by them as
such:
xxx xxx xxx
(H)  A non[-]stock and non[-]profit educational
institution[.]
Clearly, non-stock, non-profit educational institutions
are not required to pay taxes on all their revenues and
assets if they are used actually, directly and exclusively for
educational purposes.  AaCTcI

According to the BIR, petitioner Foundation has failed

to comply with the constitutional requirements for being a
profit-oriented educational institution. Hence, it is no longer a
tax-exempt entity, and is subject to a 10% income tax rate as
a taxable proprietary educational institution. 43
The Court disagrees.
Petitioner Foundation has presented adequate legal
and factual basis to prove that it remains as a tax exempt
entity under Article XIV, Section 4, Paragraph 3 of the 1987
Constitution.
Based on jurisprudence and tax rulings, a taxpayer
shall be granted with this tax exemption after proving
that: (1) it falls under the classification of non-stock,
non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually,
directly and exclusively for educational purposes. 44
Petitioner Foundation has fulfilled both of the
abovementioned requirements.
For the first requirement, there is no contest as both
the parties have stipulated that petitioner Foundation is a
non-stock, non-profit educational institution. 45
 Nonetheless, the Petitioner Foundation's primary and
secondary purposes in its Amended Articles of Incorporation
clearly provide that it is a non-stock, non-profit educational
entity, to wit: 46
SECOND: That the purposes and objectives for
which such corporation is incorporated are:
That the primary purpose for which said
corporation is formed is to establish a school that
will offer elementary, secondary, collegiate and post
graduate courses of study, as well as technical,
vocational and special courses under one campus
with emphasis on its being innovative in its
approach to undergraduate education through self-
learning devices, kits, individually guided teaching,
credit by equivalence, credited internships, and
practicism, as the Board of Trustees may determine,
the primary intention being to form the whole man
through integration of a liberal Christian education
with professional competence for participation in
Philippine development.
AND IN THE FURTHERANCE OF THE
FOREGOING, the institution shall:
xxx xxx xxx
8.  Any profits derived from activities and
undertakings described in paragraphs 2, 3, 5 and 6
immediately preceding shall not inure to any of the
members, trustees or officers but shall be used
exclusively for the maintenance of the
Corporation. EcTCAD

Moreover, petitioner Foundation has no capital divided

into shares. 47 No part of its income can be distributed as
dividends to its members, trustees and officers. 48 The
members of the Board of Trustees do not receive any
compensation for the performance of their duties, including
attendance in meetings. 49
It is also important to mention that in BIR Ruling No.
176-88 dated August 23, 1988, the BIR already declared that
petitioner Foundation is a non-stock, non-profit educational
institution that is exempt from certain taxes. 50
As pointed out by respondent, petitioner Foundation
did not secure a new BIR Ruling on its claim for exemption
after the Tax Code has been amended. However, this Court
finds such fact insignificant. The application for a new BIR
Ruling is unnecessary considering that the BIR Ruling was
never revoked, and the primary purpose of petitioner
Foundation remained the same. Notably, respondent also
failed to mention any legal basis that will require petitioner
Foundation to secure a new BIR Ruling to confirm its tax
exempt status.
Furthermore, the respondent claimed that petitioner
Foundation is not a non-profit educational institution
anymore due to its alleged enormous profits. Respondent
accused it of operating contrary to the nature of a non-profit
educational institution by generating massive profits in the
amount of P643,000,000.00 from tuition fees, and having
cash worth P775,000,000 in its bank. 51
However, these allegations were completely
unsupported by facts and evidence.
Based on the evidence presented, the
P643,000,000.00 is not petitioner Foundation's profit as it is
just the gross receipt from school year
2002. 52 Unfortunately, respondent easily overlooked
petitioner Foundation's administrative and non-administrative
expenses amounting to P582,903,965.00. 53 This sum
constituted the total operating expenses of petitioner
Foundation for the fiscal year ended May 31, 2002. 54 Thus,
the income of petitioner Foundation is only P60,375,183.00
or 9.38% of its operating receipts. 55 This is way below the
average gross profit margin rate of 20% for most business
enterprises. 56
Furthermore, the alleged P775,000,000 cash of
petitioner Foundation is in reality a part of its Cash and Cash
Equivalents account. The amount of P575,700,000.00
therein constitutes Funds Held in Trust to finance capital
improvements, scholarship, faculty development, retirement
and for other restricted uses. 57 The rest of the account
consists of highly liquidated debt instruments purchased with
a short term maturity. 58 Clearly, there is nothing in the
petitioner Foundation's books that will indicate that it is
driven by profit or that its income is used for anything but in
pursuit of its primary purpose. 
HSAcaE

In several cases, this Court has ruled that a non-profit

institution will not be considered profit driven simply because
of generating profits. 59 The reason behind this was
explained by this Court in its earlier ruling in Jesus Sacred
Heart College v. Collector of Internal Revenue, 60 to wit:
 To hold that an educational Institution is subject to
income tax whenever it is so administered as to
reasonably assure that it will not incur in deficit, is to
nullify and defeat the aforementioned exemption.
Indeed, the effect, in general, of the interpretation
advocated by appellant would be to deny the
exemption whenever there is net income, contrary
to the tenor of said section 27(e) which positively
exempts from taxation those corporations or
associations which, otherwise, would be subject
thereto, because of the existence of said net
income.
Needless to say, every responsible
organization must be so run as to, at least
insure its existence, by operating within the
limits of its own resources, especially its regular
income. In other words, it should always strive,
whenever possible, to have a
surplus. 61 (Emphasis and underscoring supplied)
Considering the clear explanation of the nature of the
money involved, it is evident that all of petitioner
Foundation's income is actually, directly and exclusively
used or earmarked for promoting its educational
purpose. 62 To reiterate, respondent never argued that the
income of petitioner Foundation was used in any manner
other than for promoting its purpose as a non-stock, non-
profit educational institution. In fact, there is not even a
single argument or evidence presented to cast a doubt in the
proper usage of petitioner Foundation's income.
Furthermore, a simple reading of
the Constitution would show that Article XIV, Section 4 (3)
does not require that the revenues and income must have
also been earned from educational activities or activities
related to the purposes of an educational institution. The
phrase "all revenues" is unqualified by any reference to the
source of revenues. 63 Thus, so long as the revenues and
income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall
be exempt from taxes and duties. 64
In the instant case, petitioner Foundation firmly and
adequately argued that none of its income inured to the
benefit of any officer or entity. Instead, its income has been
actually, exclusively and directly used for performing its
purpose as an educational institution. Undoubtedly,
petitioner Foundation has also proven this second requisite.
Thus, the tax exempt status of petitioner Foundation
under the 1987 Constitution is clear.
It can be recalled that the questioned CTA En
Banc decision only ruled on the procedural aspect of the
case on the ground that it is jurisdictional and determinative
of the validity of the whole process. 65 The late payment of
docket fees allegedly divested the CTA Division of
jurisdiction or authority to take cognizance of the petition for
review filed before it. 66 As a result, the decision of the CTA
Division was rendered without jurisdiction, and is totally null
and void. Thus, the impugned tax deficiency assessment
has become final and executory, and its correctness cannot
be disputed anymore. 67  HESIcT

This Court cannot agree.

The tax exemption expressly granted by the 1987
Constitution, the supreme law of the land, cannot be set
aside by any statute, especially by a mere technicality in
procedure. While payment of docket fee and other legal fees
within the thirty (30)-day reglementary period to appeal a tax
assessment to the CTA is mandatory and jurisdictional, this
Court will not hesitate to exercise its equity jurisdiction and
allow a liberal interpretation of the rules of procedure if a
rigid application will defeat substantial justice.
This Court has ruled in the past that if a rigid
application of the rules of procedure will tend to obstruct
rather than serve the broader interests of justice and
depending on the prevailing circumstances of the case, such
as where strong considerations of substantive justice are
manifest in the petition, the Court may relax the strict
application of the rules of procedure in the exercise of its
equity jurisdiction. 68
The Court's pronouncement in Heirs of Amada Zaulda
v. Zaulda 69 is instructive on this matter, to wit:
The reduction in the number of pending
cases is laudable, but if it would be attained by
precipitate, if not preposterous, application of
technicalities, justice would not be served. The law
abhors technicalities that impede the cause of
justice. The court's primary duty is to render or
dispense justice. "It is a more prudent course of
action for the court to excuse a technical lapse
 and afford the parties a review of the case on
appeal rather than dispose of the case on
technicality and cause a grave injustice to the
parties, giving a false impression of speedy
disposal of cases while actually resulting in
more delay, if not miscarriage of justice." x x x
What should guide judicial action is the
principle that a party-litigant should be given the
fullest opportunity to establish the merits of his
complaint or defense rather than for him to lose
life, liberty, honor, or property on technicalities.
The rules of procedure should be viewed as
mere tools designed to facilitate the attainment
of justice. Their strict and rigid application, which
would result in technicalities that tend to frustrate
rather than promote substantial justice, must always
be eschewed. At this juncture, the Court reminds all
members of the bench and bar of the admonition in
the often-cited case of Alonso v.
Villamar. 70 (Emphasis and underscoring supplied;
citation omitted) 
caITAC

Otherwise stated, procedural rules are important tools

designed to facilitate the dispensation of justice, but legal
technicalities may be excused when strict adherence thereto
will impede the achievement of justice it seeks to serve.
In the present case, petitioner Foundation timely
opposed the tax deficiency assessments against it by filing a
Protest or Request for Reconsideration, the proper remedy,
before the BIR. Due to respondent's inaction, it filed a
petition for review, also the proper remedy, within the
reglementary period required by law. In addition, it
completely paid the required docket and legal fees in the
amount of P861,178.34.
However, a procedural controversy arose because the
payment of the required docket and legal fees was done
nine (9) days after the last day for filing the petition for
review. To recall, petitioner Foundation's petition for review
was filed through a registered mail on April 17, 2006, the last
day of filing. It was not able to pay the docket and legal fees
on the day of filing because the CTA received the petition
and made a computation of the required fees only on April
26, 2006 or nine (9) days after.
The question now is: should the late payment of the
docket fees divest the CTA Division of jurisdiction over
petitioner Foundation's petition for review making the VAT
deficiency assessment of P122,414,521.70 against a tax-
exempt entity final and executory?
This Court answers in the negative.
Indeed, the general rule is that a petition for review is
perfected by timely filing it and paying the requisite docket
fees and other lawful fees. However, all general rules admit
of certain exceptions. 71
In Mactan Cebu International Airport Authority v.
Mangubat 72 where the docket fees were paid six (6) days
late, this Court said that where the party immediately paid
the required fees showing willingness to abide by the rules,
and in view of the significance of the issues raised in the
case, the same calls for judicial leniency, thus:
In all, what emerges from all of the above is
that the rules of procedure in the matter of paying
the docket fees must be followed. However, there
are exceptions to the stringent requirement as to
call for a relaxation of the application of the rules,
such as: (1) most persuasive and weighty reasons;
(2) to relieve a litigant from an injustice not
commensurate with his failure to comply with
the prescribed procedure; (3) good faith of the
defaulting party by immediately paying within a
reasonable time from the time of the default; (4)
the existence of special or compelling
circumstances; (5) the merits of the case; (6) a
cause not entirely attributable to the fault or
negligence of the party favored by the suspension of
the rules; (7) a lack of any showing that the review
sought is merely frivolous and dilatory; (8) the other
party will not be unjustly prejudiced thereby; (9)
fraud, accident, mistake or excusable negligence
without appellant's fault; (10) peculiar legal and
equitable circumstances attendant to each case;
(11) in the name of substantial justice and fair play;
(12) importance of the issues involved; and (13)
exercise of sound discretion by the judge guided by
all the attendant circumstances. Concomitant to a
liberal interpretation of the rules of procedure should
be an effort on the part of the party invoking
liberality to adequately explain his failure to abide by
the rules. Anyone seeking exemption from the
application of the Rule has the burden of proving
 that exceptionally meritorious instances exist which
warrant such departure. 73 (Emphasis and
underscoring supplied) ICHDca

In other words, while procedural rules are important in

the administration of justice, they may be excused for the
most persuasive and meritorious reasons in order to relieve
a litigant of an injustice that is not commensurate with the
degree of his thoughtlessness in not complying with the
procedure prescribed. 74
To reiterate, petitioner Foundation was able to
establish that it is a tax exempt entity under the 1987
Constitution. It has timely filed its Protest to the tax
deficiency assessment. It was also able to actually pay the
full amount of the required docket and legal fees in the
amount of P861,178.34, but it was nine (9) days late.
Evidently, petitioner Foundation immediately paid the docket
and legal fees upon the CTA's assessment of the proper
amount which showed petitioner's good faith.
Moreover, the issue involved in this case is no less
than the tax assessment over a non-stock, non-profit
educational institution, which the 1987
Constitution mandated to be tax exempt. Otherwise stated,
what is at stake is the opportunity for the proper and just
determination of petitioner Foundation's status as a tax-
exempt entity under the 1987 Constitution, and a deprivation
of a substantial amount of property.
Taking into account the importance of the issues
raised in the petition filed before the CTA Division, and what
petitioner stands to lose, the CTA En Banc should have
considered the merits of said petition. By ruling for the denial
of the said petition solely based on technicalities, the
CTA En Banc absolutely foreclosed the resolution of the
issues raised therein. Definitely, justice would have been
better served if the CTA En Banc allowed the resolution of
the issues that were raised in the petition.
This Court agrees with the decision of the CTA
Division to give due course to the petition. Consequently, the
CTA Division acquired jurisdiction to examine the assailed
VAT deficiency assessment, and the latter did not become
final and executory.
Furthermore, the Court finds petitioner Foundation's
procedural mistake incommensurate to the grave injustice to
be made in violation of the 1987 Constitution's mandate, and
petitioner Foundation's payment of P122,414,521.70,
representing the VAT deficiency.
It is worthy to note that this kind of lenient application
of the rules of procedure for exceptionally persuasive and
meritorious reasons is not novel. In fact, in the case
of Tanenglian v. Lorenzo, et al., 75 this Court gave due
course to the appeal which was not only made through a
wrong mode but was even filed beyond the reglementary
period. This Court recognized the broader interest of justice
and reasoned that: 76  TCAScE

We have not been oblivious to or unmindful

of the extraordinary situations that merit liberal
application of the Rules, allowing us, depending on
the circumstances, to set aside technical infirmities
and give due course to the appeal. In cases where
we dispense with the technicalities, we do not mean
to undermine the force and effectivity of the periods
set by law. In those rare cases where we did not
stringently apply the procedural rules, there always
existed a clear need to prevent the commission of a
grave injustice. Our judicial system and the
courts have always tried to maintain a healthy
balance between the strict enforcement of
procedural laws and the guarantee that every
litigant be given the full opportunity for the just
and proper disposition of his cause. x x x.
xxx xxx xxx
In Sebastian v. Morales, we ruled that rules
of procedure must be faithfully followed except only
when, for persuasive reasons, they may be
relaxed to relieve a litigant of an injustice not
commensurate with his failure to comply with
the prescribed procedure, thus:
xxx xxx xxx
The Court has allowed some meritorious
cases to proceed despite inherent procedural
defects and lapses. This is in keeping with the
principle that rules of procedure are mere tools
designed to facilitate the attainment of justice and
that strict and rigid application of rules which would
result in technicalities that tend to frustrate rather
than promote substantial justice must always be
avoided. It is a far better and more prudent cause
of action for the court to excuse a technical
 lapse and afford the parties a review of the case
to attain the ends of justice, rather than dispose
of the case on technicality and cause grave
injustice to the parties, giving a false impression
of speedy disposal of cases while actually
resulting in more delay, if not a miscarriage of
justice. (Emphasis supplied; citations omitted).
Finally, it is crucial to be reminded that the
constitutionally mandated tax privilege granted to non-stock
non-profit educational institutions plays an important role in
promoting quality and affordable education in the country. In
the consolidated cases of Commissioner of Internal
Revenue v. De La Salle University Inc., 77 this Court
discussed the important role of this tax privilege for
educating the students, to wit:
We find that the text demonstrates the policy
of the 1987 Constitution, discernible from the
records of the 1986 Constitutional Commission to
provide broader tax privilege to non-stock, non-
profit educational institutions as recognition of
their role in assisting the State provide a public
good. The tax exemption was seen as beneficial
to students who may otherwise be charged
unreasonable tuition fees if not for the tax
exemption extended to all revenues and assets
of non-stock, non-profit educational institutions.
(Emphasis and underscoring supplied; citations
omitted).
Evidently, petitioner Foundation, being a non-stock,
non-profit educational institution, is not liable to the payment
of VAT deficiency assessment, and the CTA En Banc erred
in finding otherwise and in reversing the CTA Division.
WHEREFORE, premises considered, the petition
is GRANTED. The assailed Decision dated April 19, 2012
and Resolution promulgated on July 17, 2012 of the Court of
Tax Appeals En Banc in C.T.A. EB Case No. 703
are ANULLED and SET ASIDE. Assessment Notice No. 33-
FY 05-31-02 for fiscal year ending May 31, 2002 against
petitioner La Sallian Educational Innovators Foundation (De
La Salle University-College of St. Benilde), Inc. for deficiency
income tax in the amount of ONE HUNDRED TWENTY-
TWO MILLION FOUR HUNDRED FOURTEEN THOUSAND
FIVE HUNDRED TWENTY-ONE PESOS & 70/100
(P122,414,521.70) is hereby CANCELLED.  cTDaEH
 SO ORDERED.
Peralta, Leonen,
Hernando and Carandang,  * JJ., concur.
 

Footnotes

*Designated additional Member as per Special Order No. 2624, dated

November 29, 2018.
1.Rollo, pp. 11-64.
2.Penned by Associate Justice Esperanza R. Fabon-Victorino; id. at 69-
111.
3.Penned by Associate Justice Esperanza R. Fabon-Victorino; id. at 138-
142.
4. Id. at 397-398.
5. Id. at 398.
6. Id. at 398-399.
7. Id. at 399.
8. Id.
9. Id. at 400.
10. Id. at 83-84.
11. Id. at 84.
12. Id. at 388.
13. Id. at 177-178.
14. Id. at 182-183.
15. Id. at 183.
16. Id.
17. Id. at 410.
18. Id.
19. Id. at 400.
20. Id. at 407.
21. Id. at 397-419.
22. Id. at 418.
23. Id. at 412.
24. Id. at 418.
25. Id. at 420-431.
26. Id. at 432-436.
27. Id. at 438-442.
28. Id. at 440.
29. Id. at 443-473.
30. Id. at 474-490.
31. Id. at 69-111.
32. Id. at 110.
33. Id. at 84.
34. Id.
35. Id.
36. Id. at 109.
37. Id. at 85.
38. Id. at 112-137.
39. Id. at 138-142.
40. Id. at 11-64.
41. Id. at 19.
42. 1987 Constitution, Article XIV, Section 4 (3).
43. Id. at 425.
44. Commissioner of Internal Revenue v. De La Salle University, Inc.,
799 Phil. 141, 167 (2016); and Revenue Memorandum Order No.
20-2013.
45. Rollo, p. 409.
46.Id. at 36-37.
47.Id. at 410.
48.Id.
49.Id. at 47.
50.Id. at 47-48.
51.Id. at 47-48.
52.Id. at 410.
53.Id. at 410.
54.Id.
55.Id.
56.Id. at 410.
57.Id. at 48.
58.Id.
59.Commissioner of Internal Revenue v. St. Lukes Medical Center, 805
Phil. 607, 619 (2017); Commissioner of Internal Revenue v. St.
Lukes Medical Center, 695 Phil. 867, 885 (2012); and Hospital De
San Juan De Dios, Inc. v. Pasay City, et al., 123 Phil. 38, 42
(1966).
60.95 Phil. 16 (1954).
61.Id. at 21.
62.Id. at 89.
63.CIR v. De La Salle University, 799 Phil. 141, 169 (2016).
64.Id.
65.Rollo, pp. 100-101.
66.Id. at 108.
67.Id. at 108-109.
68.Marlon Curammeng y Pablo v. People of the Philippines, 799 Phil.
575, 581 (2016).
69.729 Phil. 639 (2014).
70.Id. at 651-652.
71.Tanenglian v. Lorenzo, et al., 573 Phil. 472, 484 (2008).
72.371 Phil. 393 (1999).
73.KLT Fruits, Inc. v. WSR Fruits, Inc., 563 Phil. 1038, 1052-1053
(2007); and Villena v. Rupisan, 549 Phil. 146, 167 (2007).
74.Sps. Bergona, et al. v. Court of Appeals, 680 Phil. 334, 343 (2012).
75.Supra note 71.
76.Id. at 485-489.
77.Supra note 44, at 168-169.
 SECOND DIVISION

[G.R. No. 211449. January 16, 2019.]

COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. TRANSFIELD
PHILIPPINES, INC., respondent.

DECISION
 J.C. REYES, JR., J  : p

Assailed in this petition for review on certiorari are the

August 5, 2013 Decision 1 and the February 19,
2014 Resolution 2 of the Court of Tax Appeals (CTA) En
Banc in CTA EB Case No. 907 which affirmed the February
28, 2012 Amended Decision 3 and the May 14, 2012
Resolution 4 of the CTA First Division in CTA Case No.
7842.

The Antecedents

On May 30, 2007, respondent Transfield Philippines,

Inc. (respondent) received copies of Final Assessment
Notice (FAN) Nos. LTDO-122-IT-2002-00014, LTDO-122-
WE-2002-00011, LTDO-122-VT-2002-00012, and LTDO-
122-PEN-2002-00002 issued by petitioner Commissioner of
Internal Revenue (CIR), through Nestor S. Valeroso, Officer-
in-Charge, Assistant Commissioner for the Large Taxpayers
Service. 5 Respondent was assessed the total sum of
P563,168,996.70 for deficiency income tax, Expanded
Withholding Tax (EWT), and Value-Added Tax (VAT),
inclusive of interest and compromise penalties for the Fiscal
Year July 1, 2001 to June 30, 2002. The details of the
assessments are as follows:
 
Kind of Tax Basic Interest Compromise Total
Income Tax 291,320,169.28 271,335,605.67 25,000.00 562,680,774.95
EWT 66,497.56 69,996.28 14,000.00 150,493.84
VAT 147,156.30 164,071.61 24,500.00 335,727.91
VAT penalty     2,000.00 2,000.00
Total 291,533,823.14 271,569,673.56 65,500.00 563,168,996.70
 
On June 5, 2007, respondent filed a protest with the
Bureau of Internal Revenue (BIR). 6 Without acting on
respondent's protest, the BIR issued the First Collection
Letter 7 dated August 3, 2007, demanding immediate
payment of the assessments. Respondent received a copy
of the First Collection Letter on August 28, 2007.
Then, on January 17, 2008, petitioner constructively
served a Final Notice before Seizure 8 dated December 20,
2007, to respondent's office.
 On February 29, 2008, respondent availed of the
benefits of Republic Act (R.A.) No. 9480 by submitting the
following documents to the Development Bank of the
Philippines (DBP), an authorized agent bank of the BIR: 1)
Notice of Availment of Tax Amnesty; 2) Tax Amnesty Return
(BIR Form No. 2116); 3) Statement of Assets, Liabilities and
Net Worth (SALN) as of December 31, 2005; and 4) Tax
Amnesty Payment Form (BIR Form No. 0617). On the same
day, respondent paid the BIR, through DBP, an amnesty tax
in the amount of P112,500.00. On April 23, 2008,
respondent paid P2,000.00 to the BIR in relation to FAN No.
LTDO-122-PEN-2002-00002 for compromise penalties on
alleged failure to file summary of sales and purchase from
the first and second quarters of 2002. AScHCD

On May 5, 2008, respondent informed the BIR Large

Taxpayers District Office (LTDO) of Makati City in a letter
dated April 28, 2008, that it availed of the benefits of R.A.
No. 9480 and furnished the LTDO with copies of the tax
amnesty documents. 9 The said letter was received by the
BIR LTDO of Makati City on the same day.
On July 10, 2008, petitioner wrote respondent,
advising the latter that under Revenue Memorandum
Circular (RMC) No. 19-2008, those "with delinquent
accounts/accounts receivable considered as assets of the
BIR/Government, including self-assessed tax," are not
allowed to avail of the benefits of R.A. No. 9480. 10
On September 8, 2008, petitioner issued a Warrant of
Distraint and/or Levy (WDAL) directing the seizure of
respondent's goods, chattels or effects, and other personal
properties, and/or levy of its real property and interest in/or
rights to real property to the extent of P563,168,996.70. 11 A
copy of the WDAL was constructively served on
respondent's offices on September 11, 2008. On the same
day, the Bank of the Philippine Islands (BPI) informed
respondent that the latter's account was being put on hold
because of the WDAL.
The CTA First Division Ruling

In an Amended Decision 12 dated February 28, 2012,

the CTA First Division ruled that the CTA has jurisdiction not
only over decisions or inactions of the CIR in cases involving
disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, but also
over other matters arising under the National Internal
Revenue Code (NIRC) or other laws administered by the
BIR. It declared that petitioner is already barred from
collecting from respondent the alleged tax liabilities because
it is undisputed that respondent had complied with all the
legal requirements pertaining to its application for tax
amnesty by submitting to the BIR its Notice of Availment of
Tax Amnesty, Tax Amnesty Return, SALN, and Tax
Amnesty Payment Form together with the BIR Tax Payment
Deposit Slip evidencing payment of amnesty tax amounting
to P112,500.00. The CTA First Division added that when
respondent complied with all the requirements of R.A. No.
9480, it is deemed to have settled in full all its tax liabilities
for the years covered by the tax amnesty. It held that the
July 10, 2008 Letter of petitioner is void as it disqualifies
respondent from availing of the immunity from payment of
tax liabilities under R.A. No. 9480 on the ground that its
account has been considered delinquent or receivable asset
of the government, which reason is not in consonance with
the provisions of R.A. No. 9480. The fallo reads:
WHEREFORE, the Motion for
Reconsideration (from the Decision dated 20
September 2011) dated October 11, 2011 filed by
petitioner is hereby GRANTED.
Consequently, the Warrant of Distraint and/or
Levy dated September 08, 2008 is hereby
declared NULL and VOID and of no legal effect.
Respondent is now precluded from collecting the
amount of P563,168,996.70, representing
petitioner's tax liability for taxable year 2002, which
is deemed settled.
SO ORDERED. 13
Petitioner moved for reconsideration, but the same
was denied by the CTA First Division in a
Resolution 14 dated May 14, 2012. Aggrieved, petitioner filed
a petition for review before the CTA En Banc.
The CTA En Banc Ruling

In a Decision 15 dated August 5, 2013, the CTA En

Banc opined that it has jurisdiction to rule on the petition
because it is not an appeal of the disputed assessment
which is subject to a reglementary period, but it is a case to
determine whether the issuance of the WDAL is proper. It
added that the issue to be addressed is not the timeliness of
the protest, but rather, whether petitioner may validly collect
taxes from respondent despite the latter having availed of
the tax amnesty. The CTA En Banc concluded that
respondent properly availed of the immunity from payment of
taxes under R.A. No. 9480, and as such, the issuance of a
WDAL was invalid, which justified the filing of a petition
within 30 days from receipt of the warrant. It disposed the
case in this wise:
WHEREFORE, the petition is DENIED. The
Amended Decision dated February 28, 2012,
rendered by the First Division of this Court in CTA
Case No. 7842, and its Resolution dated May 14,
2012 are AFFIRMED. No pronouncement as to
costs.
SO ORDERED. 16
Petitioner moved for reconsideration, but the same
was denied by the CTA En Banc on February 19, 2014.
Hence, this petition for review on certiorari, wherein
petitioner raises the following issues: AcICHD

I. WHETHER THE CTA COMMITTED REVERSIBLE

ERROR WHEN IT ASSUMED JURISDICTION
OVER THE CASE.
II. WHETHER THE CTA COMMITTED REVERSIBLE
ERROR WHEN IT RULED THAT
RESPONDENT IS ENTITLED TO THE
IMMUNITIES UNDER THE TAX AMNESTY
PROGRAM PROVIDED IN REPUBLIC ACT
NO. 9480. 17
Petitioner argues that Section 9 of R.A. No.
9282 provides that a party adversely affected by a decision,
ruling or inaction of the CIR may file an appeal with the CTA
within 30 days after the receipt of such decision or ruling;
that the 30-day period for filing an appeal with the CTA
should be reckoned from respondent's receipt of the Final
Notice before Seizure, or at the latest, its receipt of the Letter
dated July 10, 2008; that it is erroneous to consider receipt
of the WDAL as the date of reckoning the period to file an
appeal to the CTA because the WDAL is merely a means,
an instrument, or a mechanism to implement the Final Notice
before Seizure, or at the latest, the July 10, 2008 Letter; that
whatever decision, action, or ruling petitioner had with
respect to respondent's claims and/or defenses was set forth
in the aforementioned issuances and not in the WDAL; and
that in providing for the exception that delinquent accounts,
or accounts receivable considered assets of the government
are not eligible under the tax amnesty program, RMC No.
19-2008 merely supplied the gap in the law where
assessments have become final and incontestable upon the
lapse of the reglementary period for appeal. 18
In its Comment, 19 respondent counters that the CTA
is vested with jurisdiction to determine whether a taxpayer is
immune from the payment of taxes insofar as it is given the
exclusive appellate jurisdiction to review by appeal matters
arising from the laws administered by the BIR such as tax
amnesty statutes; that in Pantoja v. David, 20 the Court ruled
that petitions for the annulment of distraint orders of the BIR
do not violate the prohibition against injunctions to restrain
the collection of taxes because the proceedings were not
directed against the right of the BIR to collect per se, but
against the right of the BIR to do so by distraint and levy;
that while it did not file any petition for review from its receipt
of the Final Notice before Seizure, or the July 10, 2008
Letter, it availed of the tax amnesty on February 29, 2008 by
complying with the requirements of R.A. No. 9480; that
in CS Garment, Inc. v. Commissioner of Internal
Revenue, 21 the Court ruled that a taxpayer immediately
enjoys the immunities granted by R.A. No. 9480 as soon as
the taxpayer complies with the conditions under the law and
the BIR may not prevent or delay a taxpayer from
immediately enjoying immunity from the payment of taxes by
making the tax amnesty application contingent on the BIR's
confirmation or agreement; that in Union Bank of the
Philippines v. Commissioner of Internal Revenue, 22 decided
by the CTA, the latter held that Section 4 of R.A. No.
9480 limits petitioner's remedy to assailing the taxpayer's
SALN within a period of one year from the date of filing; that
after the one-year period mandated by R.A. No. 9480, the
tax amnesty could no longer be disputed by the BIR; and
that to allow petitioner to enforce collection of assessments
covered by the amnesty availed by respondent through the
perfunctory and summary issuance of a WDAL would
sanction a disregard of the law, and to punish respondent for
its compliance therewith.
In its Reply, 23 petitioner contends that the July 10,
2008 Letter was the adverse decision or ruling appealable to
the CTA and respondent's receipt of the letter is the proper
reckoning point for filing a petition for review with the CTA;
that respondent received the said letter on August 5, 2008,
thus, it was already apprised of petitioner's adverse decision
regarding its application for tax amnesty at that time; that
respondent had until September 4, 2008 to appeal the
decision, however, respondent's petition for review was filed
with the CTA only on October 10, 2008; and that
assessments which have become final and executory upon
the taxpayer's failure to appeal therefrom are outside the
coverage of R.A. No. 9480.

The Court's Ruling

I.

A tax amnesty operates as a general pardon or

intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation
of a revenue or tax law. It is an absolute forgiveness or
waiver by the government of its right to collect what is due it
and to give tax evaders who wish to relent a chance to start
with a clean slate. A tax amnesty, much like a tax exemption,
is never favored nor presumed in law. The grant of a tax
amnesty is akin to a tax exemption; thus, it must be
construed strictly against the taxpayer and liberally in favor
of the taxing authority. 24
On May 24, 2007, R.A. No. 9480 took effect and
authorized the grant of a tax amnesty to qualified taxpayers
for all national internal revenue taxes for the taxable year
2005 and prior years, with or without assessments duly
issued therefor, that have remained unpaid as of December
31, 2005. 25 The pertinent provisions of R.A. No. 9480 are:
SEC. 1. Coverage. — There is hereby
authorized and granted a tax amnesty which shall
cover all national internal revenue taxes for the
taxable year 2005 and prior years, with or without
assessments duly issued therefor, That have
remained unpaid as of December 31,
2005: Provided, however, that the amnesty hereby
authorized and granted shall not cover persons or
cases enumerated under Section 8 hereof.  TAIaHE

xxx xxx xxx

SEC. 6. Immunities and Privileges. — Those
who availed themselves of the tax amnesty under
Section 5 hereof, and have fully complied with all its
conditions shall be entitled to the following
immunities and privileges:
 (a) The taxpayer shall be
immune from the payment of taxes,
as well as additions thereto, and the
appurtenant civil, criminal or
administrative penalties under the
National Internal Revenue Code of
1997, as amended, arising from the
failure to pay any and all internal
revenue taxes for taxable year 2005
and prior years. (Emphases supplied)
xxx xxx xxx
To implement R.A. No. 9480, the Department of
Finance (DOF) issued DOF Department Order No. 29-
07 (DO 29-07). Section 6 thereof outlines the method for
availing a tax amnesty under R.A. No. 9480, viz.:
SEC. 6. Method of Availment of Tax
Amnesty. —
1. Forms/Documents to be filed. — To avail of the
general tax amnesty, concerned taxpayers shall file
the following documents/requirements:
a. Notice of Availment in such form as may
be prescribed by the BIR;
b. Statement of Assets, Liabilities and
Networth (SALN) as of December 31, 2005 in such
[form], as may be prescribed by the BIR;
c. Tax Amnesty Return in such form as may
be prescribed by the BIR.
2. Place of Filing of Amnesty Tax Return. — The
Tax Amnesty Return, together with the other
documents stated in Sec. 6 (1) hereof, shall be filed
as follows:
a. Residents shall file with the Revenue
District Officer (RDO)/Large Taxpayer District Office
of the BIR which has jurisdiction over the legal
residence or principal place of business of the
taxpayer, as the case may be.
b. Non-residents shall file with the office of
the Commissioner of the BIR, or with the RDO.
c. At the option of the taxpayer, the RDO may
assist the taxpayer in accomplishing the forms and
computing the taxable base and the amnesty tax
payable, but may not look into, question or examine
 the veracity of the entries contained in the Tax
Amnesty Return, [SALN], or such other documents
submitted by the taxpayer.
3. Payment of Amnesty Tax and Full
Compliance. — Upon filing of the Tax Amnesty
Return in accordance with Sec. 6 (2) hereof, the
taxpayer shall pay the amnesty tax to the authorized
agent bank or in the absence thereof, the Collection
Agents or duly authorized Treasurer of the city or
municipality in which such person has his legal
residence or principal place of business.
The RDO shall issue sufficient Acceptance of
Payment Forms, as may be prescribed by the BIR
for the use of — or to be accomplished by — the
bank, the collection agent or the Treasurer, showing
the acceptance by the amnesty tax payment. In
case of the authorized agent bank, the branch
manager or the assistant branch manager shall sign
the acceptance of payment form.
The Acceptance of Payment Form, the Notice
of Availment, the SALN, and the Tax Amnesty
Return shall be submitted to the RDO, which shall
be received only after complete payment. The
completion of these requirements shall be
deemed full compliance with the provisions of
[R.A. No.] 9480. x x x (Emphasis supplied)  cDHAES

In this case, it remains undisputed that respondent

complied with all the requirements pertaining to its
application for tax amnesty by submitting to the BIR a Notice
of Availment of Tax Amnesty, Tax Amnesty Return, SALN as
of December 31, 2005 and Tax Amnesty Payment Form.
Further, it paid the corresponding amnesty taxes. Hence,
respondent has successfully availed itself of the tax amnesty
benefits granted under R.A. No. 9480 which include
immunity from "the appurtenant civil, criminal, or
administrative penalties under the NIRC of 1997, as
amended, arising from the failure to pay any and all internal
revenue taxes for taxable year 2005 and prior years."

II.

The CIR, however, insists that respondent is still liable

for deficiency taxes, contending that under RMC No. 19-
2008, respondent is disqualified to avail of the tax amnesty
because it falls under the exception of "delinquent accounts
or accounts receivable considered as assets by the BIR or
the Government, including self-assessed tax."
In Commissioner of Internal Revenue v. Philippine
Aluminum Wheels, Inc., 26 petitioner therein raised a similar
argument which the Court did not sustain and instead ruled
that "in case there is a discrepancy between the law and a
regulation issued to implement the law, the law prevails
because the rule or regulation cannot go beyond the terms
and provisions of the law. x x x To give effect to the
exception under RMC No. 19-2008 of delinquent accounts or
accounts receivable by the BIR, as interpreted by the BIR,
would unlawfully create a new exception for availing of the
Tax Amnesty Program under [R.A. No.] 9480." 27
Moreover, it must be noted that under Section 8
of R.A. No. 9480, only the following persons are disqualified
from availing of the tax amnesty:
SEC. 8. Exceptions. — x x x
(a) Withholding agents with respect to their
withholding tax liabilities;
(b) Those with pending cases falling under
the jurisdiction of the Presidential Commission on
Good Government;
(c) Those with pending cases involving
unexplained or unlawfully acquired wealth or under
the Anti-Graft and Corrupt Practices Act;
(d) Those with pending cases filed in court
involving violation of the Anti-Money Laundering
Law;
(e) Those with pending criminal cases for tax
evasion and other criminal offenses under Chapter
II of Title X of the National Internal Revenue Code of
1997, as amended, and the felonies of frauds, illegal
exactions and transactions, and malversation of
public funds and property under Chapters III and IV
of Title VII of the Revised Penal Code; and
(f) Tax cases subject of final and executory
judgment by the courts. 28
It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence
excludes all others as expressed in the maxim expressio
unius est exclusio alterius. In implementing tax amnesty
laws, the CIR cannot now insert an exception where there is
none under the law. Indeed, a tax amnesty must be
construed strictly against the taxpayer and liberally in favor
of the taxing authority. However, the rule-making power of
administrative agencies cannot be extended to amend or
expand statutory requirements or to embrace matters not
originally encompassed by the law. Administrative
regulations should always be in accord with the provisions of
the statute they seek to implement, and any resulting
inconsistency shall be resolved in favor of the basic
law. 29 
ASEcHI

III.

As regards the issue on the propriety and timeliness of

the petition for review, suffice it to say that in this case, the
reckoning point of the 30-day period to appeal the
assessments is immaterial because the assessments have
already been extinguished by respondent's compliance with
the requirements for tax amnesty under R.A. No. 9480. To
sustain petitioner's contention that respondent should have
elevated an appeal to the CTA when it received the Final
Notice before Seizure, or at most, when it received the July
10, 2008 Letter of the BIR, would lead to an absurd and
unjust situation wherein the taxpayer avails of the benefits of
a tax amnesty law, yet the BIR still issues a WDAL simply
because the taxpayer did not appeal the assessment to the
CTA. The requirement of filing an appeal with the CTA even
after the taxpayer has already complied with the
requirements of the tax amnesty law negates the amnesty
granted to the taxpayer and creates a condition which is not
found in the law. It is worthy to note that respondent filed a
protest to the assessments, but because of the passage
of R.A. No. 9480, it no longer pursued its legal remedies
against the assessments. Thus, respondent cannot be
faulted for filing a petition for review with the CTA only upon
receipt of the WDAL for it rightfully relied on the provision
of R.A. No. 9480 that "those who availed themselves of the
tax amnesty x x x, and have fully complied with all its
conditions x x x shall be immune from the payment of taxes
x x x." Finally, in CS Garment, Inc. v. Commissioner of
Internal Revenue, 30 the Court pronounced that taxpayers
may immediately enjoy the privileges and immunities
under R.A. No. 9480 as soon as they fulfill the suspensive
condition imposed therein, i.e., submission of 1) Notice of
Availment of Tax Amnesty Form; 2) Tax Amnesty Return
Form (BIR Form No. 2116); 3) SALN as of December 31,
2005; and 4) Tax Amnesty Payment Form (Acceptance of
Payment Form or BIR Form No. 0617). In fine, the deficiency
taxes for Fiscal Year July 1, 2001 to June 30, 2002 are
deemed settled in view of respondent's compliance with the
requirements for tax amnesty under R.A. No. 9480.
WHEREFORE, the petition is DENIED. The August 5,
2013 Decision and the February 19, 2014 Resolution of the
Court of Tax Appeals in CTA EB Case No. 907
are AFFIRMED.
SO ORDERED.
Carpio, Perlas-Bernabe,
Caguioa and Hernando,  * JJ., concur.
 
Footnotes

*Additional Member per S.O. No. 2630 dated December 18, 2018.
1.Penned by Associate Justice Cielito N. Mindaro-Grulla, with Presiding
Justice Roman G. Del Rosario, Associate Justices Juanito C.
Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A.
Casanova, Esperanza R. Fabon-Victorino, Amelia R. Cotangco-
Manalastas and Ma. Belen M. Ringpis-Liban, concurring; rollo, pp.
48-58.
2.Id. at 59-68.
3.Penned by Associate Justice Esperanza R. Fabon-Victorino, with
Presiding Justice Ernesto D. Acosta and Associate Justice Erlinda
P. Uy, concurring; id. at 243-261.
4.Id. at 280-286.
5.Id. at 113-116.
6.Id. at 117.
7.Id. at 118.
8.Id. at 119.
9.Id. at 120-121.
10.Id. at 122.
11.Id. at 123.
12.Supra note 3.
13.Id. at 260.
14.Id. at 280-286.
15.Supra, note 1.
16.Id. at 56-57.
17.Id. at 28.
18.Id. at 22-42.
19.Id. at 297-327.
20.111 Phil. 197, 199-200 (1961).
21.729 Phil. 253 (2014).
22.CTA Case No. 7874, March 29, 2011; rollo, p. 315.
23.Rollo, pp. 337-343.
24.Commissioner of Internal Revenue v. Marubeni Corporation, 423 Phil.
862, 874 (2001).
25.Republic Act No. 9480, Sec. 1.
26.G.R. No. 216161, August 9, 2017, 836 SCRA 645.
27.Id. at 656.
28.Republic Act No. 9480, Section 8.
29.CS Garment, Inc. v. Commissioner of Internal Revenue, supra note
21, at 275.
30.Id.

SECOND DIVISION

[G.R. No. 211289. January 14, 2019.]

COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. LA FLOR DELA
ISABELA, INC., respondent.
 DECISION

J.C. REYES, JR., J  : p

Before the Court is a petition for review

on certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside the September 30,
2013 Decision 1 and the February 10, 2014 Resolution 2 of
the Court of Tax Appeals (CTA) En Banc in CTA EB No.
951, which affirmed the August 3, 2012 Decision 3 and the
October 5, 2012 Resolution of the CTA Third Division (CTA
Division).
Factual background

Respondent La Flor dela Isabela, Inc. (La Flor) is a

domestic corporation duly organized and existing under
Philippine Law. It filed monthly returns for the Expanded
Withholding Tax (EWT) and Withholding Tax on
Compensation (WTC) for calendar year 2005. 4
On September 3, 2008, La Flor, through its president,
executed a Waiver of the Statute of Limitations (Waiver) 5 in
connection with its internal revenue liabilities for the calendar
year ending December 31, 2005. On February 16, 2009, it
executed another Waiver 6 to extend the period of
assessment until December 31, 2009.
On November 20, 2009, La Flor received a copy of the
Preliminary Assessment Notice for deficiency taxes for the
taxable year 2005. Meanwhile, on December 2, 2009, it
executed another Waiver. 7
On January 7, 2010, La Flor received the following
Formal Letter of Demand and Final Assessment Notices
(FANs): (1) LTEADI-II CP-05-00007 for penalties for late
filing and payment of WTC; (2) LTADI-II CP-05-00008 for
penalties for late filing and payment of EWT; (3) LTADI-II
WE-05-00062 for deficiency assessment for EWT; and (4)
LTEADI-II WC-05-00038 for deficiency assessment for WTC.
The above-mentioned assessment notices were all dated
December 17, 2009 and covered the deficiency taxes for the
taxable year 2005. 8  cSaATC

On January 15, 2010, La Flor filed its Letter of Protest

contesting the assessment notices. On July 20, 2010,
petitioner Commissioner of Internal Revenue (CIR) issued
the Final Decision on Disputed Assessment (FDDA)
involving the alleged deficiency withholding taxes in the
aggregate amount of P6,835,994.76. Aggrieved, it filed a
petition for review before the CTA Division.
CTA Division Decision

In its August 3, 2012 Decision, the CTA Division ruled

in favor of La Flor and cancelled the deficiency tax
assessments against it. It noted that based on the dates La
Flor had filed its returns for EWT and WTC, the CIR had until
February 15, 2008 to March 1, 2009 to issue an assessment
pursuant to the three-year prescriptive period under Section
203 of the National Internal Revenue Code (NIRC). The CTA
Division pointed out that the assessment was issued beyond
the prescriptive period considering that the CIR issued the
FANs only on December 17, 2009. Thus, it posited that the
assessment was barred by prescription.
On the other hand, the CTA Division ruled that the
Waivers entered into by the CIR and La Flor did not
effectively extend the prescriptive period for the issuance of
the tax assessments. It pointed out that only the February
16, 2009 Waiver was stipulated upon and the Waivers dated
September 3, 2008 and December 2, 2009 were never
presented or offered in evidence. In addition, the CTA
Division highlighted that the Waiver dated February 16, 2009
did not comply with the provisions of Revenue Memorandum
Order (RMO) No. 20-90 because it failed to state the nature
and amount of the tax to be assessed.
Thus, it disposed:
WHEREFORE, the Petition for Review is
hereby GRANTED. Accordingly, the Formal Letter of
Demand, with Final Assessment Notices LTEADI-
WC-05-00038, LTEADI-WE-05-00062, LTEADI-CP-
05-00007, LTEADI-CP-05-00008, all dated
December 17, 2009 are hereby CANCELLED and
SET ASIDE.
SO ORDERED. 9
The CIR moved for reconsideration but it was denied
by the CTA Division in its October 5, 2012
Resolution. 10 Undeterred, it filed a Petition for
Review 11 before the CTA En Banc.
CTA En Banc Decision

In its September 30, 2013 Decision, the CTA En

Banc affirmed the Decision of the CTA Division. The tax
court agreed that the EWT and WTC assessments were
barred by prescription. It explained that the Waivers dated
September 3, 2008 and December 2, 2009 were
inadmissible because they were never offered in evidence.
The CTA En Banc added that these documents were neither
incorporated in the records nor duly identified by testimony.
It also elucidated that the Waiver dated February 16, 2009
was defective because it failed to comply with RMO No. 20-
90 as it did not specify the kind and amount of tax involved.
As such, the CTA En Banc concluded that the prescriptive
period for the assessment of EWT and WTC for 2005 was
not extended in view of the inadmissibility and invalidity of
the Waivers between the CIR and La Flor. Thus, it disposed:
WHEREFORE, premises considered, the
assailed Decision dated August 3, 2012 and the
Resolution dated October 5, 2012 are AFFIRMED.
The Petition for Review is hereby DISMISSED.  cHDAIS

SO ORDERED. 12
The CIR moved for reconsideration, but it was denied
by the CTA En Banc in its February 10, 2014 Resolution.
Hence, this present petition raising the following:
Issues
I
WHETHER THE PRESCRIPTIVE PERIOD UNDER
SECTION 203 OF THE NIRC APPLIES TO EWT
AND WTC ASSESSMENTS; and
II
WHETHER LA FLOR'S EWT AND WTC
ASSESSMENTS FOR 2005 WERE BARRED BY
PRESCRIPTION.
The CIR argued that the prescriptive period under
Section 203 of the NIRC does not apply to withholding
agents such as La Flor. It explained that the amount
collected from them is not the tax itself but rather a penalty.
The CIR pointed out that the provision of Section 203 of
the NIRC only mentions assessment of taxes as
distinguished from assessment of penalties. It highlighted
that La Flor was made liable for EWT and WTC deficiencies
in its capacity as a withholding agent and not in its
personality as a taxpayer.
On the other hand, the CIR maintained that even
applying the periods set in Section 203 of the NIRC, the
EWT and WTC assessment of La Flor had not yet
prescribed. It pointed out that La Flor had executed three
Waivers extending the prescriptive period under the NIRC.
The CIR lamented that the CTA erred in disregarding them
because evidence not formally offered may be considered if
they form part of the records. It noted that in the Answer it
filed before the CTA Division, the subject Waivers were
included as annexes. In addition, the CIR assailed that
failure to comply with RMO No. 20-90 does not invalidate the
Waivers.
In its Comment 13 dated August 15, 2014, La Flor
countered that the CIR's petition for review should be denied
outright for procedural infirmities. It pointed out that the
petition failed to comply with Bar Matter (B.M.) No.
1922 because the date of issue of the Mandatory Continuing
Legal Education (MCLE) compliance of the counsels of the
CIR was not indicated. In addition, La Flor noted that the
petition for review did not observe Section 2, Rule 7 of
the Rules of Court requiring the paragraphs to be numbered.
Further, it asserted that the assessment of the EWT and
WTC had prescribed because it went beyond the
prescriptive period provided under Section 203 of the NIRC.
La Flor also assailed that the Waivers should not be
considered because they were neither offered in evidence
nor complied with the requirements under RMO No. 20-90.
In its Reply 14 dated February 18, 2015, the CIR
brushed aside the allegations of procedural infirmities of its
petition for review. It elucidated that failure to indicate the
date of issue of the MCLE compliance is no longer a ground
for dismissal and that it had stated the MCLE certificate of
compliance numbers of its counsels. The CIR posited that
the Rules of Court does not penalize the failure to number
the paragraphs in pleadings.

The Court's Ruling

Other than challenging the merits of the CIR's petition,

La Flor believes that the former's petition for review
on certiorari should be dismissed outright on procedural
grounds. It points out that failure to include the date of issue
of the MCLE compliance number of a counsel in a pleading
is a ground for dismissal. Further, La Flor highlights that the
paragraphs in the CIR's petition for review on certiorari were
not numbered.
 In People v. Arrojado, 15 the Court had already
clarified that failure to indicate the number and date of issue
of the counsel's MCLE compliance will no longer result in the
dismissal of the case, to wit:
In any event, to avoid inordinate delays in the
disposition of cases brought about by a counsel's
failure to indicate in his or her pleadings the number
and date of issue of his or her MCLE Certificate of
Compliance, this Court issued an En Banc
Resolution, dated January 14, 2014 which amended
B.M. No. 1922 by repealing the phrase "Failure to
disclose the required information would cause the
dismissal of the case and the expunction of the
pleadings from the records" and replacing it with
"Failure to disclose the required information would
subject the counsel to appropriate penalty and
disciplinary action." Thus, under the amendatory
Resolution, the failure of a lawyer to indicate in his
or her pleadings the number and date of issue of his
or her MCLE Certificate of Compliance will no
longer result in the dismissal of the case and
expunction of the pleadings from the records.
Nonetheless, such failure will subject the lawyer to
the prescribed fine and/or disciplinary action.
On the other hand, even La Flor recognizes that
Section 2, Rule 7 of the Rules of Court does not provide for
any punishment for failure to number the paragraphs in a
pleading. In short, the perceived procedural irregularities in
the petition for review on certiorari do not justify its outright
dismissal. Procedural rules are in place to facilitate the
adjudication of cases and avoid delay in the resolution of
rival claims. 16 In addition, courts must strive to resolve
cases on their merits, rather than summarily dismiss them on
technicalities. 17 This is especially true when the alleged
procedural rules violated do not provide any sanction at all or
when the transgression thereof does not result in a dismissal
of the action. 
DHITCc

Nevertheless, the Court finds no reason to reverse the

CTA in invalidating the assessments against La Flor.
Withholding taxes are internal
revenue taxes covered by
Section 203 of the NIRC.
 Section 203 of the NIRC provides for the ordinary
prescriptive period for the assessment and collection of
taxes, to wit:
SEC. 203. Period of Limitation upon
Assessment and Collection. — Except as provided
in Section 222, internal revenue taxes shall be
assessed within three (3) years after the last day
prescribed by law for the filing of the return, and no
proceeding in court without assessment for the
collection of such taxes shall be begun after the
expiration of such period: Provided, That in case
where a return is filed beyond the period prescribed
by law, the three (3)-year period shall be counted
from the day the return was filed. For purposes of
this Section, a return filed before the last day
prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis
supplied)
On the other hand, Section 222 (a) 18 of
the NIRC provides for instances where the ordinary
prescriptive period of three years for the assessment and
collection of taxes is extended to 10 years, i.e., false return,
fraudulent returns, or failure to file a return. In short, the
relevant provisions in the NIRC concerning the prescriptive
period for the assessment of internal revenue taxes provide
for an ordinary and extraordinary period for assessment.
The CIR, however, forwards a novel theory that
Section 203 is inapplicable in the present assessment of
EWT and WTC deficiency against La Flor. It argues that
withholding taxes are not contemplated under the said
provision considering that they are not internal revenue
taxes but are penalties imposed on the withholding agent
should it fail to remit the proper amount of tax withheld.
In Chamber of Real Estate and Builders' Associations,
Inc. v. Hon. Executive Secretary Romulo, 19 the Court had
succinctly explained the withholding tax system observed in
our jurisdiction, to wit:
We have long recognized that the method of
withholding tax at source is a procedure of collecting
income tax which is sanctioned by our tax laws. The
withholding tax system was devised for three
primary reasons: first, to provide the taxpayer a
convenient manner to meet his probable income tax
liability; second, to ensure the collection of income
 tax which can otherwise be lost or substantially
reduced through failure to file the corresponding
returns and third, to improve the government's cash
flow. This results in administrative savings, prompt
and efficient collection of taxes, prevention of
delinquencies and reduction of governmental effort
to collect taxes through more complicated means
and remedies.
Under the existing withholding tax system, the
withholding agent retains a portion of the amount received
by the income earner. In turn, the said amount is credited to
the total income tax payable in transactions covered by the
EWT. On the other hand, in cases of income payments
subject to WTC and Final Withholding Tax, the amount
withheld is already the entire tax to be paid for the particular
source of income. Thus, it can readily be seen that the
payee is the taxpayer, the person on whom the tax is
imposed, while the payor, a separate entity, acts as the
government's agent for the collection of the tax in order to
ensure its payment. 20  cEaSHC

As a consequence of the withholding tax system, two

distinct liabilities arise — one for the income earner/payee
and another for the withholding agent. In Rizal Commercial
Banking Corporation v. Commissioner of Internal
Revenue, 21 the Court elaborated:
It is, therefore, indisputable that the
withholding agent is merely a tax collector and not a
taxpayer, as elucidated by this Court in the case
of Commissioner of Internal Revenue v. Court of
Appeals, to wit:
In the operation of the withholding tax
system, the withholding agent is the
payor, a separate entity acting no
more than an agent of the government
for the collection of the tax in order to
ensure its payments; the payer is the
taxpayer — he is the person subject to
tax imposed by law; and the payee is
the taxing authority. In other words,
the withholding agent is merely a tax
collector, not a taxpayer. Under the
withholding system, however, the
agent-payor becomes a payee by
fiction of law. His (agent) liability is
 direct and independent from the
taxpayer, because the income tax is
still imposed on and due from the
latter. The agent is not liable for the
tax as no wealth flowed into him — he
earned no income. The Tax Code only
makes the agent personally liable for
the tax arising from the breach of its
legal duty to withhold as distinguished
from its duty to pay tax since:
"the government's cause of
action against the withholding
agent is not for the collection of
income tax, but for the
enforcement of the withholding
provision of Section 53 of
the Tax Code, compliance with
which is imposed on the
withholding agent and not upon
the taxpayer."
Based on the foregoing, the liability of the
withholding agent is independent from that of the
taxpayer. The former cannot be made liable for the
tax due because it is the latter who earned the
income subject to withholding tax. The withholding
agent is liable only insofar as he failed to perform
his duty to withhold the tax and remit the same to
the government. The liability for the tax, however,
remains with the taxpayer because the gain was
realized and received by him. (Citations omitted)
It is true that withholding tax is a method of collecting
tax in advance 22 and that a withholding tax on income
necessarily implies that the amount of tax withheld comes
from the income earned by the
taxpayer/payee. 23 Nonetheless, the Court does not agree
with the CIR that withholding tax assessments are merely an
imposition of a penalty on the withholding agent, and thus,
outside the coverage of Section 203 of the NIRC.
The CIR cites National Development Company v.
Commissioner of Internal Revenue 24 as basis that
withholding taxes are only penalties imposed on the
withholding agent, to wit:
The petitioner also forgets that it is not the
NDC that is being taxed. The tax was due on the
interests earned by the Japanese shipbuilders. It
was the income of these companies and not the
Republic of the Philippines that was subject to the
tax the NDC did not withhold.
In effect, therefore, the imposition of the
deficiency taxes on the NDC is a penalty for its
failure to withhold the same from the Japanese
shipbuilders. Such liability is imposed by Section
53(c) of the Tax Code, thus:  CTIEac

Section 53(c). Return and Payment. —

Every person required to deduct and
withhold any tax under this section
shall make return thereof, in duplicate,
on or before the fifteenth day of April
of each year, and, on or before the
time fixed by law for the payment of
the tax, shall pay the amount withheld
to the officer of the Government of the
Philippines authorized to receive it.
Every such person is made personally
liable for such tax, and is indemnified
against the claims and demands of
any person for the amount of any
payments made in accordance with
the provisions of this section. (As
amended by Section 9, R.A. No.
2343.)
In Philippine Guaranty Co. v. The
Commissioner of Internal Revenue and the Court of
Tax Appeals, the Court quoted with approval the
following regulation of the BIR on the responsibilities
of withholding agents:
In case of doubt, a withholding agent
may always protect himself by
withholding the tax due, and promptly
causing a query to be addressed to
the Commissioner of Internal Revenue
for the determination whether or not
the income paid to an individual is not
subject to withholding. In case the
Commissioner of Internal Revenue
decides that the income paid to an
individual is not subject to withholding,
the withholding agent may thereupon
 remit the amount of tax withheld. (2nd
par., Sec. 200, Income Tax
Regulations).
"Strict observance of said steps is
required of a withholding agent before
he could be released from liability," so
said Justice Jose P. Bengson, who
wrote the decision. "Generally, the law
frowns upon exemption from taxation;
hence, an exempting provision should
be construed strictissimi juris."
The petitioner was remiss in the discharge of
its obligation as the withholding agent of the
government and so should be held liable for its
omission.
A careful analysis of the above-quoted decision,
however, reveals that the Court did not equate withholding
tax assessments to the imposition of civil penalties imposed
on tax deficiencies. The word "penalty" was used to
underscore the dynamics in the withholding tax system that it
is the income of the payee being subjected to tax and not of
the withholding agent. It was never meant to mean that
withholding taxes do not fall within the definition of internal
revenue taxes, especially considering that income taxes are
the ones withheld by the withholding agent. Withholding
taxes do not cease to become income taxes just because it
is collected and paid by the withholding agent.
The liability of the withholding agent is distinct and
separate from the tax liability of the income earner. It is
premised on its duty to withhold the taxes paid to the payee.
Should the withholding agent fail to deduct the required
amount from its payment to the payee, it is liable for
deficiency taxes and applicable penalties. In Commissioner
of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation 25 the Court explained:
It thus becomes important to note that under
Section 53 (c) of the NIRC, the withholding agent
who is "required to deduct and withhold any tax" is
made "personally liable for such tax" and indeed is
indemnified against any claims and demands which
the stockholder might wish to make in questioning
the amount of payments effected by the withholding
agent in accordance with the provisions of
the NIRC. The withholding agent, P&G-Phil., is
 directly and independently liable for the correct
amount of the tax that should be withheld from
the dividend remittances. The withholding agent
is, moreover, subject to and liable for deficiency
assessments, surcharges and penalties should
the amount of the tax withheld be finally found
to be less than the amount that should have
been withheld under law.
A "person liable for tax" has been held to be
a "person subject to tax" and properly considered a
"taxpayer." The terms "liable for tax" and "subject to
tax" both connote legal obligation or duty to pay a
tax. It is very difficult, indeed conceptually
impossible, to consider a person who is statutorily
made "liable for tax" as not "subject to tax." By any
reasonable standard, such a person should be
regarded as a party in interest, or as a person
having sufficient legal interest, to bring a suit for
refund of taxes he believes were illegally collected
from him. (Emphasis supplied)
Thus, withholding tax assessments such as EWT and
WTC clearly contemplate deficiency internal revenue taxes.
Their aim is to collect unpaid income taxes and not merely to
impose a penalty on the withholding agent for its failure to
comply with its statutory duty. Further, a holistic reading of
the Tax Code reveals that the CIR's interpretation of Section
203 is erroneous. Provisions of the NIRC itself recognize
that the tax assessment for withholding tax deficiency is
different and independent from possible penalties that may
be imposed for the failure of withholding agents to withhold
and remit taxes. For one, Title X, Chapter I of
the NIRC provides for additions to the tax or deficiency tax
and is applicable to all taxes, fees and charges under
the Tax Code.
In addition, Section 247 (b) of the NIRC provides:
SEC. 247. General Provisions. —

xxx xxx xxx

(b) If the withholding agent is the

Government or any of its agencies, political
subdivisions or instrumentalities, or a government-
owned or controlled corporation, the employee
thereof responsible for the withholding and
 remittance of the tax shall be personally liable for
the additions to the tax prescribed herein. SCaITA

On the other hand, Section 251 of the Tax

Code reads:
SEC. 251. Failure of a Withholding Agent to
Collect and Remit Tax. — Any person required to
withhold, account for and remit any tax imposed by
this Code or who willfully fails to withhold such tax,
or account for and remit such tax, or aids or abets in
any manner to evade any such tax or the payment
thereof, shall, in addition to other penalties provided
for under this Chapter, be liable upon conviction to a
penalty equal to the total amount of the tax not
withheld, or not accounted for and remitted.
Based on the above-cited provisions, it is clear to see
that the "penalties" are amounts collected on top of the
deficiency tax assessments including deficiency withholding
tax assessments. Thus, it was wrong for the CIR to restrict
the EWT and WTC assessments against La Flor as only for
the purpose of imposing penalties and not for the collection
of internal revenue taxes.
The CIR further argues that even if Section 203 of
the NIRC was applicable, the assessments against La Flor
had yet to prescribe. It points out that La Flor had executed
three Waivers to extend the statutory prescriptive period.
The CIR insists that the Waivers should have been
considered even if they were not offered in evidence
because the CTA is not strictly governed by technical rules
of evidence. It adds that the requirements under RMO No.
20-90 are not mandatory.
In Commissioner of Internal Revenue v. Systems
Technology Institute, Inc., 26 the Court had ruled that waivers
extending the prescriptive period of tax assessments must
be compliant with RMO No. 20-90 and must indicate the
nature and amount of the tax due, to wit:
These requirements are mandatory and
must strictly be followed. To be sure, in a number
of cases, this Court did not hesitate to strike down
waivers which failed to strictly comply with the
provisions of RMO 20-90 and RDAO 05-01.

xxx xxx xxx

 The Court also invalidated the waivers
executed by the taxpayer in the case
of Commissioner of Internal Revenue v. Standard
Chartered Bank, because: (1) they were signed by
Assistant Commissioner-Large Taxpayers Service
and not by the CIR; (2) the date of acceptance was
not shown; (3) they did not specify the kind and
amount of the tax due; and (4) the waivers speak of
a request for extension of time within which to
present additional documents and not for
reinvestigation and/or reconsideration of the
pending internal revenue case as required
under RMO No. 20-90.
Tested against the requirements of RMO 20-
90 and relevant jurisprudence, the Court cannot but
agree with the CTA's finding that the waivers subject
of this case suffer from the following defects:

xxx xxx xxx

3. Similar to Standard Chartered Bank,

the waivers in this case did not specify
the kind of tax and the amount of tax
due. It is established that a waiver of
the statute of limitations is a bilateral
agreement between the taxpayer and
the BIR to extend the period to assess
or collect deficiency taxes on a certain
date. Logically, there can be no
agreement if the kind and amount of
the taxes to be assessed or
collected were not indicated. Hence,
specific information in the waiver is
necessary for its validity. (Emphasis
supplied) aTHCSE

In the present case, the September 3, 2008, February

16, 2009 and December 2, 2009 Waivers failed to indicate
the specific tax involved and the exact amount of the tax to
be assessed or collected. As above-mentioned, these details
are material as there can be no true and valid agreement
between the taxpayer and the CIR absent these information.
Clearly, the Waivers did not effectively extend the
prescriptive period under Section 203 on account of their
invalidity. The issue on whether the CTA was correct in not
admitting them as evidence becomes immaterial since even
if they were properly offered or considered by the CTA, the
same conclusion would be reached — the assessments had
prescribed as there was no valid waiver.
WHEREFORE, the petition is DENIED. The
September 30, 2013 Decision and the February 10,
2014 Resolution of the Court of Tax Appeals En Banc in
CTA EB No. 951 are AFFIRMED.  AHDacC

SO ORDERED.
Carpio, Perlas-Bernabe, Caguioa and Hernando, * JJ.,
concur.
 
Footnotes

*Additional Member per S.O. No. 2630 dated December 18, 2018.
1.Penned by Associate Justice Juanito C. Castañeda, Jr., with Presiding
Justice Roman G. del Rosario and Associate Justices Lovell R.
Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R.
Fabon-Victorino, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-
Manalastas, and Ma. Belen M. Ringpis-Liban, concurring; rollo,
pp. 39-56.
2.Penned by Associate Justice Juanito C. Castañeda, Jr., with Associate
Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova,
Esperanza R. Fabon-Victorino, Amelia R. Cotangco-Manalastas
and Ma. Belen M. Ringpis-Liban, concurring. Presiding Justice
Roman G. del Rosario with a Separate Concurring Opinion and
Associate Justice Cielito N. Mindaro-Grulla, on leave; id. at 57-63.
3.Penned by Associate Justice Lovell R. Bautista, with Associate
Justices Olga Palanca-Enriquez and Amelia R. Cotangco-
Manalastas, concurring; id. at 76-101.
4.Id. at 11.
5.Id. at 72.
6.Id. at 73.
7.Id. at 74.
8.Id. at 12.
9.Id. at 99-100.
10.Penned by Associate Justice Lovell R. Bautista, with Associate
Justice Olga Palanca-Enriquez, concurring. Associate Justice
Amelia R. Cotangco-Manalastas, on official leave; id. at 102-104.
11.Id. at 105-130.
12.Id. at 55.
13.Id. at 144-157.
14.Id. at 170-173.
15.772 Phil. 440, 448-449 (2015).
16.Curammeng v. People, 799 Phil. 575, 581 (2016).
17.Ching v. Cheng, 745 Phil. 93, 117 (2014).
18.SEC. 222(a). In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be assessed, or
a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
19.628 Phil. 508, 536 (2010).
20.LG Electronics Philippines, Inc. v. Commissioner of Internal Revenue,
749 Phil. 155, 181 (2014).
21.672 Phil. 514, 528-529 (2011).
22.Filipinas Synthetic Fiber Corporation v. Court of Appeals, 374 Phil.
835, 841 (1999).
23.Philippine National Bank v. Commissioner of Internal Revenue, 562
Phil. 575, 582 (2007).
24.235 Phil. 477, 485-486 (1987).
25.281 Phil. 425, 441-442 (1991), as cited in Commissioner of Internal
Revenue v. Smart Communication, Inc., 643 Phil. 550, 561-562
(2010).
26.G.R. No. 220835, July 26, 2017, 833 SCRA 285, 296-298.