SY 2015-2016 Case Syllabus

SY 2015-2016 Case Syllabus TAXATION LAW
DEAN’S CIRCLE 2016
SY 2015-2016 Case
Syllabus
School Year 2015-2016
Table of Contents
GENERAL PRINCIPLES
THEORIES AND BASIS OF TAXATION

Lifeblood Theory .............................................................................................................................................................................. 5
Necessity Theory .......................................................................................................................................................................... 18
Benefit-Protection Theory ......................................................................................................................................................... 19
Jurisdiction over Subjects and Objects ................................................................................................................................... 21
NATURE OF TAXATION
It is subect to limitations and restrictions ............................................................................................................................ 24
PURPOSES OF TAXATION
Revenue Raising............................................................................................................................................................................. 32
Regulatory Purpose ...................................................................................................................................................................... 35
CHARACTER OF TAXATION ......................................................................................................................................................... 36
SCOPE AND LIMITATIONS OF TAXATION
Inherent Limitations
Power of taxation is inherently Legislative in character ................................................................................................. 38
Taxation is for a Public Purpose............................................................................................................................................... 41
Taxation is territorial ................................................................................................................................................................... 42
Taxation is subject to International Comity ......................................................................................................................... 43
Non-delegability of Power of Taxation .................................................................................................................................. 45
Government is exempt from Taxation ................................................................................................................................... 47
Constitutional Limitations
Uniformity and Equality Clause................................................................................................................................................ 50
Non-impairment of Contract Clause ....................................................................................................................................... 59
Due Process Clause ....................................................................................................................................................................... 61
Tax exemptions of Religious, Educational, and Charitable institutions...................................................................... 64
Free exercise of Religious Profession and Worship .......................................................................................................... 69
STAGES OF TAXATION
Assessment and Collection......................................................................................................................................................... 70
Payment............................................................................................................................................................................................ 76
PRINCIPLES OF A SOUND TAX SYSTEM
Fiscal Adequacy ............................................................................................................................................................................ 76
Administrative Feasibility ......................................................................................................................................................... 77
DOCTRINES IN TAXATION
Prospectivity of Tax Laws........................................................................................................................................................... 78
Non-Retroactivity.......................................................................................................................................................................... 80
BIR Rulings or Administrative Rulings .................................................................................................................................. 84
Principle of exhaustion of Administrative Remedies in Taxation................................................................................. 88
Double Taxation............................................................................................................................................................................. 90
Principle of Reciprocity .............................................................................................................................................................. 90
Direct Duplicate Taxation .......................................................................................................................................................... 91
Indirect Duplicate Taxation ...................................................................................................................................................... 92
Tax Pyramiding ............................................................................................................................................................................. 96
Shifting of Tax Burden ................................................................................................................................................................ 98
Tax Avoidance ............................................................................................................................................................................. 100
Tax Evasion .................................................................................................................................................................................. 103
Exemption from Taxation ........................................................................................................................................................ 104
Grounds of Exemption .............................................................................................................................................................. 106
Kinds of Exemptions
Express ........................................................................................................................................................................................... 108
Implied or by Inference ............................................................................................................................................................ 109
Nature of Tax Exemption ......................................................................................................................................................... 110
Construed Striclty against the Taxpayer ............................................................................................................................ 114
Compensation and Set-off ....................................................................................................................................................... 116
Compromise ................................................................................................................................................................................. 120
Tax Amnesty ................................................................................................................................................................................ 120
TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
Tax v. License ............................................................................................................................................................................... 123
KINDS OF TAXES
Direct Taxes .................................................................................................................................................................................. 127
Indirect Taxes .............................................................................................................................................................................. 129
NATIONAL INTERNAL REVENUE CODE (NIRC) OF 1997, AS AMENDED
INCOME TAXATION
Criteria in imposing Philippine Income Tax Law ............................................................................................................ 133
INCOME
Definition ...................................................................................................................................................................................... 137
Nature and Basis ......................................................................................................................................................................... 138
Exclusions from Gross Income ............................................................................................................................................... 140
Taxation of Domestic Corporations ..................................................................................................................................... 142
Taxation of Resident Foreign Corporations ...................................................................................................................... 143
Taxation of Non-Resident Corporations ............................................................................................................................. 145
Taxation of Partnerships ......................................................................................................................................................... 146
Other Corporate Tax Rules
Branch Profit Remittance Tax ................................................................................................................................................ 151
Minimum Corporate Income Tax .......................................................................................................................................... 154
Tax Sparing Credit (TSC) ......................................................................................................................................................... 156
Exemmption from Tax on Corporations ............................................................................................................................ 157
Allowable Deductions from Gross Income ....................................................................................................................... 160
Special Topics in Income Taxation ....................................................................................................................................... 171
Withholding Tax (Creditable and Final) .............................................................................................................................. 176
ESTATE TAX
Estate Tax Return ...................................................................................................................................................................... 180
DONOR'S TAX
Tax Basis ....................................................................................................................................................................................... 186
VAT
Characteristics/Elements of a VAT-Taxable Transaction ............................................................................................. 191
Incidence of Tax ......................................................................................................................................................................... 191
Destination Principle ............................................................................................................................................................... 192
VAT on sale of service and use or lease of properties .................................................................................................. 194
VAT exempt transactions ....................................................................................................................................................... 196
Transitional inputtax/Presumptive Input Tax ............................................................................................................ 198
Refund or tax credit of excess input tax ............................................................................................................................ 200
TAX REMEDIES
TAXPAYER'S REMEDIES
Protest against assessment ................................................................................................................................................... 207
Claim for Refund ........................................................................................................................................................................ 211
Claim for Refund ........................................................................................................................................................................ 211
GOVERNMENT REMEDIES
Assessment and collection ..................................................................................................................................................... 230
Tax Lien ......................................................................................................................................................................................... 236
Civil action .................................................................................................................................................................................... 240
Criminal action ........................................................................................................................................................................... 244
LOCAL GOVERNMENT CODE OF 1991, AS AMENDED
LOCAL GOVERNMENT TAXATION

Taxpayer's remedies ................................................................................................................................................................ 249
REAL PROPERTY TAXATION
Taxpayer's remedies ................................................................................................................................................................ 265
Government and Taxpayer's Remedy in Local Taxation .............................................................................................. 284
TARIFF AND CUSTOMS CODE OF 1978, AS AMENDED
GENERAL RULE: ALL IMPORTED ARTICLES ARE SUBJECT TO DUTY .................................................................... 289
CLASSIFICATION OF DUTIES
Other duties ................................................................................................................................................................................. 291
REMEDIES
Government
Administrative/Extrajudicial
Search, Seizure, Forfeiture, Arrest ...................................................................................................................................... 292
Search, Seizure, Forfeiture, Arrest ...................................................................................................................................... 292
Judicial/Jurisdiction ................................................................................................................................................................... 298
JURIDICAL REMEDIES (R.A. 1125, AS AMENDED, AND THE REVISED RULES OF THE CTA
CTA PROCEEDINGS ....................................................................................................................................................................... 301

JURISDICTION OF THE COURT OF TAX APPEALS
Exclusive appellate jurisdiction over civil tax cases
Cases within the jurisdiction of the court in divisions ................................................................................................. 303
Administrative Decision on a Disputed Assessment .................................................................................................... 309
Exclusive jurisdiction over criminal cases ......................................................................................................................... 314
TAXPAYER’S SUIT IMPUGNING THE VALIDITY OF TAX MEASURES OR ACTS OF TAXING AUTHORITY
Requisites for challenging the constitutionality of a tax measure or act of taxing authority ........................... 315
TAXATION LAW
I. GENERAL PRINCIPLES
GENERAL PRINCIPLES
THEORIES AND BASIS OF TAXATION
Lifeblood Theory
COMMISSIONER OF INTERNAL REVENUE vs. DASH ENGINEERING PHILIPPINES

G.R. No. 184145, December 11, 2013, Mendoza, J.
The Court has held that taxes are the lifeblood of the government and, consequently, tax laws must be
faithfully and strictly implemented as they are not intended to be liberally construed.
Facts:
Dash Engineering Philippines, Inc. (DEPI) filed its monthly and quarterly VAT returns for the period
of January 1 to June 30, 2003. It filed a claim for tax credit or refund representing unutilized input VAT
attributable to its zero-rated sales. CIR failed to act upon the said claim so DEPI filed a petition for review
with the CTA which it partially granted. The CTA found that DEPI’s claims for refund for the first and second
quarters of 2003 were filed within the two-year prescriptive period which is counted from the date of filing of
the return and payment of the tax due. Because DEPI filed its amended quarterly VAT returns for the first and
second quarters of 2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing
of a petition for review with the CTA on April 26, 2005 was within the prescriptive period. CIR moved for
reconsideration but was denied and elevated the case to the CTA En Banc. The CTA En Banc ruled that the
judicial claim was filed on time because the use of the word “may” in Section 112(D) of the NIRC which
indicates that judicial recourse within 30 days after the lapse of the 120-day period is only directory and
permissive, as long as the petition was filed within the two-year prescriptive period.
Issue:
Whether or not DEPI’s judicial claim for refund should be granted?
Ruling:
No. Petitioner is entirely correct in its assertion that compliance with the periods provided for in the
Section 112(D) is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling in San Roque (G.R. No.
187485, February 12, 2013), where the Court En Banc settled the controversy surrounding the application of
the 120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the
120+30-day period is mandatory and jurisdictional.
DEPI’s judicial claim for refund must be denied for having been filed late. Although respondent filed
its administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in
Section 112(A), it undoubtedly failed to comply with the 120+30-day period in Section 112(D) which requires
that upon the inaction of the CIR for 120 days after the submission of the documents in support of the claim,
the taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days therefrom, or until
January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial relief on
May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to file the same,
almost four months after the period allowed by law. As a consequence of DEPI’s late filing, the CTA did not
properly acquire jurisdiction over the claim. The Court has held time and again that taxes are the lifeblood of
the government and, consequently, tax laws must be faithfully and strictly implemented as they are not
intended to be liberally construed. Hence, We are left with no other recourse but to deny respondent’s judicial
claim for refund for non-compliance with the provisions of Section 112 of the NIRC.
______________________________________________________________________________________________________________________________
CAMP JOHN HAY DEVELOPMENT CORP. vs. CENTRAL BOARD OF ASSESSMENT APPEALS
G.R. No. 169234, October 2, 2013, Perez, J.
The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such
their collection cannot be curtailed by injunction or any like action.
Facts:
The City Assessor of Baguio City notified Camp John Hay Development Corp. (CJHDC) about the
issuance against it of 36 Owner’s Copy of Assessment of Real Property (ARP), covering its buildings and 2
parcels of land owned by the Bases Conversion Development Authority (BCDA) which were leased out to
CJHDC. CJHDC questioned the assessments for lack of legal basis due to the City Assessor’s failure to identify
the specific properties and its corresponding assessed values. The City Assessor replied that the subject ARPs
against the buildings were issued on the basis of the approved building permits obtained from the City
Engineer’s Office and pursuant to Sections 201 to 206 of RA No. 7160. CJHDC filed with the Board of Tax
Assessment Appeals (BTAA) of Baguio City an appeal challenging the validity and propriety of the issuances
of the City Assessor and claimed that there was no legal basis for the assessments because it was exempted
from paying taxes, national and local, including real property taxes, pursuant to RA No. 7227. The BTAA
denied the motion and was also denied on appeal with the CBAA. Later, the CTA En Banc found that CJHDC
has failed to comply with Section 252 of RA No. 7160.
Issue:
Whether or not Section 252 of RA 7160 is applicable to Camp John Hay Development Corp.?
Ruling:
Yes. Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact, the words
“paid under protest” shall be annotated on the tax receipts. The CBAA and the CTA En Banc correctly ruled
that real property taxes should first be paid before any protest thereon may be considered. It is without a
doubt that such requirement of “payment under protest” is a condition sine qua non before an appeal may be
entertained. Thus, remanding the case to the LBAA for further proceedings subject to a full and up-to-date
payment, either in cash or surety, of realty tax on the subject properties was proper.
To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the
nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or,
in this case, the local government unit, shall be crippled in dispensing the needed services to the people, and
its machinery gravely disabled. The right of local government units to collect taxes due must always be
upheld to avoid severe erosion. This consideration is consistent with the State policy to guarantee the
autonomy of local governments and the objective of RA No. 7160 or the LGC of 1991 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.
______________________________________________________________________________________________________________________________
FIRST LEPANTO TAISHO INSURANCE CORP. vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 197117, April 10, 2013, Mendoza , J.
Stipulations cannot defeat the right of the State to collect the correct taxes due on an individual or
juridical person because taxes are the lifeblood of our nation so its collection should be actively pursued without
unnecessary impediment.
Facts:
First Lepanto Taisho received a Letter of Authority from the CIR to allow it to examine their books of
account and other accounting records for 1997 and other unverified prior year. The CIR issued internal
revenue tax assessments for deficiency income, withholding, expanded withholding, final withholding, value-
added, and documentary stamp taxes for taxable year 1997. First Lepanto protested the said tax assessments.
During the pendency of the case, First Lepanto filed its Motion for Partial Withdrawal of Petition for Review
of Assessment Notice, in view of the tax amnesty program it had availed which was granted. It directed First
Lepanto to pay CIR a reduced tax liability. First Lepanto contended that it was not liable to pay Withholding
Tax on Compensation on the Director’s Bonus because the directors were not employees and the amount was
already subjected to Expanded Withholding Tax. The CTA En Banc ruled that under the revenue regulation it
expressly identified a director to be an employee. As to transportation, subsistence and lodging, and
representation expenses, it would not be subject to withholding tax only if the same were reimbursement for
actual expenses of the company. In the present case, the CTA En Banc declared that First Lepanto failed to
prove that they were so. As to deficiency expanded withholding taxes on compensation, it failed to
substantiate that the commissions came from reinsurance activities and should not be subject to withholding
tax. It likewise failed to prove its direct loss expense, occupancy cost and service/contractors and purchases.
As to deficiency final withholding taxes, “petitioner failed to present proof of remittance to establish that it
had remitted the final tax on dividends paid as well as the payments for services rendered by the Malaysian
entity.” As to the imposition of delinquency interest, records reveal that it failed to pay the deficiency taxes
within 30 days from receipt of the demand letter, thus, delinquency interest accrued from such non-payment.
Issue:
Whether or not First Lepanto Taisho Insurance is liable for deficiency and deliquency?
Ruling:
Yes. As to service/contractors and purchases, petitioner contends that both parties already
stipulated that it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required
to present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CT A Second
Division and En Banc, however, stipulations cannot defeat the right of the State to collect the correct taxes
due on an individual or juridical person because taxes are the lifeblood of our nation so its collection should
be actively pursued without unnecessary impediment. As to the deficiency final withholding tax assessments
for payments of dividends and computerization expenses incurred by petitioner to foreign entities,
particularly Matsui Marine & Fire Insurance Co. Ltd., the Court agrees with CIR that it failed to present
evidence to show the supposed remittance to Matsui. The Court likewise holds the imposition of delinquency
interest under NIRC to be proper, because failure to pay the deficiency tax assessed within the time
prescribed for its payment justifies the imposition of interest at the rate of 20% per annum, which interest
shall be assessed and collected from the date prescribed for its payment until full payment is made.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION

G.R. No. 187485/ G.R. No. 196113/ G.R. No. 197156, February 12, 2013, Carpio , J.
Taxes are the lifeblood of the nation.
Facts:
San Roque entered into a Power Purchase Agreement (PPA) with the National Power Corporation
(NPC) to develop hydro-potential of the Lower Agno River and generate additional power and energy for the
Luzon Power Grid, by building the San Roque Multi-Purpose Project. The PPA provides that San Roque shall
be responsible for the design, construction, installation, completion, testing and commissioning of the Power
Station and shall operate and maintain the same. On the construction and development of the San Roque
Multi-Purpose Project, San Roque allegedly incurred, excess input VAT in the amount of P 559,709,337.54 for
taxable year 2001 which it declared in its Quarterly VAT Returns. San Roque duly filed with the BIR separate
claims for refund representing unutilized input taxes as declared in its VAT returns. However, San Roque filed
amended Quarterly VAT Returns for the year 2001 increasing its unutilized input VAT. San Roque filed with
the BIR separate amended claims for refund. CIR's inaction on the subject claims led to the filing by San
Roque of the Petition for Review with the CTA which initially denied its claim but later ordered the CIR to
issue a tax credit certificate in favor of San Roque. The CTA EB affirmed the decision ruling that San Roque's
judicial claim was not prematurely filed, that the CIR knows that claims for VAT refund or tax credit filed with
the CTA can proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the
lapse of the subject 120-day period.
Issue:
Whether or not San Roque’s claim for refund was prematurely filed?
Ruling:
Yes. San Roque failed to comply with the 120-day waiting period, the time expressly given by law to
the Commissioner to decide whether to grant or deny San Roque's application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. Failure to
comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction over the taxpayer's petition. This law is clear, plain,
and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner
to the CTA within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not act
on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from
the expiration of the 120-day period.
Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency
collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic
adversities arising from poor tax collections, forcing the government to continue borrowing to fund the
budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to
taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in
the present cases are not a pittance. Many other companies stand to gain if this Court were to rule otherwise.
The dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly construed
against the taxpayer.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BANK OF THE PHILIPPINE ISLANDS

G.R. No. 134062, April 17, 2007, Corona, J.
The public will suffer if taxpayers will not be held liable for the proper taxes assessed against them:
“Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A
principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the
state whose social contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfil its
mandate of promoting the general welfare and well-being of the people.”
Facts:
In two notices dated October 28, 1988, CIR assessed respondent BPI deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of P129, 488, 656.63. BPI, through its counsel
wrote a letter to CIR seeking explanation and clarification in a proper letter of assessment the alleged
deficiencies. The letter also provided that as soon as the same were explained and clarified, counsel will
inform the CIR of the taxpayer’s decision on whether to pay or protest the assessment.
Issue:
Whether or not BPI is liable for the said taxes.
Ruling:
YES. BPI should have protested the assessments within 30 days from receipt thereof. The reply it
sent to the CIR did not qualify as a protest since the letter itself stated that [a]s soon as this is explained and
clarified in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or
protest the assessment. The inevitable conclusion is that BPI’s failure to protest meant that they became final
and unappealable. Even if we considered BPI’s letter as a protest, BPI must nevertheless be deemed to have
failed to appeal the CIR’s final decision regarding the disputed assessments within the 30-day period
provided by law.
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.We realize that these assessments (which have been pending for almost 20 years)
involve a considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MANUEL B. PINEDA, as one of the heirs of deceased

ATANASIO PINEDA
G.R. No.L-22734, September 15, 1967, Bengzon, J.P. J.
The Bureau of Internal Revenue should be given the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code, because taxes
are the lifeblood of government and their prompt and certain availability is an imperious need.
Facts:
BIR investigated the income tax liability of deceased Atanasio Pineda’s estate and found that the
corresponding income tax returns were not filed for the years 1945 to 1948. Thereupon, the Cir
representative issued an assessment which was received by respondent Manuel Pineda. Respondent
contested the same and appealed to the CTA. The CIR appealed to the SC and proposed to hold Manuel Pineda
for the payment of all the taxes found by the Tax Court to be due. Manuel B. Pineda opposes the proposition
on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received
Issue:
Whether or not the Government can require Manuel Pineda to pay the full amount of the taxes
assessed.
Ruling:
YES. Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging
to the estate/taxpayer.As an heir he is individually answerable for the part of the tax proportionate to the
share he received from the inheritance. His liability, however, cannot exceed the amount of his share. As a
holder of property belonging to the estate, Pineda is liable for the tax up to the amount of the property in his
possession.
The Government has two ways of collecting the tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received.Another
remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property
belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the tax.
______________________________________________________________________________________________________________________________
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue v. HON. JOSE F. FERNANDEZ, Judge of the CFI of
Negros Occidental, Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY
Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need.
Payment of income tax shall be a lien in favor of the Government of the Philippines from the time the assessment
was made by the CIR until paid with interests, penalties, etc. By virtue of such lien, this court held that the
property of the estate already in the hands of an heir or transferee may be subject to the payment of the tax due
the estate.
Facts:
A Motion for Allowance of Claim and for Payment of Taxes was filed against the estate of Luis Tongoy.
The claim represents the indebtedness of the deceased to the Government for deficiency income tax. The
Administrator of the estate opposed solely on the ground of Section 5, Rule 86 of the Rules of Court which
states that all money claims against the decedent x xx must be filed within the time limited in the notice;
otherwise they are barred forever.
Issue:
Whether or not the statute of non-claims under the Rules of Court bar the claim of the government
for unpaid taxes.
Ruling:
NO. in the case of Pineda v. CFI of Tayabas"taxes assessed against the estate of a deceased person
need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of
its control over the administrator, the court may direct the payment of such taxes upon motion showing that
the taxes have been assessed against the estate." The reason for the more liberal treatment of claims for taxes
against a decedent's estate in the form of exception from the application of the statute of non-claims, is not
hard to find.
Furthermore, as held in CIR v. Pineda, citing the last paragraph of Section 315 of the Tax Code
payment of income tax shall be a lien in favor of the Government of the Philippines from the time the
assessment was made by the Commissioner of Internal Revenue until paid with interests, penalties, etc. By
virtue of such lien, this court held that the property of the estate already in the hands of an heir or transferee
may be subject to the payment of the tax due the estate.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, CITYTRUST BANKING CORPORATION

and COURT OF TAX APPEALS
G.R. No. 106611, July 21, 1994, Regalado, J.
It is axiomatic that the Government cannot and must not be estopped particularly in matters involving
taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and
with which the State effects its functions for the welfare of its constituents.The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position.
Facts:
Private respondent Citytrust Banking Corporation filed a claim for refund with the BIR representing
its overpaid income taxes. Two days later, in order to interrupt the running of the prescriptive period,
Citytrust filed a similar petition with the CTA.The case was submitted for decision based solely on the
pleadings and evidence submitted by Citytrust. Petitioner CIR could not present any evidence by reason of
the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as
the investigation report thereon, to the Solicitor General. Thereafter, CIR filed a manifestation and motion
with the CTA praying for the suspension of the proceedings on the ground that the tax refund was already
being processed by the Tax Credit/Refund Division of the BIR. The CTA denied the motion then decided the
case in favour of Citytrust.
Issue:
Whether or not CIR was denied its day in court by reason of the mistakes and/or negligence of its
officials and employees.
Ruling:
YES. It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents.In the performance of its governmental functions, the State cannot be estopped by
the neglect of its agent and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood
of the nation through which the government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. The errors of certain administrative officers should never be
allowed to jeopardize the Government's financial position, especially in the case at bar where the amount
involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC. and THE COURT OF TAX APPEALS
G.R. No. L-28896, February 17, 1988, Cruz, J.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, on
the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.
Facts:
Petitioner CIR contends that the claimed deduction of P75,000 was properly disallowed because it
was not an ordinary reasonable or necessary expense. The Court of Tax Appeals had seen it differently and
agreed with Algue, Inc. that the said amount had been legitimately paid by them for actual services rendered.
The payment was in the form of promotional fees collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company. The CIR however maintains that the payments are fictitious
because of the payees are members of the same family in control of Algue.
Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax returns.
Ruling:
YES,The Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable
in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture
in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was
no mean feat and should be, as it was, sufficiently recompensed.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law
has not been observed.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG
MEN’S CHRISTIAN ASSOCIATION OF THE PHILIPPINES
298 SCRA 83, October 14, 1998, Panganiban, J.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. A claim of statutory exemption from taxation should be manifest
and unmistakable from the language of the law on which it is based.
Facts:
Private respondent YMCA is a non-stock, non-profit institution, which conducts various programs
and activities beneficial to the public, especially the young people in pursuance to its religious, educational,
and charitable objectives. YMCA earns income from leasing out a portion of its premises to small shop
owners like restaurants and canteen operators and parking fees for non-members. The CIR then issued an
assessment to YMCA for deficiency income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages.Thereafter, YMCA formally protested the
assessment.
Issue:
Whether or not the income derived from rentals of real property owned by YMCA is subject to
income tax under the NIRC and the Constitution.
Ruling:
YES. The CIR argues that while the income received by the organizations enumerated in Section 27
(now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received
by them as such," the exemption does not apply to income derived ". . . from any of their properties, real or
personal, or from any of their activities conducted for profit, regardless of the disposition made of such
income . . . ."Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income is
exclusively used for the accomplishment of its objectives." We agree with the commissioner.
Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to
be mistaken."
______________________________________________________________________________________________________________________________
DAVAO GULF LUMBER CORPORATION v. COMMISSIONER OF INTERNAL REVENUE and COURT OF

APPEALS
G.R. No. 117359, July 23, 1998, Panganiban, J.
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment
of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.
Facts:
Petitioner Davao Gulf Lumber Corporation is a licensed forest concessionaire possessing a Timber
License Agreement granted by the Ministry of Natural Resources. It purchased, from various oil companies,
refined and manufactured mineral oils as well as motor and diesel fuels. The said oil companies paid the
specific taxes imposed under Sections 153 and 156 of the 1977 NIRC and being included in the purchase price
of the oil products, the specific taxes were eventually passed on to the user, the petitioner in this case.
Petitioner thus filed a claim for refund before respondent CIR.
Petitioner argues that the refund should be based on the increased rates of specific taxes which it
actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand,
contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.
Issue:
Whether or not petitioner is entitled to a refund based on the increased rates of specific taxes it
actually paid.
Ruling:
NO. A tax cannot be imposed unless it is supported by the clear and express language of a statute; on
the other hand, once the tax is unquestionably imposed, a claim of exemption from tax payments must be
clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized
under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the
grantee. Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be
granted in a statute stated in a language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no
expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere
fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support
petitioners claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based
on higher rates which were non-existent at the time of its enactment, this Court cannot presume otherwise. A
legislative lacuna cannot be filled by judicial fiat.
______________________________________________________________________________________________________________________________
FERDINAND R. MARCOS II v. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL

REVENUE and HERMINIA D. DE GUZMAN
G.R. No. 120880, June 5, 1997, Torres, Jr. J.
The enforcement of tax laws and the collection of taxes is of paramount importance for the sustenance
of government. Taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.
Facts:
Petitioner Ferdinand Marcos II seeks for the reversal of the CA’s ruling granting CIR’s petition to levy
the properties of the late President Marcos to cover the payment of his tax delinquencies during the period of
his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the
Marcoses, however the assessment were not protested administratively so that they became final and
unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties
could not be levied to cover the tax dues because they are still pending probate with the court, and settlement
of tax deficiencies could not be had, unless there is an order by the probate court or until the probate
proceedings are terminated.
Issue:
Whether or not theBIR can collect by the summary remedy of levying upon and sale of real
properties without the cognition and authority of the probate court.
Ruling:
NO, the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a
mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau
erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the
ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in
the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of
the state's claim for estate taxes, before the same can be enforced and collected.
______________________________________________________________________________________________________________________________
JOSE B.L. REYES and EDMUNDO A. REYES v. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in
their capacities as appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his
capacity as City Assessor of Manila
G.R. Nos. L-49839-46, April 26, 1991, Paras, J.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the
very reason for government itself.It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxations, which is the promotion of the common good,
may be achieved.
Facts:
Petitioners are the owners of parcels of land which are leased and entirely occupied as dwelling sites
by tenants who are paying monthly rentals not exceeding P300.00. RA 6359 was enacted, prohibiting for one
year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which another's
dwelling is located, where such rentals do not exceed three hundred pesos a month but allowing an increase
in rent by not more than 10% thereafter. In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision entailed an increase in the corresponding tax rates prompting petitioners
to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the
reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used in determining the land values
instead of the comparable sales approach which the City Assessor adopted.
Issue:
Whether or not the income approach is the method to be used in the tax assessment.
Ruling:
YES, petition is meritorious. The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility,
or at the very least discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties.
______________________________________________________________________________________________________________________________
PHILIPPINE BANK OF COMMUNICATIONS v. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX

APPEALS, and COURT OF APPEALS
G.R. No. 112024, January 28, 1999, Quisumbing, J.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law
under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is
upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and
interfered with as little as possible.
Facts:
PBCom filed its first and second quarter income tax returns, reported profits, and paidincome taxes
amounting to P5.2M in 1985.Subsequently, however, at the end of the year PBCom suffered losses so that
when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, PBCom reported a
net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a
taxcredit and tax refunds representing overpayment of taxes. Pending investigation of the CIR,PBCom
instituted a Petition for Review before the Court of Tax Appeals. CTA denied its petition for taxcredit and
refund for failing to file within the prescriptive period to which the petitioner belies arguing theRevenue
Memorandum Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by
thetwo-year prescriptive period mandated under the Tax Code.
Issue:
Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two
years to ten years?
Ruling:
NO, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.
From the same perspective, claims for refund or tax credit should be exercised within the time fixed
by law because the BIR being an administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
______________________________________________________________________________________________________________________________
THE PHILIPPINE GUARANTY CO., INC. v. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS, et al.
G.R. No.L-22074, April 30, 1965, Bengzon, J.P., J.
LIFEBLOOD THEORY: The defense of reliance in good faith on CIR ruling requiring no withholding of tax
due on reinsurance premiums may free taxpayer from the payment of surcharges or penalties imposed for failure
to pay the corresponding withholding tax, but it certainly would not exculpate if from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.
NECESSITY THEORY: The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide.
Facts:
The Philippine Guaranty Co. Inc. entered into reinsurance contracts with foreign insurance
companies not doing business in the Philippines. Pursuant to the aforesaid reinsurance contracts, petitioner
ceded to the foreign insurers some premiums in 1953 and 1954 and thereafter excluded the same from its
gross income when it filed its income tax return. Furthermore, it did not withhold or pay tax on them.
Consequently, the CIR assessed against petitioner withholding tax on the ceded reinsurance premiums.
Issue:
Whether or not insurance companies are required to withhold tax on reinsurance premiums ceded to
foreign insurance companies.
Ruling:
YES. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities
and protection which a government is supposed to provide. Considering that the reinsurance premiums in
question were afforded protection by the government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden
of maintaining the state.
______________________________________________________________________________________________________________________________
PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and

THE COURT OF TAX APPEALS
G.R. No. 125704, August 28, 1998, Romero, J.
Philex’s claim for this is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex’s whimsical reason would render ineffective our tax collection system. Too simplistic, it finds
no support in law or in jurisprudence.
Facts:
BIR sent a letter to Philex asking it to settle its tax liabilities for the 2 nd, 3rd, and 4th quarter of 1991 as
well as the 1st and 2nd quarter of 1992. Philex protested the demand for payment stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991. Therefore, these claims
for tax credit/refund should be applied against the said tax liabilities. BIR replied finding no merit in Philex’s
position since the pending claims have not yet been established or determined with certainty. Eventually,
however, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994. In view of this, Philex contends that the same should ipso jure off-set its excise tax
liabilities.
Issue:
1. Whether or not there can be off-setting between the tax liabilities vis-à-vis claims of tax refund of
petitioner.
2. Whether or not Philex had an obligation to pay the excise liabilities within the prescribed period,
since, after all, it still has pending claims for VAT input credit/refund with BIR.
Held.
1. NO, taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax being collected. The collection of tax
cannot await the results of a lawsuit against the government.
2. YES, the Court fails to see the logic of Philex’s claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. Evidently, to countenance Philex’s whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.
______________________________________________________________________________________________________________________________
NORTH CAMARINES LUMBER CO., INC. v. COLLECTOR OF INTERNAL REVENUE

G.R. No.L-12353, September 30, 1960, Paras, J.
We cannot countenance the theory that would make the commencement of the statutory 30-day period
solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his
convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of
the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability an
imperious need."
Facts:
North Camarines Lumber sold to General Lumber Co. a total of 2,164, 863 board feet of logs, with the
agreement that the latter would assume responsibility for the payment of the sales tax thereon. After being
consulted on the matter, CIR advised the petitioner that he was interposing no objection to the arrangement,
provided the General Lumber Co., Inc., would file the corresponding bonds to cover the sales tax liabilities to
which it complied. In view, however, of its failure and that of the surety to pay the tax liabilities, CIR, in a
letter dated August 30, 1995, required the petitioner to pay the sales tax and incidental penalties in the sale of
the logs. Petitioner filed a request for reconsideration to the CIR twice (dated December 8, 1955 and January
30, 1956) but both were denied, then it filed a petition for review before the CTA. The Courtruled that, as the
petition was filed beyond the 30-day period prescribed by Section 11 of R.A. No. 1125, it has no jurisdiction to
try the same. Accordingly, the case was dismissed.
Issue:
Whether or not the appeal was filed out of time.
RulingL
NO. As the petitioner had consumed thirty-three days, its appeal was clearly filed out of time. It is
argued, however, that in computing the 30-day period fixed in Section 11 of R.A. No. 1125, the letter of the
respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be
considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30,
1955. This contention is untenable.
Necessity Theory
OF TAX APPEALS, et al.
G.R. No.L-22074, April 30, 1965, Bengzon, J.P., J.
NECESSITY THEORY: The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army
to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide.
Facts:
The Philippine Guaranty Co. Inc. entered into reinsurance contracts with foreign insurance
companies not doing business in the Philippines. Pursuant to the aforesaid reinsurance contracts, petitioner
ceded to the foreign insurers some premiums in 1953 and 1954 and thereafter excluded the same from its
gross income when it filed its income tax return. Furthermore, it did not withhold or pay tax on them.
Consequently, the CIR assessed against petitioner withholding tax on the ceded reinsurance premiums.
Issue:
Whether or not insurance companies are required to withhold tax on reinsurance premiums ceded to
foreign insurance companies.
Ruling:
YES. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities
and protection which a government is supposed to provide. Considering that the reinsurance premiums in
question were afforded protection by the government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden
of maintaining the state.
______________________________________________________________________________________________________________________________
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

INC. (ECN) v. DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP
(PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC.
(PECO)
G.R. No. 159796, July 17, 2007, Nachura, J.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency that is to pay it. It is based on the principle that taxes are the lifeblood of the
government, and their prompt and certain availability is an imperious need. Thus, the theory behind the exercise
of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people.
Facts:
Petitioners Romeo Gerochi, KB, and ECN seeks the declaration of unconstitutionality of RA No. 9136
known as Electric Power Industry Reform Act of 2001 (EPIRA) imposing the Universal Charge to be collected
from all electric end-users and self-generating entities and Rule 18 of the IRR implementing the said
imposition. Petitioners submit that the assailed provision and its IRR are unconstitutional because the power
to tax is strictly a legislative function and it cannot be delegated to any executive or administrative agency
such as ERC. Moreover, such imposition is oppressive and confiscatory and amounts to taxation without
representation as the consumers were not given a chance to be heard and represented. They further contend
that the Universal Charge has the characteristics of a tax and is collected to fund the operations of NPC.
Issue:
Whether or not the Universal Charge imposed under RA No. 9136 is a tax.
Ruling:
NO. The assailed Universal Charge is not a tax, but an exaction in the exercise of the State's police
power. Public welfare is surely promoted.
Police power is the power of the state to promote public welfare by restraining and regulating the
use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three
fundamental powers of the State.
Benefits-Protection Theory
COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX APPEALS
G.R. No. L-28896, February 17, 1988, CRUZ, J.
Every person who is able to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
Facts:
Algue, Inc. is a domestic corporation engaged in engineering, construction and other allied activities.
The Philippine Sugar Estate Development Company had appointed Algue as its agent, authorizing it to sell its
land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. After its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue
received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals. Algue, now, is claiming for the deduction of
P75,000.00 from its income tax as it is an ordinary reasonable or necessary business expense.
However, the Commissioner disallowed the said deduction and instead sent a letter to Algue
informing of its delinquency income taxes in the total amount of P83,183.85. Algue filed a protest or request
for reconsideration. But the same was denied by the Commissioner, hence this petition.
Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns.
Ruling:
No, the claimed deduction by Algue was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the Commissioner. Section 30 of the Internal Revenue Code provides,
in computing net income there shall be allowed as deductions
Alguehas proved that the payment of the fees was necessary and reasonable in the light of the efforts
exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business and this was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities.
______________________________________________________________________________________________________________________________
ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS SAMSON S. ALCANTARA AND ED VINCENT
S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY
OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; AND HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMOPARAYNO, JR.
G.R. No. 168056, G.R. NO. 168207, G.R. NO. 168461, G.R. NO. 168463, G.R. NO. 168730, September 01,
2005, AUSTRIA-MARTINEZ, J.
The expenses of government, having for their object the interest of all, should be borne by everyone, and
the more man enjoys the advantages of society, the more he ought to hold himself honored in contributing to
those expenses.
Facts:
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950. It was signed into law by the President on May 24, 2005 and it is made effective on July
1, 2005.Sections 4, 5 and 6 of the said lawcontained a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any
of the following conditions have been satisfied, to wit: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 some conditions has been satisfied.
The petitioners filed a case assailing the constitutionality of R.A. No. 9337 on the ground that, among
others, that the limitation on the creditable input tax is anything but regressive and hence it violates Article
VI, Section 28 (1) of the Constitution which directs for a progressive system if taxation.
Issue:
Whether or not R.A. No. 9337 is unconstitutional in the ground that it violates the progressive system
of taxation.
Ruling:
No, the Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall evolve a progressive system of taxation. The
constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as
much as possible, indirect taxes should be minimized. Indeed, the mandate to Congress is not to prescribe,
but to evolve, a progressive tax system. (See: Arturo Tolentino v. The Secretary of Finance and the
Commissioner of Internal Revenue, G.R. No. 115455, August 25, 1994)
Progressive taxation is built on the principle of the taxpayers ability to pay. The subjects of every
state ought to contribute towards the support of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of
the state.Taxation is progressive when its rate goes up depending on the resources of the person affected.
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
business for every goods bought or services enjoyed is the same regardless of income. Inother words, the VAT
paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a
person or profit margin marked by a business, such that the higher the income or profit margin, the smaller
the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin,
the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Jurisdiction over Subject and Objects
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF APPEALS and ALHAMBRA

INDUSTRIES, INC.
G.R. No. 117982, February 6, 1997, BELLOSILLO, J.
The government is not estopped from collecting taxes legally due because of mistakes or errors of its
agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer.
Facts:
Alhambra Industries, Inc. is a domestic corporation engaged in the manufacture and sale of cigar and
cigarette products. It received a letter from the Commissioner of Internal Revenue assessing it deficiency Ad
Valorem Tax on the removals of cigarette products from their place of production from November 2, 1990 to
January 22, 1991. It then filed a protest against the proposed assessment with a request that the same be
withdrawn and cancelled, but the said was denied. Hence, a petition for review was filed.
The subject deficiency excise tax assessment resulted from Alhambra’s use of the computation
mandated by BIR Ruling 473-88 which was issued on October 4, 1988 as basis for computing the 15% ad
valorem tax due on its removals of cigarettes from November 2, 1990 to January 22, 1991. However, the BIR
Ruling 017-91 was issued on February 11, 1991 which aims to revoke BIR Ruling 473-88 for being violative
of Section 142 of the Tax Code.
The Commissioner sought to apply the revocation retroactively to Alhambra Industries on the
ground that it allegedly acted in bad faith which is an exception to the rule on non-retroactivity of BIR
Rulings.
Issue:
Whether or not Alhambra’s reliance on a void BIR ruling conferred upon the latter a vested right to
apply the same in the computation of its ad valorem tax and claim for tax refund.
Ruling:
Yes, Alhambra is permitted to rely on a void BIR ruling and hence, the deficiency tax assessment by
the Commissioner is without legal basis. Well-entrenched is the rule that rulings and circulars, rules and
regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to
so apply them would be prejudicial to the taxpayers. As in this case, Alhambra would be prejudiced by the
retroactive application of the revocation as it would be assessed deficiency excise tax.
Furthermore, Alhambra is not in bad faith in when it failed to made consultations with the
Commissioner before it could used the computation mandated by BIR Ruling 473-88, because the aforesaid
BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of private
respondent to consult petitioner does not imply bad faith on the part of the former.
______________________________________________________________________________________________________________________________
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.

DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA v. HON. BIENVENIDO TAN, as
Commissioner of Internal Revenue
G.R. No. 81311, G.R. No. 81820, G.R. No. 81921, G.R. No. 82152, June 30, 1988, PADILLA, J.
Under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers
until a legislature under a new Constitution is convened. The first Congress, created and elected under the 1987
Constitution, was convened on July 27, 1987. Hence, the enactment of EO 273 on July 25, 1987, two days before
Congress convened was within the President's constitutional power and authority to legislate.
Facts:
This case involves four petitions, which have been consolidated because of the similarity of the main
issues involved therein. President Corazon Aquino issued Executive Order No. 273on July 25, 1987, to take
effect on January 1, 1988, which aims to amend certain sections of the National Internal Revenue Code and
adopted the value-added tax. The petitioners then filed their separate cases which seek to nullify the said
order for being unconstitutional on the ground that, among others, its enactment is not within the powers of
the President.
Issue:
Whether E.O. No. 273 is not constitutional on the ground that its enactment is not within the powers
of the President.
Ruling:
No, E.O. No. 273 was enacted within the powers of the President. It should be recalled that under
Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the
President. On October 15 1986, the Constitutional Commission of 1986 adopted a new Constitution for the
Republic of the Philippines.
The Court, following the time-honored doctrine of separation of powers, cannot substitute its
judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The
Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the
manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave
abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason
to impede its application or continued implementation.
______________________________________________________________________________________________________________________________
CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. v. THE HON. EXECUTIVE SECRETARY
ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON.
COMMISSIONER OF INTERNAL REVENUE GUILLERMOPARAYNO, JR.
G.R. No. 160756, March 9, 2010, CORONA, J.
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this
means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation. It has the authority to prescribe a certain tax at a
specific rate for a particular public purpose on persons or things within its jurisdiction. In other words, the
legislature wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall
be imposed, against whom (or what) it shall be imposed and where it shall be imposed.
Facts:
Chamber of Real Estate and Builders’ Associations, Inc. is an association of real estate developers and
builders in the Philippines. It filed a petition which questions the constitutionality of Section 27 (E) of
Republic Act 84242 and the revenue regulations issued by the Bureau of Internal Revenue with regard to the
imposition of minimum corporate income tax on corporations and creditable withholding tax on sales of real
properties classified as ordinary assets.
It argues that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly
oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of law.
On the other hand, the revenue regulations are contrary to law for the Secretary of Finance has no authority
to collect CWT, much less, to base the CWT on the gross selling price or fair market value of the real
Issues:
Whether or not the imposition of MCIT is violative of due process of law.
Rulings:
No, the imposition of MCIT is not violative of due process of law.The MCIT is not a tax on capital. The
MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the
sale of its goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax,
and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net
income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporation’s gross income.
Also, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary
and confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes.
Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party
alleging the law’s unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.
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 to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations.
NATURE OF TAXATION
It is subject to limitations and restrictions
ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON.
COMMISSIONER OF INTERNAL REVENUE GUILLERMOPARAYNO, JR.
G.R. No. 160756, March 9, 2010, CORONA, J.
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this
means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation. It has the authority to prescribe a certain tax at a
specific rate for a particular public purpose on persons or things within its jurisdiction. In other words, the
legislature wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall
be imposed, against whom (or what) it shall be imposed and where it shall be imposed.
Facts:
Chamber of Real Estate and Builders’ Associations, Inc. is an association of real estate developers and
builders in the Philippines. It filed a petition which questions the constitutionality of Section 27 (E) of
Republic Act 84242 and the revenue regulations issued by the Bureau of Internal Revenue with regard to the
imposition of minimum corporate income tax on corporations and creditable withholding tax on sales of real
It argues that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly
oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of law.
On the other hand, the revenue regulations are contrary to law for the Secretary of Finance has no authority
to collect CWT, much less, to base the CWT on the gross selling price or fair market value of the real
Issues:
Whether or not the imposition of MCIT is violative of due process of law.
Rulings:
No, the imposition of MCIT is not violative of due process of law.The MCIT is not a tax on capital. The
MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the
sale of its goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax,
and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net
income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporation’s gross income.
Also, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary
and confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes.
Taxation is necessarily burdensome because, by its nature, it adversely affects property rights. The party
alleging the law’s unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.
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 to
its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations.
______________________________________________________________________________________________________________________________
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. HON. FERDINAND J. MARCOS, in his capacity
as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU,
represented by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA
G.R. No. 120082, September 11, 1996, DAVIDE, JR., J.
Since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn
at the pleasure of the taxing authority.
Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958 and since the time of its creation it enjoyed the privilege of exemption from payment of realty
taxes. However, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of land belonging to the petitioner on the ground that
its tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government
Code
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is
an instrumentality of the government performing governmental functions, citing Section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local government units.
Consequently, it filed a Petition for Declaratory Relief with the RTC. The trial court, however, dismissed such
petition.
Issue:
Whether or not the tax exemption from payment of realty taxes granted to MCIAA has been
withdrawn by the Local Government Code.
Ruling:
Yes, there can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing authority.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A.
No. 6958, has been withdrawn.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF FINANCE, THE

HONORABLE COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE HONORABLE COMMISSIONER
OF CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE PORT OF SUBICv. HON. RAMON S. CAGUIOA,
Presiding Judge, Branch 74, RTC, Third Judicial Region, Olongapo City et al.
G.R. No. 168584, October 15, 2007, CARPIO MORALES, J.
A tax exemption may be modified or withdrawn at will by the granting authority. To state otherwise is
to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The power to
impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions which rest on
the discretion of the authority exercising it.
Facts:
Congress enacted Republic Act No. 72273 or the Bases Conversion and Development Act of 1992
which provides for tax and duty-free importations of raw materials, capital and equipment within the Subic
Special Economic Zone. Pursuant to this, private respondent enterprises, which are all domestic corporations
doing business at the SBF, applied for and were granted Certificates of Registration and Tax Exemptionby the
SBMA.
However, Congress subsequently passed R.A. No. 9334, which provides for the imposition of taxes,
duties and charges on the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines
into the Philippines, even if brought directly in the Subic Economic Freeport Zone. Consequently, private
respondent enterprises were directed to pay such duties and taxes. Hence, theyfiled before the RTC of
Olongapo City a special civil action for declaratory relief with prayer for the issuance of a writ of preliminary
injunctionto have certain provisions of R.A. No. 9334 declared as unconstitutional.
The trial court granted the issuance of a writ of preliminary injunction and thereafter ruled that R.A.
No. 9334 is a general law that could not prevail over a special statute like R.A. No. 7227 notwithstanding the
fact that the assailed law is of later effectivity. It also ruled that repealing provision of Section 10 of R.A. No.
9334 does not expressly mention the repeal of R. A. No. 7227, hence, its repeal can only be an implied repeal,
which is not favored; and since R.A. No. 9334 imposes new tax burdens, whatever doubts arising therefrom
should be resolved against the taxing authority and in favor of the taxpayer. Hence, petitioners have come
directly to the Supreme Court to question such order.
Issue:
Whether or not the public respondent Judge Ramon S. Caguioa of the RTCis correct in issuing the writ
of preliminary injunctionwhich stayed the implementation of R.A. No. 9334.
Ruling:
No, the public respondent is not correct in issuing the the Writ of Preliminary Injunction because of
the absence of a clear and unquestioned legal right of private respondent enterprises.There is no vested right
in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful.
Being a mere statutory privilege, a tax exemption may be modified or withdrawn at will by the granting
authority.To state otherwise is to limit the taxing power of the State, which is unlimited, plenary,
comprehensive and supreme. The power to impose taxes is one so unlimited in force and so searching in
extent, it is subject only to restrictions which rest on the discretion of the authority exercising it.
Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax
exemption just as efficaciously as it may grant the same under Section 28(4) of Article VI of the Constitution.
There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a
The power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.That the enforcement of tax laws and the
collection of taxes are of paramount importance for the sustenance of government has been repeatedly
observed. Taxes being the lifeblood of the government that should be collected without unnecessary
hindrance, every precaution must be taken not to unduly suppress it.
______________________________________________________________________________________________________________________________
NATIONAL TELECOMMUNICATIONS COMMISSION v. HONORABLE COURT OF APPEALS and PHILIPPINE

LONG DISTANCE TELEPHONE COMPANY
G.R. No. 127937, July 28, 1999, PURISIMA, J.
Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and
Taxation. In this case, the Congress was the one that has provided for the basis for computation of the fee to be
charged by NTC. Therefore, all that is to be done would be to apply and enforce the law when sufficiently
definitive and not constitutional infirm.
Facts:
The National Telecommunications Commission (NTC) served on the Philippine Long Distance
Telephone Company (PLDT) assessment notices and demands for payment of supervision and regulation fee.
PLDT, however, protested the assessments made by the NTC, but the latter denied such protest.PLDT
appealed to the Court of Appeals, to which the court ordered NTC to recompute its assessments and demands
for payment from PLDT.
The Court of Appeals ordered that the annual supervision and regulation fees under Section 40 (e) of
the Public Service Act should be computed at fifty centavos for each one hundred pesos or fraction thereof of
the par value of the capital stock subscribed or paid excluding stock dividends, premiums or capital in excess
of par.NTC moved for partial reconsideration of the Decision on the ground that the fee under Section 40 (e)
should be based on the market value of PLDTs outstanding capital stock inclusive of stock dividends and
premium, and not on the par value of PLDTs capital stock excluding stock dividends and premium, but it was
denied. Hence, this petition.
Issue:
Whether or not the computation of the supervision and regulation fees under section 40 of the Public
Service Act should be based on the par value of the subscribed capital stocks.
Ruling:
Yes, the rule is clear in the ruling of this Court in the case of Philippine Long Distance Telephone
Company vs. Public Service Commission (66 SCRA 341) that the basis for computation of the fee to be charged
by NTC on PLDT, is the capital stock subscribed or paid and not, alternatively, the property and
equipment.The law in point is clear and categorical. There is no room for construction. It simply calls for
application.
It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since
Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation,
the distinction between police power and the power to tax, which could be significant if the exercising
authority were mere political subdivisions would not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that is to be done would be to apply and enforce the
law when sufficiently definitive and not constitutional infirm.
______________________________________________________________________________________________________________________________
PASEO REALTY & DEVELOPMENT CORPORATION v. COURT OF APPEALS, COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 119286, October 13, 2004, TINGA, J.
Taxation is a destructive power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the government. And since taxes are what we pay
for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor
of the taxing authority.
Facts:
Paseo Realty and Development filed a claim for the refund of excess creditable withholding and
income taxes for the years 1989 and 1990 in the aggregate amount of P147,036.15. But realizing that the
prescriptive period for refunds for 1989 would expire on December 30, 1991 and that it was necessary to
interrupt the prescriptive period, Paseo filed with the respondent Court of Tax Appeals a petition for review
praying for the refund of P54,104.00 representing creditable taxes withheld from income payments of
petitioner for the calendar year ending December 31, 1989.
The respondent Court dismissed the petition for review and ruled that the petitioners 1989
Corporate Income Tax Return indicated that the amount of P54,104.00 subject of claim for refund has
already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax
credit for the succeeding taxable year 1990. The said decision was affirmed by the Court of Appeals. Hence,
this petition.
Issue:
Whether Paseo Realty and Development is entitled to a refund of P54,104.00 representing creditable
taxes withheld in 1989.
Ruling:
No, section 69 of the National Internal Revenue Code of the Philippines and the Revenue Regulation
No. 10-77 of the Bureau of Internal Revenue state that the carrying forward of any excess or overpaid income
tax for a given taxable year is limited to the succeeding taxable year only.
In this case, petitioner included its 1988 excess credit of P146,026.00 in the computation of its total
excess credit for 1989. It indicated this amount, plus the 1989 creditable taxes withheld of P54,104.00 or a
total of P172,477.00, as its total excess credit to be applied as tax credit for 1990. By its own disclosure,
petitioner effectively combined its 1988 and 1989 tax credits and applied its 1990 tax due of P33,240.00
against the total, and not against its creditable taxes for 1989 only as allowed by Section 69. This is a clear
admission that petitioners 1988 tax credit was incorrectly and illegally applied against its 1990 tax liabilities.
A claim of refund or exemption from tax payments must be clearly shown and be based on language
in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.
______________________________________________________________________________________________________________________________
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. v. MUNICIPALITY OF TANAUAN, LEYTE,

THE MUNICIPAL MAYOR, ET AL.
G.R. No. L-31156, February 27, 1976, MARTIN, J.
The power of taxation is a power that is purely legislative and which the central legislative body cannot
delegate either to the executive or judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern.
By necessary implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to tax.
Facts:
The Municipality of Tanauan, Leyte passed two ordinances which aims to levy and collect municipal
production tax. First, Ordinance No. 23 levies and collects from soft drinks producers and manufacturers a tai
of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. Second, Ordinance No. 27 levies and
collects on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax
of ONE CENTAVO (P0.01) on each gallon of volume capacity. Acting Municipal Treasurer of Tanauan, Leyte,
as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant,sought to enforce compliance by
the latter of the provisions of said Ordinances.
However, Pepsi-Cola Bottling Company of the Philippines, Inc. commenced a complaint with
preliminary injunction before the Court of First Instance to declare Section 2 of Republic Act No. 2264. 1
otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27 of the municipality of Tanauan, Leyte, null and void. The Court of
First Instance dismissed the complaint, and on appeal, the case was elevated to the Supreme Court.
Issue:
Whether or not the Section 2 of RA No. 2264 is constitutional and Municipal ordinances of the
Municipality of Tanauan, Leyte are valid.
Ruling:
Yes, Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act is constitutional
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal
Ordinance No. 23, is declared of valid and legal effect.
Under the New Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local governments the power
of local taxation.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v.FORTUNE TOBACCOCORPORATION

G.R. Nos. 167274-75, July 21, 2008, TINGA, J.
A tax cannot be imposed without clear and express words for that purpose.
Facts:
Pursuant to the enactment of R.A. No. 8240, the tax system of cigarette brands and fermented liquor
had been shifted from ad valorem to specific tax system. Under Section 145 of the said law, during the
transition period which is within the next three (3) years from its effectivity, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1 October 1996.
On the other hand, the Secretary of Finance issued the Revenue Regulation No. 17-99 to promulgate
rules and regulations for the effective implementation of the R.A. No. 8240. Based on its interpretation of the
law, the said regulation added the qualification that the tax due after the 12% increase becomes effective
shall not be lower than the tax actually paid prior to 1 January 2000. Consequently, Revenue Regulation No.
17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end
of the three (3)-year transition period and the specific tax as increased by 12%.
Fortune Tobacco filed a claim for refund or tax credit alleging that the payment it made under the
assessment of the Commissioner following the said regulation result in an excess payment of excise tax. After
much wrangling in the Court of Tax Appeals and the Court of Appeals, Fortune Tobacco Corporation was
granted a tax refund or tax credit representing specific taxes erroneously collected from its tobacco products.
Hence, the Commissioner filed this petition alleging that Revenue Regulation No. 17-99 should be followed as
a right interpretation of Section 145 of the said law.
Issue:
Whether or not the Revenue Regulation No. 17-99 should be followed in the computation of the
excise tax for cigarette brands and fermented liquor.
Ruling:
No, the interpretation under Revenue Regulation No. 17-99 finds no support from Section 145 of R.A.
No. 8240, which it seeks to implement. By adding the qualification that the tax due after the 12% increase
becomes effective shall not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation
No. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the
end of the three (3)-year transition period and the specific tax not supported by the plain wording of Section
145 of the Tax Code.
The power to tax is inherent in the State, such power being inherently legislative, based on the
principle that taxes are a grant of the people who are taxed, and the grant must be made by the immediate
representatives of the people; and where the people have laid the power, there it must remain and be
exercised.
The rule-making power must be confined to details for regulating the mode or proceedings in order
to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute. Administrative regulations must always be in
harmony with the provisions of the law because any resulting discrepancy between the two will always be
resolved in favor of the basic law.
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of
taxes, not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a
statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax
cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In answering the question of who is subject to
tax statutes, it is basic that in case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to
be imposed beyond what statutes expressly and clearly import. As burdens, taxes should not be unduly
exacted nor assumed beyond the plain meaning of the tax laws.
______________________________________________________________________________________________________________________________
OF TAX APPEALS, ET AL.
G.R. No. L-22074, September 6, 1965, BENGZON, J.P., J.
If the failure to file is due to a reasonable cause, then exemption from surcharge sets in but never
exemption from payment of the tax due.
Facts:
The Court of Tax Appeals and the Court of Appeals both ruled that the Philippine Guaranty Company
is innocent of the charges of violating, willfully or negligently Section 53 (c) and 54 of the Tax Code with
regard to the filing of necessary withholding tax return and payment of tax due thereon. However, Philippine
Guaranty Company was still ordered by the Court to pay the income tax which it should have withheld and
remitted to the Bureau of Internal Revenue in the total sum of P375,345.00. Hence, Philippine Guaranty
Company, Inc. filed this petition arguing that following the pronouncement of the Court, it cannot
subsequently be held liable for payment of such assessed tax.
Issue:
Whether or not Philippine Guaranty Company is still liable to pay the assessed income tax.
Ruling:
Yes, contrary to the contention of Philippine Guaranty Company, the Court of Tax Appeals and the
Court of Appeals actually found that it violated Sections 53 (c) and 54 of the Tax Code. What the Court ruled is
that its violation was due to a reasonable cause which is its reliance on the advice of its auditors and opinion
of the Commissioner of Internal Revenue, and because of that no surcharge to the tax was imposed. This is in
accordance to Section 72 of the Tax Code which provides that if it is shown that the failure to file it was due to
a reasonable cause, no such addition shall be made to the tax.
The mere fact that it was exempted from paying the penalty necessarily implies violation of Section
53(c). Violating Section 53(c) is one thing; imposing the penalty for such violation under Section 72 is
another. If it is found that the failure to file is due to a reasonable cause, then exemption from surcharge sets
in but never exemption from payment of the tax due.Since movant failed to pay the tax due, in the sum of
P375,345.00, this Court ordered it to pay the same. Simply because movant was relieved from paying the
surcharge for failure to file the necessary returns, it now wants the Court to absolve it from paying even the
tax. This, the Court cannot do. The non-imposition of the 25% surcharge does not carry with it remission of
the tax.
______________________________________________________________________________________________________________________________
NATIONAL POWER CORPORATION v.THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.

SALALIMA, and ALBAY PROVINCIAL TREASURER ABUNDIO M. NUÑEZ
G.R. No. 87479, June 4, 1990, SARMIENTO, J.
Taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the State to finance
the needs of the citizenry and to advance the common weal. Hence, as a rule finally, claims of tax exemption are
construed strongly against the claimant. They must also be shown to exist clearly and categorically, and
supported by clear legal provisions.
Facts:
The province of Albay caused foreclosure of properties of NAPOCOR and the Philippine Geothermal
Inc., as payment for the tax delinquencies on real property taxes of NAPOCOR for the period of June 11, 1984
up to March 10, 1987.However, NAPOCOR questions the power of the provincial government of Albay to
collect real property taxes on its properties located at Tiwi, Albay on the ground of its tax exemption under
Fiscal Incentives Review Resolution Nos. 10-85, 1-86, and 17-87.
The provincial government of Albay now defends the auction sale in question on the theory that the
various FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under
the Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax
exemptions, the same is of no force and effect under the constitutional provision allowing the legislature
alone to accord tax exemption privileges.
Issue:
Whether or not the province of Albay can validly collect real property taxes on properties of
NAPOCOR.
Ruling:
Yes, the auction sale of the petitioner's properties to answer for real estate taxes is valid. The FIRB,
under its charter, had been empowered merely to "recommend" tax exemptions and therefore it could not
have validly prescribed exemptions or restore taxability. Hence, as of June 11, 1984, NAPOCOR had ceased to
enjoy tax exemption privileges.
The State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real
property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the local government level. To all intents and
purposes, real property taxes are funds taken by the State with one hand and given to the other. In no
measure can the Government be said to have lost anything.
Taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the State to
finance the needs of the citizenry and to advance the common weal. Hence, as a rule finally, claims of tax
exemption are construed strongly against the claimant. They must also be shown to exist clearly and
categorically, and supported by clear legal provisions.
PURPOSES OF TAXATION
Revenue Raising
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma v. J. ANTONIO ARANETA, as the Collector of Internal Revenue
G.R. No. L-7859, December 22, 1955, REYES, J.B L., J.
The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected
to such an extent by public interests as to be within the police power of the sovereign. If objective and methods
are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the implement of the state's police power.
Facts:
Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act provides for an increase
of the existing tax on the manufacture of sugar and levies on owners or persons in control of lands devoted to
the cultivation of sugar cane a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12% of the assessed value of such land.All collections
made under the said law shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar
Adjustment and Stabilization Fund,' and shall be paid out only for specific purposes or to attain specific
objectives provided by law.
Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes under the said Act. It was alleged that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in his opinion is not a public purpose for which a tax may be
constitutionally levied. The action having been dismissed by the Court of First Instance, Walter Lutz appealed
the case directly to the Supreme Court.
Issue:
Whether the tax provided for in Commonwealth Act No. 567 is unconstitutional for being levied for
the aid and support of the sugar industry exclusively.
Ruling:
No, the tax provided for in Commonwealth Act No. 567 is being levied for a regulatory purpose, to
provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the
act is primarily an exercise of the police power.
Sugar production is one of the great industries of our nation, sugar occupying a leading position
among its export products; that it gives employment to thousands of laborers in fields and factories; that it is
a great source of the state's wealth, is one of the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare.
______________________________________________________________________________________________________________________________
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

INC. (ECN) v. DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP
(PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC.
(PECO)
G.R. No. 159796 July 17, 2007 NACHURA, J.
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the
imposition a tax.
Facts:
Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc. (ECN),
come before the Supreme Court praying that Section 34 of Republic Act (RA) 9136, otherwise known as the
"Electric Power Industry Reform Act of 2001" (EPIRA), imposing the Universal Charge, and Rule 18 of the
Rules and Regulations (IRR) which seeks to implement the said imposition, be declared unconstitutional.
Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund
the operations of the NPC. They argue that the cases invoked by the respondents clearly show the regulatory
purpose of the charges imposed therein, which is not so in the case at bench. In said cases, the respective
funds were created in order to balance and stabilize the prices of oil and sugar, and to act as buffer to
counteract the changes and adjustments in prices, peso devaluation, and other variables which cannot be
adequately and timely monitored by the legislature. Thus, there was a need to delegate powers to
administrative bodies. Petitioners posit that the Universal Charge is imposed not for a similar purpose.
Issue:
Whether the IRR of the EPIRA is a tax.
Ruling:
No. The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency that is to pay it. It is based on the principle that taxes
are the lifeblood of the government, and their prompt and certain availability is an imperious need. Thus, the
theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot
fulfill its mandate of promoting the general welfare and well-being of the people.
On the other hand, police power is the power of the state to promote public welfare by restraining
and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin maxims salus
populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non
laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty
which virtually extends to all public needs, police power grants a wide panoply of instruments through which
the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to
"regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the
interests, first and foremost, of the public, then of the utility and of its patrons.
______________________________________________________________________________________________________________________________
VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO
RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO
SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE,
AURELIO GAMBOA, ET AL. v. REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR
REGULATORY ADMINISTRATION, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA
PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE PLANTERS
G.R. No. L-77194 March 15, 1988 MELENCIO-HERRERA, J.
Revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private persons.
Facts:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their
individual capacities and in representation of other sugar producers, planters and millers. Respondent
Philippine Sugar Commission (PHILSUCOM) was formerly the government office tasked with the function of
regulating and supervising the sugar industry. Angel H. Severino, Jr., et al., who are sugarcane planters
planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene
by the Court, since they have common cause with petitioners and respondents having interposed no objection
to their intervention.
Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding
respondents to implement and accomplish the privatization of Republic Planters Bank by the transfer and
distribution of the shares of stock in the said bank. The said investment been funded by the Stabilization Fund
Pursuant to P.D. No. 388.
The Solicitor General aptly summarizes the basic issue whether the stabilization fees collected from
sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds.
Issue:
Whether the funds collected from the stabilization fund constitutes as tax.
Ruling:
Yes. The stabilization fees collected are in the nature of a tax, which is within the power of the State
to impose for the promotion of the sugar industry. They constitute sugar liens. The tax collected is not in a
pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the
stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State.
The stabilization fees in question are levied by the State upon sugar millers, planters and producers
for a special purpose — that of "financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market the fact that the State has
taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are
held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated
as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once
the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of
the Government.
Regulatory Purpose
CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.) v. BASES CONVERSION

DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT CORPORATION
G.R. No. 173863 September 15, 2010 VILLARAMA, JR., J
In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of
the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax even though
the measure results in some form of regulation. On the other hand, if the purpose is primarily to regulate, then it
is deemed a regulation and an exercise of the police power of the state, even though incidentally, revenue is
generated.
Facts:
The Board of Directors of respondent Clark Development Corporation (CDC) issued and approved
Policy Guidelines on the Movement of Petroleum Fuel to and from the Clark Special Economic Zone. Chevron
Philippines, Inc. (formerly Caltex Philippines, Inc.), a domestic corporation which has been supplying fuel to
Nanox Philippines, a locator inside the CSEZ, was informed that a royalty shall be assessed on its deliveries to
Nanox Philippines.
Arguing that the royalty fees imposed had no reasonable relation to the probable expenses of
regulation and that the imposition on a per unit measurement of fuel sales was for a revenue generating
purpose, thus, akin to a "tax".
Issue:
Whether the said imposition is a tax.
Ruling:
No. The subject royalty fee was imposed primarily for regulatory purposes, and not for the
generation of income or profits as petitioner claims. The Policy Guidelines on the Movement of Petroleum
Fuel to and from the Clark Special Economic Zone provides:
It is hereby declared the policy of CDC to develop and maintain the Clark Special Economic Zone
(CSEZ) as a highly secured zone free from threats of any kind, which could possibly endanger the lives and
properties of locators, would-be investors, visitors, and employees.
It is also declared the policy of CDC to operate and manage the CSEZ as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of the CSEZ.
From the foregoing, it can be gleaned that the Policy Guidelines was issued, first and foremost, to
ensure the safety, security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure "free flow or movement" of
petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to distribute and
market petroleum products within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish the
regulatory purpose of the royalty fee for fuel products supplied by petitioner to its client at the CSEZ.
______________________________________________________________________________________________________________________________
TERMINAL FACILITIES AND SERVICES CORPORATION, petitioner, vs. PHILIPPINE PORTS AUTHORITY
and PORT MANAGER, and PORT DISTRICT OFFICER OF DAVAO CITY, respondents.
G.R. No. 135639. February 27, 2002 DE LEON, JR., J.
As an elementary principle of law, license taxation must not be "so unreasonable to show a purpose to
prohibit a business which is not itself injurious to public health or morals."
Facts:
TEFASCO is a domestic corporation organized and existing under the laws of the Philippines. It is
engaged in the business of providing port and terminal facilities as well as arrastre, stevedoring and other
port-related services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a specialized terminal
complex with port facilities and a provision for port services in Davao City.
PPA imposed various fees that were grossly excessive in relation to the construction and operation of
the said project.
Issue:
Whether the amount of fees imposed is lawful.
Ruling:
No. PPA is bereft of any authority to impose whatever amount it pleases as government share in the
gross income of TEFASCO from its arrastre and stevedoring operations. As an elementary principle of law,
license taxation must not be "so unreasonable to show a purpose to prohibit a business which is not itself
injurious to public health or morals." In the case at bar, the absurd and confiscatory character of government
share is convincingly proved. The PPA issuance scrapped government share in the income of private ports
where no government facilities had been installed and in place thereof imposed a one-time privilege fee. In
passing, we believe that this impost is more in consonance with the description of government share as
consideration for the "supervision inherent in the upgrading and improvement of port operations, of which
said services are an integral part."
CHARACTERISTICS OF TAXATION
PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION

G.R. No. 166006 March 14, 2008 REYES, R.T., J.
Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the
exclusive benefit of private persons.
Facts:
President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA).
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the
return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but
PPI refused to accede to the demand. It questioned the constitutionality of LOI No. 1465 for being enacted not
for public purpose.
Issue:
Whether the imposition is unconstitutional.
Ruling:
Yes. Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not
for a public purpose. The levy was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. The reason for this is simple. The
power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used
only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated
for a private purpose. As an old United States case bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to bestow it upon favored individuals to aid
private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms
of law and is called taxation."
The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a public
purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds
from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law
will not satisfy the requirement of "public purpose."
______________________________________________________________________________________________________________________________
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES v. VIDEOGRAM
REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY
TREASURER OF MANILA
G.R. No. L-75697 June 18, 1987 MELENCIO-HERRERA, J.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose
the tax was to favor one industry over another.
Facts:
This petition was filed by petitioner on his own behalf and purportedly on behalf of other videogram
operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry.
Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax.
Issue:
Whether the Decree is constitutional.
Ruling:
Yes. Petitioner submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be
valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to
impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority
which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments have not been subjected to tax, thereby depriving the
Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne
by the movie industry which the theater-owners pay to the government, but which is passed on to the entire
cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is
imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". Taxation has been made the implement of the state's police
power.
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
SCOPE AND LIMITATIONS OF TAXATION
Inherent Limitations
Power of taxation is inherently legislative in character
NATIONAL POWER CORPORATION v. THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.

SALALIMA, and ALBAY PROVINCIAL TREASURER ABUNDIO M. NUÑEZ
G.R. No. 87479 June 4, 1990 SARMIENTO, J.
The executive has no authority to impose taxes or revoke existing ones, which, after all, under the
Constitution, only the legislature may accomplish.
Facts:
The National Power Corporation (NAPOCOR) questions the power of the provincial government of
Albay to collect real property taxes on its properties.
NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the
Fiscal Incentives Review Board (FIRB), as well as the Memorandum of Executive Secretary Catalino Macaraig
(Executive Order No. 93), which grant NAPOCOR tax exemptions.
Issue:
Whether or not NAPOCOR is tax exempt.
Ruling:
No. It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely
to "recommend to the President of the Philippines and for reasons of compatibility with the declared
economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the
above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no
authority to impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature
may accomplish.
______________________________________________________________________________________________________________________________
THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR
B. ENRIGA v. BAYAN TELECOMMUNICATIONS, INC.
G.R. No. 162015 March 6, 2006 GARCIA,J.
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with
the basic policy of local autonomy.
Facts:
Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act (Rep.
Act) No. 3259 which granted tax exemptions to real estate, buildings and personal property used in the
exercise of the franchise.
Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991" (LGC), took effect.
Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax on
real properties also removed all real property tax exemptions previously granted.
Barely a few months after the LGC took effect, Congress enacted Rep. Act No. 7633, amending
Bayantel’s original franchise which restored its tax exemptions to real estate, buildings and personal property
used in the exercise of the franchise.
Issue:
Whether Bayantel’s real properties in Quezon City are exempt from real property taxes under its
legislative franchise.
Ruling:
Yes. Indeed, the grant of taxing powers to local government units under the Constitution and the LGC
does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national
policy. The legal effect of the constitutional grant to local governments simply means that in interpreting
statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations.
As we see it, then, the issue in this case no longer dwells on whether Congress has the power to
exempt Bayantel’s properties from realty taxes by its enactment of Rep. Act No. 7633 which amended
Bayantel’s original franchise. The more decisive question turns on whether Congress actually did exempt
Bayantel’s properties at all by virtue of Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has
already withdrawn Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633
using, under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise" which was the
basis for Bayantel’s exemption from realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No.
7633 states that "the grantee, its successors or assigns shall be liable to pay the same taxes on their real
estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now
or hereafter may be required by law to pay." The Court views this subsequent piece of legislation as an
express and real intention on the part of Congress to once again remove from the LGC’s delegated taxing
power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the
pursuit of its franchise.
______________________________________________________________________________________________________________________________
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. v. MUNICIPALITY OF TANAUAN, LEYTE,

THE MUNICIPAL MAYOR, ET AL.
G.R. No. L-31156 February 27, 1976 MARTIN, J.
The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of
right to every independent government, without being expressly conferred by the people. It is a power that is
purely legislative and which the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of powers. The exception,
however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may
be delegated to local governments in respect of matters of local concern.
Facts:
Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary
injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264. otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing
authority.
Issue:
Whether there was undue delegation of the taxing power.
Ruling:
No. By necessary implication, the legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such local governmental agencies the power to
tax. Under the New Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall
have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the
sphere of the legislative power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the
State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing
power may be delegated to municipalities and the like, it is meant that there may be delegated such measure
of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be
permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more
general purposes.
Taxation is for a public purpose
PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION

G.R. No. 166006 March 14, 2008 REYES, R.T., J.
Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the
exclusive benefit of private persons.
Facts:
President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA).
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the
return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but
PPI refused to accede to the demand. It questioned the constitutionality of LOI No. 1465 for being enacted not
for public purpose.
Issue:
Whether the imposition is unconstitutional.
Ruling:
Yes. Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not
for a public purpose. The levy was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. The reason for this is simple. The
power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used
only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated
for a private purpose. As an old United States case bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to bestow it upon favored individuals to aid
private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms
of law and is called taxation."
The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a public
purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to exact funds
from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law
will not satisfy the requirement of "public purpose."
Taxation is territorial
ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL

REVENUE
G.R. No. L-26911 January 27, 1981 DE CASTRO, J.
The statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three
conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred
within the taxable year, and (3) it must be paid or incurred in carrying in a trade or business. In addition, not
only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions
claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item
of expense is ordinary and necessary does not justify its deduction.
Facts:
This tax case arose from deficiency income tax assessments made by the Commissioner of Internal
Revenue against Atlas Consolidated Mining and Development Corporation.
After hearing, the Court of Tax Appeals rendered a decision disallowing the items denominated by
Atlas as stockholders relation service fee deductible expenses for tax purposes. Atlas claimed that it was paid
for services of a public relations firm, P.K Macker & Co., a reputable public relations consultant in New York
City, U.S.A., hence, an ordinary and necessary business expense in order to compete with other corporations
also interested in the investment market in the United States.
Issue:
Whether the annual public relations expenses is a deductible expense from gross income
Ruling:
No. While it is true that there is a number of decisions in the United States delving on the
interpretation of the terms "ordinary and necessary" as used in the federal tax laws, no adequate or
satisfactory definition of those terms is possible. Similarly, this Court has never attempted to define with
precision the terms "ordinary and necessary." There are however, certain guiding principles worthy of
serious consideration in the proper adjudication of conflicting claims. Ordinarily, an expense will be
considered "necessary" where the expenditure is appropriate and helpful in the development of the
taxpayer's business. It is "ordinary" when it connotes a payment which is normal in relation to the business
of the taxpayer and the surrounding circumstances. The term "ordinary" does not require that the payments
be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be
unique or non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on
the particular facts and the relation of the payment to the type of business in which the taxpayer is engaged.
The intention of the taxpayer often may be the controlling fact in making the determination. Assuming that
the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the
question as to whether the expenditure is an allowable deduction as a business expense must be determined
from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work
accomplished by the expenditure.
The said expense is not deductible from Atlas gross income because expenses relating to
recapitalization and reorganization of the corporation, the cost of obtaining stock subscription, promotion
expenses, and commission or fees paid for the sale of stock reorganization are capital expenditures.
That the expense in question was incurred to create a favorable image of the corporation in order to
gain or maintain the public's and its stockholders' patronage, does not make it deductible as business
expense. Efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses
related thereto are not business expense but capital expenditures.
Taxation is subject to international comity
COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED

MINING AND DEVELOPMENT CORPORATION and the COURT OF TAX APPEALS
G.R. No. L-54908 January 22, 1990 REGALADO, J.
Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is in fact covered by the exemption so claimed.
Facts:
Atlas Consolidated Mining and Development Corporation (Atlas) entered into a Loan and Sales
Contract with Mitsubishi Metal Corporation (Mitsubishi).
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximban) obviously
for purposes of its obligation under said contract. Pursuant to the contract between Atlas and Mitsubishi,
interest payments were made by the former to the latter. The corresponding tax thereon was withheld
pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue Code, as amended by
Presidential Decree No. 131, and duly remitted to the Government.
Private respondents filed a claim for tax credit requesting that the sum be applied against their
existing and future tax liabilities. The petition was grounded on the claim that Mitsubishi was a mere agent of
Eximbank, which is a financing institution owned, controlled and financed by the Japanese Government. Such
governmental status of Eximbank, if it may be so called, is the basis for private respondents' claim for
exemption from paying the tax on the interest payments on the loan as earlier stated. It was further claimed
that the interest payments on the loan from the consortium of Japanese banks were likewise exempt because
said loan supposedly came from or were financed by Eximbank. The provision of the National Internal
Revenue Code relied upon is Section 29 (b) (7) (A), which excludes from gross income:
(A) Income received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by (1) foreign governments,
(2) financing institutions owned, controlled, or enjoying refinancing from them, and (3) international or
regional financing institutions established by governments.
Issue:
Whether private respondents is exempt from tax?

Ruling:
No. MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS, the former being the owner of
the $20 million upon completion of its loan contract with EXIMBANK of Japan.
The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from the
interest income paid by MITSUBISHI to EXIMBANK, of Japan. What was the subject of the withholding tax is
not the interest income paid by MITSUBISHI to EXIMBANK, but the interest income earned by MITSUBISHI
from the loan to ATLAS. Private respondents are not even among the entities which, under Section 29 (b) (7)
(A) of the tax code, are entitled to exemption and which should indispensably be the party in interest in this
case.
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed "broad,
pragmatic analysis" alone without substantial supportive evidence, lest governmental operations suffer due
to diminution of much needed funds. Nor can we close this discussion without taking cognizance of
petitioner's warning, of pervasive relevance at this time, that while international comity is invoked in this
case on the nebulous representation that the funds involved in the loans are those of a foreign government,
scrupulous care must be taken to avoid opening the floodgates to the violation of our tax laws.
______________________________________________________________________________________________________________________________
CBK POWER COMPANY LIMITED v. COMMISSIONER OF INTERNAL REVENUE

G.R. Nos. 193383-84 January 14, 2015 PERLAS-BERNABE, J.
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.
Facts:
To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from several
foreign banks. Certain portions of the loan were subsequently assigned by the original lenders to various
other banks.
When CBK Power remitted interest payments, It allegedly withheld final taxes from said payments
based on the following rates: (a) fifteen percent (15%) for Fortis-Belgium, Fortis-Netherlands, and Raiffesen
Bank; and (b) twenty percent (20%) for Industrial Bank of Japan and Mizuho Bank. However, according to
CBK Power, under the relevant tax treaties between the Philippines and the respective countries in which
each of the banks is a resident, the interest income derived by the aforementioned banks are subject only to
a preferential tax rate of 10%.
CBK Power filed a claim for refund of its excess final withholding taxes allegedly erroneously
withheld and collected. The CIR claims that CBK did not comply with a RMO that was issued subsequent to
the payment of taxes which therefore deprived it the right to claim a refund.
Issue:
Whether CBK Power can claim a refund.
Ruling:
Yes. The obligation to comply with a tax treaty must take precedence over the objective of a RMO.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief
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 wouldimpair 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 a RMO.
Logically, noncompliance with tax treaties has negative implications on international relations, and unduly
discourages foreign investors. While the consequences sought to be prevented by the RMO 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 tax treaty relief.
Non-delegability of power of taxation
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO v. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF
THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR.
G.R. No. 168056 September 1, 2005 AUSTRIA-MARTINEZ, J.
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the
legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted.
Facts:
This is an action questioning the constitutionality of RA 9337 which raised the VAT from 10% to 12%
on various grounds. Among the grounds cited by petitioners was the so-called stand-by authority of the
President to increase the VAT rate to 12%, on the ground that it amounts to an undue delegation of legislative
power.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services, which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the
government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the decision to
impose taxes. They also argue that the law also effectively nullified the President’s power of control, which
includes the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.
Issue
Whether there was undue delegation of legislative power to tax.
Ruling:
No. The legislative does not abdicate its functions when it describes what job must be done, who is to
do it, and what is the scope of his authority. For a complex economy, that may be the only way in which the
legislative process can go forward. A distinction has rightfully been made between delegation of power to
make the laws which necessarily involves a discretion as to what it shall be, which constitutionally may not be
done, and delegation of authority or discretion as to its execution to be exercised under and in pursuance of
the law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability.
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain
facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms,
made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their
authority. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them, including the power to determine the
existence of facts on which its operation depends.
The case before the Court is not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and administration of the increase rate under the law is
contingent.
______________________________________________________________________________________________________________________________
SOUTHERN CROSS CEMENT CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE

PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF TRADE AND INDUSTRY, THE SECRETARY OF
THE DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE BUREAU OF CUSTOMS,
G.R. No. 158540. August 3, 2005 TINGA, J.
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national development program of the Government
Facts:
The case centers on the interpretation of provisions of Republic Act No. 8800, the Safeguard
Measures Act ("SMA"), which was one of the laws enacted by Congress soon after the Philippines ratified the
General Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement. The
SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs, to
protect domestic industries and producers from increased imports which inflict or could inflict serious injury
on them.
The safeguard measures imposable under the SMA generally involve duties on imported products,
tariff rate quotas, or quantitative restrictions on the importation of a product into the country.
Issue:
Whether there was valid delegation of power to the President.
Ruling :
Yes. Concerning as they do the foreign importation of products into the Philippines, these safeguard
measures fall within the ambit of Section 28(2), Article VI of the Constitution.
These impositions under Section 28(2), Article VI fall within the realm of the power of
taxation, a power which is within the sole province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and
other similar tax levies involving the importation of foreign goods. Assuming that Section 28(2) Article
VI did not exist, the enactment of the SMA by Congress would be voided on the ground that it would
constitute an undue delegation of the legislative power to tax. The constitutional provision shields such
delegation from constitutional infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive power.
______________________________________________________________________________________________________________________________
CAMARINES NORTE ELECTRIC COOPERATIVE, INC. (CANORE-CO); RUBEN N. BARRAMEDA; ELVIS L.

ESPIRITU; MERARDO G. ENERO, JR.; MARCELITO B. ABAS; and REYNALDO V. ABUNDO, petitioners, v.
HON. RUBEN D. TORRES, in his capacity as Executive Secretary; REX TANTIONGCO; HONESTO DE
JESUS; ANDRES IBASCO; TEODULO M. MEA; and VICENTE LUKBAN, respondent.
G.R. No. 127249, February 27, 1998, DAVIDE, JR., J.
Delegation of legislative powers to the President is permitted in Sections 23(2) and 28(2) of Article VI of
the Constitution.
Facts:
Camarines Norte Electric Cooperative, Inc. (CANORECO), an electric cooperative organized under the
National Electrification Administration Decree, was having a serious power struggle within its Board of
Directors. As a result, President Corazon Aquino constituted an ad hoc committee to take over and manage
the cooperative’s affairs to address its worsening problem. CANORECO’s directors assailed the President’s
act, arguing that there is no provision in the Constitution or in a statute expressly, or even impliedly,
authorizing the President or his representatives to take over or order the take-over of electric cooperatives.
Issue:
Whether or not the President may validly constitute an ad hoc committee to take over and manage
the cooperative’s affairs.
Ruling:
No.Nothing in law supported the take-over of the management of the affairs of CANORECO, and the
suspension, if not removal, of the Board of Directors and the officers thereof. The power struggle constituted
an intra-cooperative dispute for which the Cooperative Code prescribes the proper remedy.
Neither can police power be invoked to clothe with validity the assailed Memorandum Order No. 409.
Police power is the power inherent in a government to enact laws, within constitutional limits, to promote the
order, safety, health, morals, and general welfare of society. It is lodged primarily in the legislature. By virtue
of a valid delegation of legislative power, it may also be exercised by the President and administrative boards,
as well as the lawmaking bodies on all municipal levels, including the barangay. Delegation of legislative
powers to the President is permitted in Sections 23(2) and 28(2) of Article VI of the Constitution.
Government is exempt from taxation
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, v. THE HONORABLE COURT OF

APPEALS, THE HONORABLE REGIONAL TRIAL COURT, BRANCH 169, MALABON, METRO MANILA, THE
MUNICIPALITY OF NAVOTAS, METRO MANILA, HON. FLORANTE M. BARREDO, in his official capacity as
Municipal Treasurer of Navotas, Metro Manila, and HON. NORBERTO E. AZARCON, in his capacity as
Chairman of the Public Auction Sale Committee of Navotas, Metro Manila, respondent.
G.R. No. 150301,October 2, 2007, AZCUNA, J.
An instrumentality of the national government is exempt from real estate tax but the exemption does
not extend to portions of property being leased to other persons.
Facts:
The Municipality of Navotas assessed real estate taxes allegedly due from the Philippine Fisheries
Development Authority (PFDA) on properties under its jurisdiction, management and operation located
inside the Navotas Fishing Port Complex (NFPC). PFDA refused to pay the taxes due, so the municipality
instituted an action sale of the NFPC. PFDA sued the Municipality of Navotas before the RTC and asked for an
injunction, claiming that the properties comprising the NFPC are owned by the Republic of the Philippines
and are, thus, exempt from taxation.
Issue:
Whether or not PFDA is liable to pay real estate tax.
Ruling:
No.Under the Local Government Code, a local government unit’s power to tax does not extend to the
levying of “taxes, fees, charges of any kind on the national government, its agencies and instrumentalities, and
local government units” among others.
In this case, PFDA, being an instrumentality of the national government, is exempt from real property
tax but the exemption does not extend to the portions of the NFPC that were leased to taxable or private
persons and entities for their beneficial use.Additionally, the land on which the NFPC property sits is a
reclaimed land, which belongs to the State. In Chavez v. Public Estates Authority, the Court declared that
reclaimed lands are lands of the public domain and cannot, without Congressional fiat, be subject of a sale,
public or private.
______________________________________________________________________________________________________________________________
CITY OF LAPU-LAPU, Petitioner, v. PHILIPPINE ECONOMIC ZONE AUTHORITY, Respondent.
PROVINCE OF BATAAN, REPRESENTED BY GOVERNOR ENRIQUE T. GARCIA, JR., AND EMERLINDA S.

TALENTO, IN HER CAPACITY AS PROVINCIAL TREASURER OF BATAAN, Petitioners, v. PHILIPPINE
ECONOMIC ZONE AUTHORITY, Respondent.
G.R. No. 184203,G.R. No. 187583, November 26, 2014, LEONEN, J.
PEZA is an instrumentality of the national government and real properties under its title are owned by
the Republic of the Philippines. Hence, it is exempt from real estate taxes.
Facts:
The City of Lapu-Lapu and the Province of Bataan separately assessed the Philippine Economic Zone
Authority (PEZA) of real property taxes with respect to the Mactan Economic Zone (for Lapu-Lapu) and the
Bataan Economic Zone (for Bataan). The argument against PEZA was that it was not exempt from real
property taxes, because it was not categorically exempted by law from payment of real property tax. In other
words, the local government units involved opined that that the Special Economic Zone Act should have
contained a provision specifically exempting PEZA from payment of real property tax.
Issue:
Whether or not PEZA is liable to pay real estate taxes.
Ruling:
In this case, it was held that PEZA is an instrumentality of the national government. It is not
integrated within the department framework but is an agency attached to the Department of Trade and
Industry. It should also be noted that PEZA’s predecessor, the EPZA, was declared non-profit in character
with all its revenues devoted for its development, improvement, and maintenance. Consistent with this non-
profit character, the EPZA was explicitly declared exempt from real property taxes under its charter (PD 66).
The non-profit character of the EPZA under Presidential Decree No. 66 is not inconsistent with any of the
powers, functions, and responsibilities of the PEZA. The EPZA’s non-profit character, including the EPZA’s
exemption from real property taxes, must be deemed assumed by the PEZA.
Lastly, the Court ruled that real properties under the PEZA’s title are owned by the Republic of the
Philippines, because they are located in publicly owned economic zones. Lapu-Lapu seeks to tax properties
located within the Mactan Economic Zone which was reserved by President Marcos. Reserved lands are lands
of the public domain set aside for settlement or public use, and for specific public purposes by virtue of a
presidential proclamation.As for the Bataan Economic Zone, the law consistently characterized the property
as a port.A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code classifies a port as
property of public dominion.
______________________________________________________________________________________________________________________________
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, v. COURT OF APPEALS, CITY OF

PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
G.R. No. 155650, July 20, 2006, Carpio, J.
The Manila International Airport Authority (MIAA) is not a GOCC. It is a government instrumentality,
and, hence, exempt from payment of real estate taxes.
Facts:
The Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) and administers the land, improvements and equipment therein. In 1997, the Office of the
Government Corporate Counsel (OGCC) issued an opinion, saying that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Sec. 21 of the MIAA Charters. MIAA
received notices of real estate tax delinquency, and later on, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer
for preliminary injunction or temporary restraining order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands
and Buildings. MIAA contended that Sec. 21 of its charter specifically exempts MIAA from real estate tax and
that it is also exempted under 193the Local Government Code, because the Airport Lands and Buildigs are
owned by the Republic. The City invoked Sec. 193 of the Local Government Code, which expressly withdrew
the tax exemption privileges of government-owned and-controlled corporations (GOCC) upon the effectivity
of the Local Government Code.
Issue:
Whether or not MIAA is exempt from real estate tax.
Ruling:
Yes. Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause
in Section 133 stating "[u]nless otherwise provided in this Code." This exception — which is an exception to
the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a)
of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic,
whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if
the beneficial use of such property is given to a taxable entity.
In the first place, MIAA is not a GOCC, because it is neither a stock nor a non-stock corporation.
Rather, it is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA
is vested with corporate powers.Also, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public dominion are owned by the State
or the Republic under Art. 420 of the Civil Code.
Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a
taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real property leased becomes subject to real estate tax.
Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Constitutional Limitations
Uniformity and Equality Clause
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SM PRIME HOLDINGS, INC. and FIRST ASIA
REALTY DEVELOPMENT CORPORATION, Respondents.
G.R. No. 183505, February 26, 2010, J. Castillo
The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg."
Facts:
The BIR assessed SM Prime Holdings Inc. (SM Prime) and First Asia Realty Development Corporation
(First Asia) for value added tax (VAT) deficiency on cinema ticket sales. Both of them filed a petition for
review with the CTA, arguing that a plain reading of Section 108 of the NIRC of 1997 shows that the gross
receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the
services subject to VAT. On the other hand, the CIR contended that the enumeration of services subject to VAT
in Section 108 of the NIRC is not exhaustive because it covers all sales of services unless exempted by law.
Issue:
Whether or not the gross receipts derived by operators or proprietors of cinema/theatre houses
from admission tickets are subject to VAT.
Ruling:
No. Although the enumeration under Sec. 108 is not exhaustive and it includes “the lease of motion
picture films, films, tapes and discs,” such activity is not the same as showing or exhibition of motion pictures
or films.
Also, there is a legislative intent not to impose VAT on persons already covered by amusement tax.
This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because
the VAT law was intended to replace the percentage tax on certain services. The mere fact that they are taxed
by the local government unit and not by the national government is immaterial. The Local Tax Code, in
transferring the power to tax gross receipts derived by cinema/theater operators or proprietor from
admission tickets to the local government, did not intend to treat cinema/theater houses as a separate class.
No distinction must, therefore, be made between the places of amusement taxed by the national government
and those taxed by the local government. To hold otherwise would impose an unreasonable burden on
cinema/theater houses operators or proprietors, who would be paying an additional 10% VAT on top of the
30% amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax.The power of taxation
is sometimes called also the power to destroy. Therefore, it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg." And, in order to maintain the general public's trust and
confidence in the Government this power must be used justly and not treacherously.
______________________________________________________________________________________________________________________________
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner, v. THE BUREAU OF

INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO BUÑAG, in his official capacity as
COMMISSIONER OF INTERNAL REVENUE, Public Respondent, JOHN DOE and JANE DOE, who are
persons acting for, in behalf, or under the authority of Respondent. Public and Private Respondents.
G.R. No. 172087, March 15, 2011,
Section 1 of Republic Act No. 9337, amending Section 27 (c) of the National Internal Revenue Code of
1997, by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of
government-owned and controlled corporations exempted from corporate income tax is valid and constitutional.
It is not violative of the equal protection and non-impairment clauses.
Facts:
Sec. 1 of RA 9337 amended Sec. 27(c) of the National Internal Revenue Code of 1997, thereby
excluding the Philippine Amusement and Gaming Corporation (PAGCOR) from those exempted from
corporate income tax. PAGCOR sought to nullify Sec. 1 of RA 9337, invoking Sections 1 (Due Process/Equal
Protection Clause) and 10 (Non-Impairment Clause) of Article III of the Constitution.
Issue:
Whether or not Sec. 1 of RA 9337 which removed PAGCOR’s exemption from corporate income tax
valid.
Ruling:
Yes. PAGCOR cannot find support in the equal protection clause, as the legislative records show that
PAGCOR’s exemption from payment of corporate income taxwas not made pursuant to a valid classification
based on substantial distinctions and the other requirements of a reasonable classification by legislative
bodies, so that the law may operate only on some, and not all, without violating the equal protection clause.
The legislative records show that the basis of the grant of exemption to PAGCOR from corporate income tax
was PAGCOR’s own request to be exempted.
It also cannot invoke the non-impairment clause. There is impairment if a subsequent law changes
the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.Section 11, Article XII of the Constitution
provides that no franchise or right shall be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires.In this case, PAGCOR
was granted a franchise to operate and maintain gambling casinos, clubs and other recreation or amusement
places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines. Under Section 11, Article XII of the Constitution,
PAGCOR’s franchise is subject to amendment, alteration or repeal by Congress such as the amendment under
Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of RA 9337, amending Sec. 27 (c) of RA No. 8424
by withdrawing the exemption of PAGCOR from corporate income tax, which may affect any benefits to
PAGCOR’s transactions with private parties, is not violative of the non-impairment clause of the Constitution.
However, PAGCOR is still exempt from VAT.

______________________________________________________________________________________________________________________________
PHILIPPINE TRUST COMPANY, PEOPLES BANK AND TRUST COMPANY, THE YOKOHAMA SPECIE BANK,
LTD., and THE CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA, plaintiffs-appellants, v. A.L.
YATCO, as Collector of Internal Revenue, defendant-appellee.
G.R. Nos. L-46255, 46256, 46259 and 46277, January 23, 1940, Laurel, J.
The rule of uniformity (in taxation) does not call for perfect uniformity or perfect equality, because this
is hardly attainable.
Facts:
Philippine Trust Company and other banks had been paying capital and deposit taxes under Sec.
1499 of the Revised Administrative Code of 1917. But later on, the Revised Administrative Code was
amended as to exempt the National City Bank of New York from payment of the same capital and deposit
taxes. Hence, Philippine Trust Company et al. paid under protest and sought to recover their payments and
challenged the constitutionality of the aforesaid exemption. They argued that although Sec. 1499 is of general
application and operates on all banks of the same kind doing business in the Philippines, the exemption of the
National City Bank of New York from the impositions therein specifically provided makes the law
discriminatory and violates the rule of uniformity in taxation.
Issue:
Whether or not the tax exemption given to the National City Bank of New York violates the rule of
uniformity in taxation.
Ruling:
No. A tax is considered uniform when it operates with the same force and effect in every place where
the subject may be found.Section 1499 of the Revised Administrative Code, as amended, applies uniformly to,
and operates on, all banks in the Philippines without distinction and discrimination, and if the National City
Bank of New York is exempted from its operation because it is a federal instrumentality subject only to the
authority of Congress, that alone could have the effect of rendering it violative of the rule of uniformity. In
every well-regulated and enlightened state or government, certain descriptions of property and also certain
institutions are exempt from taxation, but these exemptions have never been regarded as disturbing the rules
of taxation, even where the fundamental law had ordained that it should be uniform.The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly attainable.
The method of assessment prescribed in Sec. 1502 in relation to Sec. 1499 of the Revised
Administrative Code for domestic banks while different from that prescribed for foreign banks is permissible.
This conclusion flows from the legal proposition that “a state may impose a different rate of taxation upon a
foreign corporation for the privilege of doing business within the state than it applies to its own corporations
upon the franchise which the state grants in creating them.”
______________________________________________________________________________________________________________________________
RUFINO R. TAN, petitioner, v. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG,
as COMMISSIONER OF INTERNAL REVENUE, respondents
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES,
ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners, v. RAMON R. DEL ROSARIO, in his
capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 109289, G.R. No. 109446, October 3, 1994, Vitug, J.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Facts:
The petitioners assailed the validity of RA 7496, also known as the Simplified Net Income Taxation
Scheme (SNIT), amending certain provisions of the National Internal Revenue Code, for allegedly violating
Sec. 28(1). They argued that it desecrates the constitutional requirement that taxation "shall be uniform and
equitable" in that the law would now attempt to tax single proprietorships and professionals differently from
the manner it imposes the tax on corporations and partnerships.
Issue:
Whether or not RA 7946 violates the constitutional requirement that taxation “shall be uniform and
equitable.”
Ruling:
No. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial
and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future conditions, and (4) the classification applies equally well to all
those belonging to the same class. What may instead be perceived to be apparent from the amendatory law is
the legislative intent to increasingly shift the income tax system towards the schedular approach in the
income taxation of individual taxpayers and to maintain, by and large, the present global treatment on taxable
corporations. We certainly do not view this classification to be arbitrary and inappropriate.
The Court clarified the misconception that general professional partnerships are subject to the
payment of income tax or that there is a difference in the tax treatment between individuals engaged in
business or in the practice of their respective professions and partners in general professional partnerships.
The fact of the matter is that a general professional partnership, unlike an ordinary business partnership
(which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not
itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive shares of
partnership profits.
Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the above categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations. Except for few variances, such as in the application of
the "constructive receipt rule" in the derivation of income, the income tax approach is alike to both juridical
persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in
Congress during its deliberations on RA 7496, aforequoted, to cover corporations and partnerships which are
independently subject to the payment of income tax. "Exempt partnerships," upon the other hand, are not
similarly identified as corporations nor even considered as independent taxable entities for income tax
purposes. A general professional partnership is such an example.
______________________________________________________________________________________________________________________________
CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC., Petitioner, v. THE HON. EXECUTIVE
SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG,
and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondents.
G.R. No. 160756, March 9, 2010, Corona, J.
What distinguishes the real estate business from other manufacturing enterprises, for purposes of the
imposition of the CWT, is not their production processes but the prices of their goods sold and the number of
transactions involved.
Facts:
The Chamber of Real Estate and Builder’s Associations, Inc. (CREBA) assailed the validity of Sec. 27
(E) of RA 8414 which imposed minimum corporate income tax (MCIT) on corporations and revenue
regulations which imposed creditable withholding tax (CWT) on sales of real properties classified as ordinary
assets. According to CREBA, the aforesaid laws and regulations violate the due process clause because, like
the MCIT, the government collects income tax even when the net income has not yet been determined, and
that they contravene the equal protection clause as well because the CWT is being levied upon real estate
enterprises but not on other business enterprises, more particularly those in the manufacturing sector.
Issue:
Whether or not the imposition of the MCIT and CWT on income from sales of real properties
classified as ordinary assets is constitutional.
Ruling:
Yes. With respect to the MCIT, it is valid, because it is imposed on gross income which is arrived at by
deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being taxed.Furthermore, the MCIT is not an additional
tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is
suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation,
pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income.
With respect to the CWT, there is no violation of the equal protection clause even if the CWT is
imposed only on those engaged in the real estate business. The equal protection clause, as applied to taxation,
means that all persons belonging to the same class shall be taxed alike. It follows that the guaranty of the
equal protection of the laws is not violated by legislation based on a reasonable classification. Classification,
to be valid, must (1) rest on substantial distinctions; (2) be germane to the purpose of the law; (3) not be
limited to existing conditions only and (4) apply equally to all members of the same class. It follows that the
taxing power has the authority to make reasonable classifications for purposes of taxation. In this case,
CREBA fails to realize that what distinguishes the real estate business from other manufacturing enterprises,
for purposes of the imposition of the CWT, is not their production processes but the prices of their goods sold
and the number of transactions involved. The income from the sale of a real property is bigger and its
frequency of transaction limited, making it less cumbersome for the parties to comply with the withholding
tax scheme. On the other hand, each manufacturing enterprise may have tens of thousands of transactions
with several thousand customers every month involving both minimal and substantial amounts. To require
the customers of manufacturing enterprises, at present, to withhold the taxes on each of their transactions
with their tens or hundreds of suppliers may result in an inefficient and unmanageable system of taxation and
may well defeat the purpose of the withholding tax system.
______________________________________________________________________________________________________________________________
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial
co-guardians of JOSE ROXAS, petitioners, v. COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. L-25043, April 26, 1968, Bengzon, J.P., J.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the “hen that lays the golden egg.” And, in order to maintain the general
public's trust and confidence in the government, this power must be used justly and not treacherously.
Facts:
The partnership “Roxas y Compania” was formed by Antonio, Eduardo and Jose, all surnamed Roxas,
for the purpose of managing vast agricultural lands in Nasugbu, Batangas which they inherited from their
ascendants. At the conclusion of the Second World War, the tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually
occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed
estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their
landholdings. It turned out that the government had no sufficient funds to buy all the lands, but the Roxas
brothers nevertheless allowed the farmers to buy the lands by instalment. But then the CIR demanded from
Roxas y Cia. payment of real estate dealer’s tax for the sale made in favour of the farmers. The Roxas brothers
protested the assessment, arguing that gain derived from the sale of the Nasugbu farm lands is not an
ordinary gain and hence not subject to real estate dealer’s tax. But the CIR contended that Roxas y Cia. should
be considered a real estate dealer because it engaged in the business of selling real estate. The business
activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-
occupants on installment.
Issue:
Whether or not the sale in question should be subject to real estate dealer’s tax.
Ruling:
No. the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not
only in consonance with, but more in obedience to the request and pursuant to the policy of our Government
to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation
after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the
farmers at very reasonable terms and prices. However, the Government could not comply with its duty for
lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands
directly to the farmers in the same way and under the same terms as would have been the case had the
Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution
expressing the people's gratitude. Thus, Roxas y Cia. cannot be considered a real estate dealer for the sale in
question.
It does not conform with our sense of justice in the instant case for the government to persuade the
taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.
Note: While the Court said “Roxas y Cia. cannot be considered a real estate dealer for the sale in
question,” it did not rule that Roxas y Cia was not a real estate dealer.
______________________________________________________________________________________________________________________________
BRITISH AMERICAN TOBACCO, petitioner, v. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of
the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the
Bureau of Internal Revenue, respondents. Philip Morris Philippines Manufacturing, Inc., fortune
tobacco, corp., MIGHTY CORPORATION, and JT INTERNATIONAL, S.A., respondents-in-intervention.
G.R. No. 163583, August 20, 2008, Ynares-Santiago, J.
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal
protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both
present and future conditions; and (4) it applies equally to all those belonging to the same class.
Facts:
RA 8240 amended the National Internal Revenue Code to the effect that under Sec. 145, new brands
of cigarettes shall be taxed according to their current net retail price while existing or "old" brands shall be
taxed based on their net retail price as of October 1, 1996. British American Tobacco, which introduced into
the market new brands of cigarettes, assailed the amendment as well as regulations issued pursuant thereto
on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and
uniformity provisions of the Constitution. According to British American Tobacco,
Issue:
Whether or not Sec. 145 of the National Internal Revenue Code, particularly the “classification freeze
provision” and the regulations issued pursuant thereto violates the equal protection and uniformity
provisions of the Constitution.
Ruling:
No. A legislative classification that is reasonable does not offend the constitutional guaranty of the
equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests
on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to
both present and future conditions; and (4) it applies equally to all those belonging to the same class.
In this case, all the requisites are satisfied. The classification freeze provision was inserted in the law
for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of
the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand.
And with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly
applies also to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new
brand that will be introduced in the future. The classification is germane to the purpose of the law as it was
the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over
sin products while trying to balance the same with other interests. In particular, the questioned provision
addressed Congress’s administrative concerns regarding delegating too much authority to the DOF and BIR as
this will open the tax system to potential areas for abuse and corruption.
However, the revenue regulation empowering BIR to reclassify or update the classification of new
brands every two years or earlier is void, because such power is not found in Sec. 145. Unless expressly
granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which
cannot be usurped by the former.
______________________________________________________________________________________________________________________________
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants, v. THE MUNICIPAL BOARD OF THE CITY OF

MANILA, ET AL., defendants-appellants.
G.R. No. L-4817, May 26, 1954, Reyes, J.
As the seat of the National Government and with a population and volume of trade many times that of
any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than
their brethren in the provinces.
Facts:
The City of Manila has an ordinance which imposed a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment thereof. The ordinance was assailed by a group of
professionals composed of two lawyers, a medical practitioner, a public accountant, a dental surgeon and a
pharmacist. According to them, the ordinance is unjust and oppressive, because it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who have no
offices in the city but practice their profession therein are not subject to the tax.
Issue:
Whether or not the assailed ordinance of Manila is unjust and oppressive.
Ruling:
No. The ordinance imposes the tax upon every person "exercising" or "pursuing" — in the City of
Manila naturally — any one of the occupations named, but does not say that such person must have his office
in Manila. What constitutes exercise or pursuit of a profession in the city is a matter of judicial determination.
The argument against double taxation may not be invoked where one tax is imposed by the state and the
other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof.
Meanwhile, the group of professionals also took exception of the fact that while the law has
authorized Manila to impose the tax, it has withheld that authority from other chartered cities, not to mention
municipalities. But the Court said that such matter is peculiarly within the domain of the political
departments and the courts would do well not to encroach it. Moreover, as the seat of the National
Government and with a population and volume of trade many times that of any other Philippine city or
municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but
fair that the professionals in Manila be made to pay a higher occupation tax than their brethren in the
provinces.
______________________________________________________________________________________________________________________________
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee, v. M. SARMIENTO, ET AL., defendants-appellants.

G.R. No.L-3538, May 28, 1952, Tuason, J.
Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all
taxpayers belonging to one class were not treated alike.
Facts:
In December 29, 1941, Juan Luna Subdivision, Inc. (Juan Luna) issued a check drawn upon the
Philippine Trust Company (PhilTrustCo) in the amount of P2,210.52 to the City Treasurer of Manila as
payment for its land tax, which at that time as yet undetermined, so it was entered in the ledger as deposited
by the taxpayer. On February 1942 when the exact amount had been verified, which was P341.60, the balance
of P1,868.92 covered by a voucher was noted in the ledger as a credit to Juan Luna. Other than this, the
records of the City Treasurer's office do not show what was done with the check. But the check was deposited
with the PNB (which was the City Treasurer’s sole depository), and that it was presented by PNB to the
PhilTrustCo and was cashed by the drawee. The problem was that, after liberation, the City of Manila refused
to refund Juan Luna’s deposit or apply it to future taxes as might be found due. According to Juan Luna, he is
entitled to the whole amount of the check contending that taxes for the last semester of 1941 have been
remitted by Commonwealth Act 703, Sec. 1 of which provides “All land taxes and penalties due and payable
for the years nineteen hundred and forty-two nineteen hundred and forty-three nineteen hundred and forty-
four and fifty per cent of the tax due for nineteen hundred and forty-five, are hereby remitted. The land taxes
and penalties due and payable for the second semester of the year nineteen hundred and forty-one shall also
be remitted the if the remaining fifty per cent corresponding to the year nineteen hundred and forty-five shall
been paid on or before December thirty-first, nineteen hundred and forty-five.”
Issue:
Whether CA 703 covers taxes paid before its enactment or only to taxes which were still unpaid.
Ruling:
There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the
literal meaning of which taxes owned or owing. Note that the provision speaks of penalties, and note that
penalties accrue only when taxes are not paid on time. The word "remit" underlined by the appellant does not
help its theory, for to remit to desist or refrain from exacting, inflicting, or enforcing something as well as to
restore what has already been taken. We do not see that literal interpretation of Commonwealth Act No. 703
runs counter and does violence to its spirit and intention , nor do we think that such interpretation would be
"constitutionally bad" in that "it would unduly discriminate against taxpayers who had paid in favor of
delinquent taxpayers." The remission of taxes due and payable to the exclusion of taxes already collected does
not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack
as class legislation only if all taxpayers belonging to one class were not treated alike. They are not.
The confinement of the condonation to deliquent taxes was not without good reason. The property
owners who had paid their taxes before liberation and those who had not were not on the same footing on the
need of material relief. It is true that the ravages and devastations wrought by was operations had rendered
the bulk of the people destitute or impoverished and that it was this situation which prompted the passage of
Commonwealth Act No. 703. But it is also true that the taxpayers who had been in arrears in their obligation
would have to satisfy their liability with genuine currency, while the taxes paid during the occupation had
been satisfied in Japanese military notes, many of them at a time when those notes were well-nigh worthless.
To refund those taxes with the restored currency, even if the Government could afford to do so, would be
unduly to enrich many of the payers at a greater expense to the people at large. What is more, the process of
refunding would entail a tremendous amount of work and difficulties, what with the destruction of tax
records and the great number of claimants who would take advantage of such grace. It is said that the
plaintiff's check was in the nature of deposit, held trust by the City Treasurer, and that for this reason,
plaintiff's taxes are to be regarded as still due and payable. This argument is well taken but only to the extent
of P1,868.92. The amount of P341.60 as early as February 20, 1942, had been applied to the second half of
plaintiff's 1941 tax and become part of the general funds of the city treasury. From that date that tax was
legally and actually paid and settled.
______________________________________________________________________________________________________________________________
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, v. CITY OF BUTUAN,

MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
G.R. No. L-22814, August 28, 1968, Concepcion, C.J.
The ordinance in question is unjust and discriminatory, since only sales by “agents or consignees” of
outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.
Facts:
The City of Butuan enacted Ordinance 110 which imposed a tax on any person, association, etc. of
P0.10 per case of 24 bottles of Pepsi-Cola. Section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the
intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is,
however, imposed only upon "any agent and/or consignee of any person, association, partnership, company
or corporation engaged in selling ... soft drinks or carbonated drinks." The term agent and consignee was
specifically defined under Sec. 3-A. As a consequence, merchants engaged in the sale of soft drink or
carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer,
who, in the very nature of things, must be one engaged in business outside the City.Pursuant to such
ordinance, Pepsi-Cola Bottling Co. paid under protest, and assailed its validity, contending that it is highly
unjust and discriminatory among others.
Issue:
Whether or not Ordinance 110 is unjust and discriminatory.
Ruling:
Yes. It is violative of the uniformity required by the Constitution and the law therefor, since only sales
by “agents or consignees” of outside dealers would be subject to the tax. Sales by local dealers, not acting for
or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those
made by said agents or consignees of producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The
classification made in the exercise of this authority, to be valid, must, however, be reasonable and this
requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies,
not only to present conditions, but, also, to future conditions substantially identical to those of the present;
and (4) the classification applies equally all those who belong to the same class. These conditions are not fully
met by the ordinance in question. Indeed, if its purpose were merely to levy a burden upon the sale of soft
drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.
Non-impairment of Contract Clause
J. CASANOVAS, plaintiff-appellant, v. JNO. S. HORD, defendant-appellee.

G.R. No. 3473, March 22, 1907, Willard, J.
Concessions granted by the government may constitute contracts, the obligations of which must not be
impaired.
Facts:
By virtue of a royal decree, the Spanish Government granted to J. Casanova certain minesin the
Province of Ambos Camarines. The Collector of Internal Revenue imposed tax on the properties, contending
that they were valid perfected mine concessions and it falls within the provisions of Sec.134 of Act No. 1189
orthe Internal Revenue Act. Casanova paid under protest and brought action to recover the sum it paid.
Issue:
Whether or not Sec. 134 is valid.
Ruling:
No. There was a contract between the Spanish Government and Casanova, the obligation of which
contract was impaired by Sec. 134 thereby infringing the provisions of the aforesaid contract. It should also
be noted that there is a provision in the contract which expressly declares that no other taxes, aside from
certain taxes, shall be imposed on the mines.
______________________________________________________________________________________________________________________________
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. HON. FERDINAND J. MARCOS, in his capacity
as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU,
represented by its Mayor, HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA
G.R. No. 120082, September 11, 1996, J. Davide, Jr.
Tax exemption may be withdrawn at the pleasure of the taxing authority. The only exception to this rule
is where the exemption was granted to private parties based on material consideration of a mutual nature, which
then becomes contractual and is thus covered by the non-impairment clause of the Constitution.
Facts:
MCIAA was created by virtue of RA 6958 to manage the Mactan International Airport and the Lahug
Airport. Since the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes.
In Section 14 of its Charter provides that “the Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities.”
However, the Office of the Treasurer of the City of Cebu demanded payment for realty taxes on several
parcels of land belonging to it. MCIAA objected to such demand, citing Sec. 14. It asserted that it is an
instrumentality of the government which performs governmental functions, citing Sec. 133 of the Local
Government Code which puts limitations on the taxing powers of local government units. Sec. 133, LGC
provides that the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not
extend to the levy of... taxes, fees or charges of any kind on the National government, its agencies and
instrumentalities and local government units.
The Respondent City refused to cancel and set aside the realty tax account, insisting that the MCIAA is
a GOCC whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the LGC.
Issue:
Whether or notMCIAA is exempt from the payment of realty tax.
Ruling:
No.There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the
exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is
where the exemption was granted to private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.
The last paragraph of Section 234 of the Local Government Code unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons,
including government-owned or controlled corporations, except as provided in the said section, and
sinceMCISS is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from
such tax granted it by its charter has been withdrawn.
______________________________________________________________________________________________________________________________
ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL

REVENUE
G.R. No. 115455, October 30, 1995, J. Mendoza
The Contract Clause has never been thought as a limitation on the exercise of State’s power of taxation
save only where tax exemption has been granted for a valid consideration.
Facts:
Various petitioners seek to declare RA 7166 as unconstitutional as it seeks to widen the tax base of
the existing VAT system and enhance its administration by amending the National Internal Revenue Code.
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the
sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods
or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services.
CREBA contends that the imposition of the VAT on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law would violate the constitutional provision in the non-
impairment of contracts.
Issue:
Whether or not the imposition of VAT violate the non-impairment of contracts clause.
Ruling:
NO.It is enough to say that the parties to a contract cannot through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the State. For not only are the existing laws read in to
contracts in order to fix obligations between parties, but the reservation of essential attributes of sovereign
power is also read into contracts as basic postulate of the legal order. The policy of protecting contracts
against impairment presupposes the maintenance of a government which retains adequate authority to
secure the peace and good order of society.
The Contract Clause has never been thought as a limitation on the exercise of State’s power of
taxation save only where tax exemption has been granted for a valid consideration.
Due Process Clause
PHILIPPINE BANK OF COMMUNICATIONS v.COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX

APPEALS and COURT OF APPEALS
G.R. No. 112024 January 28, 1999, J. Quisumbing
Due process of law under the Constitution does not require judicial proceedings in tax cases. It is upon
taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered
with as little as possible.
Facts:
PBCom filed its quarterly income tax returns for the first and second quarters of 1985, paid the total
income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit
memos.Subsequently, however, PBCom suffered losses so that when it filed its Tax Returns for the year-
ended December 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax
payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in
1986. Subsequently, PBComrequested the CIR, among others, for a tax credit of P5,016,954.00 representing
the overpayment of taxes in the first and second quarters of 1985.
Thereafter, PBComfiled a claim for refund of creditable taxes withheld by their lessees from property
rentals in 1985 and 1986.
Pending the investigation of the CIR, PBCom instituted a Petition for Review on November 18, 1988
before the CTA. The CTA rendered a decision which, as stated on the outset, denied PBCom’srequest for a tax
refund or credit, on the ground that it was filed beyond the two-year reglementary period provided for by
law. The petitioner's claim for refund in 1986 was likewise denied on the assumption that it was
automatically credited by PBCom against its tax payment in the succeeding year.
Issue:
Whether or not PBCom’s request fot tax refund should be denied for being filed beyond the
reglementary period.
Ruling:
YES. The relaxation of revenue regulations is not warranted as it disregards the two-year
prescriptive period set by law.Basic is the principle that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common
weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry
on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes
levied should be summary and interfered with as little as possible.
From the same perspective, claims for refund or tax credit should be exercised within the time fixed
by law because the BIR being an administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
______________________________________________________________________________________________________________________________
LORENZO M. TAÑADA, ABRAHAM F. SARMIENTO, and MOVEMENT OF ATTORNEYS FOR

BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. [MABINI]v.HON. JUAN C. TUVERA, in his capacity
as Executive Assistant to the President, HON. JOAQUIN VENUS, in his capacity as Deputy Executive
Assistant to the President , MELQUIADES P. DE LA CRUZ, in his capacity as Director, Malacañang
Records Office, and FLORENDO S. PABLO, in his capacity as Director, Bureau of Printing,
G.R. No. L-63915, April 24, 1985, J. Escolin
Omission of the publication requirement would offend due process insofar as it would deny the public of
knowledge of the laws that are supposed to govern it. The conclusive presumption that every person knows the
law presupposes that the law has been published if the presumption is to have any legal justification at all.
Facts:
Petitioners in this case namely, Tañada, Sarmiento and MABINI demand the disclosure of a number
of presidential decrees which they claimed had not been published as required by law. The government
argued that while publication was necessary as a rule, it was not so when it was "otherwise provided," as
when the decrees themselves declared that they were to become “effective immediately upon their approval”.
In an earlier decision, the Court affirmed the necessity for the publication of “presidential issuances
which are of general application.”
Petitioners suggest that there should be no distinction between laws of general applicability and
those which are not; that publication means complete publication; and that the publication must be made
forthwith in the Official Gazette.
Issue:
Whether or not non-publication of laws violate due process.
Ruling:
YES.The clause "unless it is otherwise provided" in Article 2 of the Civil Code refers to the date of
effectivity and not to the requirement of publication itself, which cannot in any event be omitted. Publication
is indispensable in every case, but the legislature may in its discretion provide that the usual fifteen-day
period shall be shortened or extended. The term "laws" should refer to all laws and not only to those of
general application.
Omission of the publication requirement would offend due process insofar as it would deny the
public of knowledge of the laws that are supposed to govern it. The conclusive presumption that every person
knows the law presupposes that the law has been published if the presumption is to have any legal
justification at all.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC.

G.R. No. 185371, December 8, 2010, J. Mendoza
But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with
the prescribed procedure.
Facts:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star
Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment
notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro Star
assailed the issuance of the formal assessment notice as it averred that due process was not observed when it
was not issued a pre-assessment notice. Nevertheless, the CIR authorized the issuance of a Warrant of
Distraint and/or Levy against the properties of Metro Star.
Issue:
Whether or not due process was observed in the issuance of the formal assessment notice against
Metro Star.
Ruling:
No. The presumption that an assessment is duly issued is disregarded if the taxpayer denies ever
having received a tax assessment from the BIR. In such cases, it is incumbent upon the BIR to prove by
competent evidence that such notice was received by the addressee-taxpayer. The onus probandi was shifted
to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of
mail.
In the case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in
January 2002. The CIR could have simply presented the registry receipt or the certification from the
postmaster that it mailed the pre-assessment notice, but failed. Neither did it offer any explanation on why it
failed to comply with the requirement of service of the pre-assessment notice. The Supreme Court
emphasized that the sending of a pre-assessment notice is part of the due process requirement in the
issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the
tax authorities.
But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure.
Tax exemptions of Religious, Educational, and Charitable institutions
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG
MENS CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC.,
G.R. No. 124043, October 14, 1998, J. Panganiban
Tax exemption of charitable institutions under Art VI, Sec 28 of the 1987 covers property taxes only.
Moreover, YMCA is not an educational institution entitled to tax exemption Article XIV, Section 4, par. 3 of the
Constitution.
Facts:
YMCA is established as "a welfare, educational and charitable non-profit corporation." In 1980, YMCA
earned an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like
restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members.
In 1984, CIR issued an assessment to YMCA for P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages.
The YMCA protested the assessment on the ground that under Article VI, Sec. 28 of the Contitution,
charitable institutions are exempt from the payment of tax.
Issue:
Whether or not YMCA, and educational and charitable institution is exempted to pay income tax.
Ruling:
NO. Tax exemption of charitable institutions under Art VI, Sec 28 of the 1987 covers property taxes
only. What is exempted is not the institution itself. Those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for religious, charitable or educational purposes.
Thus, YMCA is exempt from the payment of property tax, but not income tax on the rentals from its property.
Moreover, YMCA is not an educational institution entitled to tax exemption Article XIV, Section 4,
par.3 of the Constitution. The Court has examined the "Amended Articles of Incorporation"and "By-Laws" of
the YMCA, but found nothing in them that even hints that it is a school or an educational institution.
The term "educational institution," when used in laws granting tax exemptions, refers to a "school
seminary, college or educational establishment.” YMCA cannot be deemed one of the educational institutions
covered by the constitutional provision under consideration.
______________________________________________________________________________________________________________________________
REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS
G.R. No. L-19201, June 16, 1965, J. Paredes
The exemption under Sec. 22 (3) of the Constitution is only from the payment of taxes assessed on the
properties enumerated, as property taxes, as contra-distinguished form excise taxes.The phrase "exempt from
taxation," as employed in the Constitution should not be interpreted to mean exemption from all kinds of taxes.
Facts:
M.B. EstateInc. donated P10,000.00 to Rev. Fr. Ruiz, parish priest of Victorias, Negros Occidental, for
the construction of a new Church in the locality. CIR issued an assessment for donee’s gift tax against the
Catholic Parish of Victorias, of which Rev. Fr. Lladoc was then the priest.
Fr. Lladoc lodged a protest and requested the withdrawal thereof, asserting that the assessment of
the gift tax, even against the Roman Catholic Church is a clear violation of the Constitution.
Issue:
Whether or not the donation for the construction of a new church is exempt from donee’s gift tax.
Ruling:
NO.Sec. 22 (3), Article VI of the Constitution exempts from taxation cemeteries, churches, and
parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the payment of taxes assessed on such properties
enumerated, as property taxes, as contra-distinguished form excise taxes. In the present case, what the
Collector assessed was a donee’s gift tax. The assessment was not on the properties themselves.
A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift
inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute
an impairment of the Constitution. The phrase "exempt from taxation," as employed in the Constitution
should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or
express grant of such privilege by law, in favor of Fr. Lladoc, the exemption herein must be denied.
______________________________________________________________________________________________________________________________
C. N. Hodges v The Municipal Board Of The City Of Iloilo, et al.

G.R. No. L-29059, December 15, 1987, J. Bautista Angelo
Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed
with the implied authority to devise ways and means to accomplish their collection in the most effective manner.
Facts:
In 1960, the Municipal Board of Iloilo City enacted Ordinance No. 33, pursuant to the provisions of
Republic Act No. 2264, known as the Local Autonomy Act requiring the payment of sales tax of ½ of 1% of the
selling price of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the
Motor Vehicles Office of the City of Iloilo unless the tax has been paid. It also expressly required that the
payment of the municipal tax shall be a requirement for registration and transfer of ownership. C.N. Hodges
engaged in buying and selling of second hand motor vehicles in the city, filed a petition for declaratory
judgment with the CFI of Iloilo assailing the ordinance as invalid for being passed in excess of the authority
conferred by law upon the Municipal Board.
The CFI rendered a decision which upheld that portion in the Ordinance, imposing of sales tax of ½ of
1% of the selling price, but considered invalid that portion prohibiting registration of the sale/transfer unless
such tax has not been paid.
Issue:
Whether or not the City of Iloilo is empowered to impose the tax.
Ruling:
Yes. The City of Iloilo is empowered (a) to impose Municipal licenses, taxes or fees upon any person
engaged in any occupation or business, or exercising any privilege in the City; (b) to regulate and impose
reasonable fees for services rendered or conducted within the City, and (c) to levy for public purposes just
and uniform taxes, licenses, or fees. Municipalities and municipal districts are prohibited from imposing any
percentage tax on sales or other taxes in any form on articles subject to specific tax, except gasoline, under the
provisions of the NIRC. The tax in question is in the form of percentage tax on the proceeds of the sale of a
motor vehicle. The prohibition against such tax as refer only to municipalities and municipal districts and
does not comprehend chartered cities like the City of Iloilo.
The requirement of the ordinance cannot be considered a tax, for the same is merely a coercive
measure to make the enforcement of the contemplated sales tax more effective. Well-settled is the principle
that taxes are imposed for the support of the government in return for the general advantage and protection
which the government affords to taxpayers. Taxes are the lifeblood of the government. It is imperative that
the power to impose them to be clothed with the implied authority to devise ways and means to accomplish
their collection in the most effective manner.
______________________________________________________________________________________________________________________________
Lung Center of the Philippines v. Quezon City

G.R. No. 144104, June 29, 2004, J. Callejo, Sr.
Even if The Lung Center of the Philippines is a charitable institution, those portions of its real property
that are leased to private entities are not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes.
Facts:
The Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of P D
No. 1823. It is the registered owner of a parcel of land, located in Quezon City. A big space at the ground floor
is being leased to private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they charge for their
professional services. A big portion on the right side is being leased for commercial purposes to a private
enterprise known as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. Aside from its income from paying patients,
the petitioner receives annual subsidies from the government.
Both the land and the hospital building of the petitioner were assessed for real property taxes by the
City Assessor of Quezon City. It filed a Claim for Exemption from real property taxes predicated on its claim
that it is a charitable institution. The petitioner’s request was denied.
Issue:
Whether the real properties of the Lung Center of the Philiippinesare exempt from real property
taxes.
Ruling:
Even if the Court held that petitioner is a charitable institution, those portions of its real property
that are leased to private entities are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes.
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other
portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of
the land is being leased to a private individual for her business enterprise under the business name “Elliptical
Orchids and Garden Center.” Indeed, the petitioner’s evidence shows that it collected P1,136,483.45 as rentals
in 1991 and P1,679,999.28 for 1992.
The portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from
real property taxes.
______________________________________________________________________________________________________________________________
ST. LUKE'S MEDICAL CENTER, INC. V. COMMISIONER ON INTERNAL REVENUE

G.R. NO. 195909, SEPTEMBER 26, 2012, J. CARPIO
For purposes of property tax exemption, the incidental generation of income of religious, educational
andcharitable institutionsis permissible because the test of exemption is the use of the property.
Facts:
St. Luke's Medical Center, Inc. is a hospital organized as a non-stock and non-profit corporation. BIR
assessed St. Luke's deficiency taxes.
Luke's filed an administrative protest with the BIR. The BIR claimed that St. Luke's was actually
operating for profit. It had total revenues ofapproximately P1.73 billion from patient services and only 13%
of its revenues came from charitable purposes. Moreover, the hospital's board of trustees, officers and
employees directly benefit from its profits and assets.
St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy
its income tax exemption.
Issue:
Whether or not St. Luke’s Medical Centeris a charitable institution exempt from tax property tax
despite earning profit.
Ruling:
Yes. For real property taxes, the incidental generation of income is permissible because the test
ofexemption is the use of the property. The Constitution provides that "charitable institutions, churches and
personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation." The test of exemption is not strictly a requirement on the intrinsic nature or
character of the institution. The test requires that the institution use the property in a certain way, i.e. for a
charitable purpose. Thus, the Court held in a case that the Lung Center of the Philippines did not lose its
charitable character when it used a portion of its lot for commercial purposes. The effect of failing to meet the
use requirement is simply to remove from the tax exemption that portion of the property not devoted to
charity.
St. Luke's however is not qualified for income tax exemption under Section 30, NIRC with respect to
revenues from paying patients, but such income is subject only to a tax rate of 10% under Section 27(B),
NIRC.
______________________________________________________________________________________________________________________________
Angeles University Foundation v. City of Angeles, et.al

G.R. No. 189999, June 27, 2012, J. Villarama, Jr.
Building permit fees are not impositions on property but on the activity subject of government
regulation.
Facts:
Angeles University Foundation filed with the Office of the Building Official an application for the
construction of an 11-story building in its main campus located at the Angeles City, Pampanga. Said office
then issued a Building Permit Fee Assessment. AUF claimed that it was exempt from payment of building
permit and locational clearance as they were granted exemptions before.
AUF paid under protest a sum of P826,662.99. AUF was issued the Building Permit. The City
Treasurer denied AUF’s formal request for a refund of its payment
Issue:
Whether or not Angeles University Foundation is exempt from payment of building permit and
related fees.
Ruling:
Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional
indigenous family dwellings. Not being expressly included in the enumeration petitioner’s claim for
exemption rests solely on its interpretation of the term “other charges imposed by the National Government”
in the tax exemption clause of R.A. No. 6055.
That “charges” in its ordinary meaning appears to be a general term which could cover a specific
“fee” does not support petitioner’s position that building permit fees are among those “other charges” from
which it was expressly exempted. Note that the “other charges” mentioned in Sec. 8 of R.A. No. 6055 is
qualified by the words “imposed by the Government on all x xx property used exclusively for the educational
activities of the foundation.” Building permit fees are not impositions on property but on the activity subject
of government regulation. While it may be argued that the fees relate to particular properties, i.e., buildings
and structures, they are actually imposed on certain activities the owner may conduct either to build such
structures or to repair, alter, renovate or demolish the same.
Free exercise of Religious Profession and Worship
AMERICAN BIBLE SOCIETY v. CITY OF MANILA

G.R. No. L-9637, April 30, 1957, J. Felix
The license fee is imposed upon ABS for its distribution and sale of bibles and other religious literature is
flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by
the constitutional liberties of press and religion and inevitably tends to suppress their exercise.
Facts:
American Bible Society is a foreign non-profit religious corporation doing business in the Philippines
through its Philippine agency by distributing and selling bibles and/or gospel portions thereof throughout
the Philippines and translating the same into several Philippine dialects.
The acting City Treasurer of the City of Manila informed ABS that it was conducting the business of
general merchandise without the necessary Mayor's permit and municipal license, in violation of city
ordinances.
ABS contends that Ordinances Nos. 2529 (license fees) and 3000(permit), as respectively amended,
are unconstitutional and illegal in so far as its society is concerned, because they provide for religious
censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution
and sale of bibles and other religious literature to the people of the Philippines.
Issue:
Whether or not the imposition of license fees on ABS violate the free exercise of religious profession.
Ruling:
YES. ABS is exempt from requirement of payment of license fees, but not exempt from Mayor’s
permit.
The license fee is imposed upon ABS for its distribution and sale of bibles and other religious
literature is a flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is
guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their
exercise. For this reason, the provisions of Ordinance No. 2529 (license fees), cannot be applied to ABS, for in
doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's
permit before any person can engage in any of the businesses, trades or occupations enumerated therein, it
does not impose any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of
religious practices.
______________________________________________________________________________________________________________________________

REVENUE
G.R. No. 115455, October 30, 1995, J. Mendoza
Granting petitioner’s argument that to tax the sale on religious articles would increase the prize and
reduce volume, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to disseminate religious doctrines
costly.
Facts:
Various petitioners seek todeclare RA 7166 as unconstitutional as it seeks to widen the tax base of
the existing VAT system and enhance its administration by amending the National Internal Revenue Code.
The VAT is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of
services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold,
bartered or exchanged or of the gross receipts from the sale or exchange of services.
One of the petitioners in this case is the Philippine Bible Society (PBS),a non-profit organization
engaged in the printing and distribution of bibles and other religious articles. Petitioner claim that the VAT
Law violate their freedom to exercise religion. Additionally, itclaims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those who
cannot afford to pay so that to tax the sales would be to increase the price, while reducing the volume of sale.
Issue:
Whether or not the VAT law violates the freedom to exercise religious profession and worship.
Ruling:
No. VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional
right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes.
To follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an
impermissible burden on the right of the preacher to make a sermon.
That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from
the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
STAGES OF TAXATION
Assessment and Collection
COMMISSIONER OF INTERNAL REVENUE v. UNITED SALVAGE AND TOWAGE (PHILS.), INC., G.R. No.
197515, July 2, 2014, J. Peralta
When CIR validly issues an assessment within the 3 year period to assess or commence an action for
collection without an assessment, it has another 3 years within which to collect the tax due by distraint, levy, or
court proceeding.
Facts:
USTP, engaged in the business of sub-contracting work for service contractors engaged in petroleum
operations in the Philippines, entered into various contracts and/or sub-contracts with several petroleum
service contractors for the supply of service vessels.
In the course of its operations, CIR found it liable for deficiency income tax,withholding tax, VAT and
DST for taxable years 1992,1994, 1997 and 1998. Through BIR officials, CIR issued demand letters with
attached assessment notices for withholding tax on compensation and expanded withholding tax (EWT)for
taxable years 1992, 1994 and 1998. The final assessment notice and demand letter on EWT for 1992 were
issued in 1996. USTP claims that CIR’s right to collect has already prescribed.
CIR argues that the 5-year prescriptive period to collect was interrupted when USTP filed its request
for reinvestigation in 1997 which was granted by CIR on 2001 through the issuance of. Thus, the period for
tax collection should have begun to run from the date of the reconsidered or modified assessment.
Issue:
Whether or not CIRstillhas the right to collect the assessed tax.
Ruling:
NO. The statute of limitations on assessment and collection of national internal taxes was shortened
from 5 years to 3 years by virtue of Batas PambansaBlg. 700. Thus, CIR has 3 years from the date of actual
filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the
collection thereof without an assessment. However, when it validly issues an assessment within the 3 year
period, it has another 3 years within which to collect the tax due by distraint, levy, or court proceeding.
The Preliminary Collection Letter for deficiency taxes for taxable year 1992 was only issued on 2002,
despite the fact that the FANs for the deficiency EWT and WTC for taxable year 1992 was issued as early as
January 1996. Clearly, 5 long years had already lapsed, beyond the 3-year prescriptive period, before
collection was pursued by CIR.Further, while the request for reinvestigation was made on March 1997, the
same was only acted upon by CIR on January, 2001, also beyond the 3 year statute of limitations reckoned
from January1996, notwithstanding the lack of impediment to rule upon such issue.
Alhambra Cigar & Cigarette Manufacturing Company v. Commissioner of Internal

Revenue
G.R. No. L-23226, November 28, 1967, J. Fernando
Whenever a controversy arises on the deductibility, for purposes of income tax, of certain items for
alleged compensation of officers of the taxpayer, two questions become material, namely: (a) Have `personal
services' been `actually rendered' by said officers? (b) In the affirmative case, what is the 'reasonable allowance'
therefore?
Facts:
A. P. Kuenzle and H. A. Streiff were directors and the President and Vice-President, respectively,
ofAlhambra Cigar. During the period between 1954-1957, theyreceived from the company P15,000 each as
salaries, plus various similar amounts in the form ofbonuses, director's fees, and commissions to
managers.Alhambra Cigar claimed as deductions from their corporate income the payments made to their
officers,being in the nature of “ordinary and necessary business expenses.”
However, the CIR held that Kuenzle and Streiff were entitled to asalary of only P6,000 each a year for,
and a bonus equal to the reduced bonus of W.Eggmann, and disallowing as deductions from the corporate
income the portionsof their salary and bonus in excess of said amounts. The CIR likewise disallowed, as
deductions, all thedirectors' fees and commissions paid by the company to Kuenzle and Streiff. The company
was thusheld liable for the alleged deficiency income taxes as a result of such disallowance.
Issue:
Whether or not Alhambra can validly deduct from its income tax the compensation of its officers and
directors.
Ruling:
NO. In the circumstances surrounding the case, CTA has correctly construed and applied Sec 30 of the
Tax Code. Alhambra Cigar seeks to justifythe increase in the salaries of Messrs. Kuenzle and Streiff on the
ground of increased costs of living. Thesaid officers of the company, are, however, non-residents of the
Philippines.
As to the disallowance of the commissions given to Kuenzle or Streiff, there isno evidence of any
particular service rendered by them to the company to warrant payment ofcommissions. As regards the
directors' fees, it is admitted that Messrs. Kuenzle and Streiff, the CTA cannot see anyjustification for the
payment of director's fees for coming to thePhilippines to visit their corporation once in two years. Being
non-resident President and Vice- Presidentof the corporation of which they are the controlling stockholders,
CTA is more inclined to believethat said commissions and directors' fees, payment of which was based on a
certain percentage of theannual profits of the corporation, are in the nature of dividend distributions.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v.THE STANLEY WORKS SALES (PHILS.), INCORPORATED

G.R. No. 187589, December 3, 2014, CJ. Sereno
A waiver of the statute of limitations, whether on assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the
BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The
waiver does not imply that the taxpayer relinquishes the right to invoke prescription unequivocally.
Facts:
On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed a "Waiver of the
Defense of Prescription Under the Statute of Limitations of the NIRC" (Waiver). Under the terms of the
Waiver, respondent waived its right to raise the defense of prescription insofar as the assessment and
collection of any deficiency taxes for the year ended December 31, 1989, but not after June 30, 1994. On
March 22, 2004, petitioner rendered a Decision ordering respondent to pay the deficiency income tax plus
interest that may have accrued.
CTA First Division found that although the assessment was made within the prescribed period, the
period within which petitioner may collect deficiency income taxes had already lapsed. It ruled that there was
no valid waiver of the statute of limitations since there was no conformity, either by respondent or his duly
authorized representative and there was no date of acceptance to show that both parties had agreed on the
Waiver before the expiration of the prescriptive period. However, petitioner argues that the actual approval
of the Waiver is apparent from the proceedings that were additionally conducted indetermining the propriety
of the subject assessment
Issue:
Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year
1989 has prescribed.
Ruling:
Yes. The statute of limitations on the right to assess and collect a tax means that once the period
established by law for the assessment and collection of taxes has lapsed, the government’s corresponding
right to enforce that action is barred by provision of law.
The period to assess and collect deficiency taxes may be extended only upon a written agreement
between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance
with Section 222 (b) of the NIRC. The Waiver was not a unilateral act of the taxpayer; hence, the BIR must act
on it, either by conforming to or by disagreeing with the extension.
______________________________________________________________________________________________________________________________
QUIRICO P. UNGAB v. HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance,
Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and JESUS
N. ACEBES, in his capacity as State Prosecutor
G.R. No.L-41919-24 May 30, 1980, J. Concepcion, Jr.
An assessment of the deficiency tax due is not necessary before the taxpayer can be prosecuted
criminally for wilful attempt to defeat and evade the income tax.
Facts:
BIR filed six (6) informations against the petitioner against QuiricoUngab, a banana saplings
producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a
motion to quash on the ground that the trial court has no jurisdiction to take cognizance of the case in view of
his pending protest against the assessment made by the BIR examiner. The trial court denied the motion
prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and
restraining order to annul and set aside the information filed.
Issue:
Whether or not the filing of the informations was precipitate and premature since the CIR has not yet
resolved his protests against the assessment of the Revenue District Officer.
Ruling:
No. The contention is without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a
criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of
courts of first instance. While there can be no civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution under the Code.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal
action for violation of law. 16 Obviously, the protest of the petitioner against the assessment of the District
Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly,
the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND DEVELOPMENT

CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO
G.R. No. 128315, June 29, 1999, J. Panganiban
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not
to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion,
not to issue an assessment.
Facts:
BIR Commissioner authorized its revenue to examine the books of accounts and other accounting
records of Pascor Realty and Development Corporation (PRDC) for the years ending 1986, 1987 and 1988.
The said examination resulted in a recommendation for the issuance of an assessment in the amounts of
P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the CIR filed a criminal complaint before DOJ against the PRDC, its president and
its treasurer, alleging evasion of taxes Private respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability which was however denied.
On respondent’s appeal to CTA, the petitioner filed a motion to dismiss since there was no formal assessment
issued yet. CTA ruled that the criminal complaint for tax evasion is the assessment issued, and that the letter
denial is the decision properly appealable to it.
Issue:
Whether or not the criminal complaint for tax evasion can be construed as an assessment.
Ruling:
No. Assessment is a notice duly sent to the taxpayer. It is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers
Affidavit merely contained a computation of respondents tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the taxpayers.
Although the revenue officers recommended the issuance of an assessment, the commissioner opted
instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ
that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal
Revenue had made an assessment.
______________________________________________________________________________________________________________________________
COMMISSION OF INTERNAL REVENUE, petitioner, vs. HANTEX TRADING CO., INC.

G.R. No. 136975. March 31, 2005, J. Callejo, Sr.
In the absence of the accounting records of a taxpayer, his tax liability may be determined by
estimation. CIR is not required to compute such tax liabilities with mathematical exactness. However, the rule
does not apply where the estimation is arrived at arbitrarily and capriciously.
Facts:
In 1989, an informant informed the BIR that Hantex Trading Co., Inc. underdeclared its importations
in the year 1987. The said informant based its report from another informant and the photocopied
documents provided to him. The photocopies were copies of Hantex’s Consumption Entries for the year 1987
where it was stated that Hantex’s importations amounted to Php 115 M. Hantex only declared Php 45 M.
As such, the Investigation Division, in determining Hantex’s alleged tax deficiency, relied on the
photocopied (xerox) copies submitted to them by their informant. It was found that Hantex’s importations
amounted to Php 105 M. Hantex contested the findings as it averred that the same was based on incompetent
evidence considering that it was based merely on photocopies which were not even authenticated or
certified.
Issue:
Whether or not it is proper to use the photocopies of the Consumption Entries of Hantex Trading Co.,
Inc. as proof of its tax liabilities.
Ruling:
No. The best evidence obtainable may consist of hearsay evidence, such as the testimony of third
parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the
investigation, hence, inadmissible in a regular proceeding in the regular courts. However, the best evidence
obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of
records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a
taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any
deficiency income or business taxes against a taxpayer.
The CIR acted arbitrarily and capriciously in relying on and giving weight to the machine copies of
the Consumption Entries in fixing the tax deficiency assessments against Hantex. Approximation in the
calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skilful
concealment is an invincible barrier to proof.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, as

liquidator of PARAMOUNT ACCEPTANCE CORPORATION,
G.R. No. 135446. September 23, 2003, J. Corona
Where there was a failure to effect a timely valid assessment, the period for filing a criminal case for tax
liabilities prescribed.
Facts:
After the dissolution of Paramount Acceptance Corporation(PAC) in 1989, liquidator BPI learned
from the newspapers that CIR filed certain criminal cases against the former president and treasurer of PAC
for wilful failure to pay the corporations final deficiency tax assessments for the years 1981 and 1982.
Respondent wrote to the petitioner, claiming that it was not aware of any assessment regarding any
tax deficiency owed by PAC, but that it was willing to compromise and pay the deficiency tax. At the same
time, respondent asked for the withdrawal of the criminal cases. In spite of the payment, petitioner continued
to prosecute the same. Hence, respondent now points that it is not liable to pay the tax assessmentssince
these were not sent to the proper address and asked for the refund of the P119,815.13 it paid under the
compromise agreement.
Issue:
Whether or not PAC is liable to pay the tax assessments
Ruling:
No. The prosecution failed to establish that PAC was in fact liable for deficiency taxes prior to its
liquidation in 1989. Assuming arguendo that there was a deficiency tax for which PAC was liable, petitioners
failed to make a valid assessment on it since the notice of assessment was sent to the PACs old (and therefore
improper) office address. PAC already indicated its new address in its 1986 tax return filed with the BIRs
Makati office. This notwithstanding, petitioner CIR sent the notice of assessment to PACs old business address
instead of its new address, which was also BPIs (PACs liquidator) office address.
Since there was a failure to effect a timely valid assessment, the period for filing a criminal case for
PACs tax liabilities had prescribed by the time petitioner instituted the criminal cases against its former
officers.
Payment
FIRST LEPANTO TAISHO INSURANCE CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 197117, April 10, 2013, J. Mendoza
The imposition of delinquency interest under Section 249 (c) (3) of the 1997 NIRC is proper, because
failure to pay the deficiency tax assessed within the time prescribed for its payment justifies the imposition of
interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and collected from the
date prescribed for its payment until full payment is made.
Facts:
On 29 December 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added and documentary stamp taxes for taxable
year 1997. Petitioner protested the said tax assessments.
Records reveal that petitioner failed to pay the deficiency taxes within thirty (30) days from receipt
of the demand letter, thus, delinquency interest accrued from such non-payment.
Issue:
Whether or not the petitioner is liable to pay the delinquency interest on its corresponding tax
deficiency.
Ruling:
Yes. It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed. Moreover, the CTA being a highly specialized court particularly created for the purpose of
reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great respect and
are generally upheld by this Court, unless there is a clear showing of a reversible error or an improvident
exercise of authority. Absent such errors, the challenged decision should be maintained.
PRINCIPLES OF A SOUND TAX SYSTEM
Fiscal Adequacy
FRANCISCO I. CHAVEZ v.JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in
her capacity as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY
OWNERS ASSOCIATION OF THE PHILIPPINES, INC
G.R. No. 76778, June 6, 1990, J. Medialdea
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenues must be adequate to meet government expenditures and their variations.
Facts:
Presidential Decree 464 Section 24 provides that every 5 years starting calendar year 1978, there
shall be a provincial or city general revision of real property assessments. The general revision was
completed in 1984.
President Corazon Aquino issued EO 73 on November 25, 1986, stating that beginning January 1,
1987, the 1984 assessments shall be the basis of real property taxes. Francisco Chavez, a taxpayer and
landowner, questioned the constitutionality of EO 73. He alleges that it will bring unreasonable increase in
real property taxes.
Issue:
Whether or not EO 73 is unconstitutional for it will bring unreasonable increase in real property
taxes.
Ruling:
No. The government recognized the financial burden to the taxpayers that will result from an
increase in real property taxes. Executive Order No. 1019 was issued on April 18, 1985, deferring the
implementation of the increase in real property taxes resulting from the revised real property assessments,
from January 1, 1985 to January 1, 1988.
Without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978
revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived
at several years ago, in disregard of the increases in the value of real properties that have occurred since then,
is not in consonance with a sound tax system.
Administrative Feasibility
RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE and THE COMMISSIONER
OF INTERNAL REVENUE
G.R. No. 193007, July 19, 2011, ABAD, J.
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system
should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax imposition invalid except to the extent that specific
constitutional or statutory limitations are impaired.Thus, even if the imposition of VAT on tollway operations
may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any
law or the Constitution.
Facts:
Renato Diaz and Aurora Ma.Timbolfiled this petition for declaratory relief assailing the validity of the
impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue on the collections of
tollwayoperators.Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include
toll fees within the meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not a sale of
services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was
never factored into the formula for computing toll fees, its imposition would violate the non-impairment
clause of the constitution. The Court issued a temporary restraining order enjoining the implementation of
the VAT.
Issue:
Whether or not the imposition of VAT on tollway operators is not administratively feasible and
cannot be implemented.
Ruling:
No. The Court cannot preempt the BIRs discretion on the matter, absent any clear violation of law or
the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or unconstitutional
would be premature. Although the transcript of the August 12, 2010 Senate hearing provides some clue as to
how the BIR intends to go about it, the facts pertaining to the matter are not sufficiently established for the
Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be enforced
must first be addressed to the BIR on whom the task of implementing tax laws primarily and exclusively rests.
DOCTRINES IN TAXATION
Prospectivity of Tax Laws
COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado

G.R. No. 154068, August 3, 2007, QUISUMBING, J.
After a thorough consideration of this matter, we find that we cannot give retroactive application to
Section 204(c) of the 1997 NIRC. We have to stress that tax laws are prospective in operation, unless the
language of the statute clearly provides otherwise.Revenue statutes are substantive laws and in no sense must
their application be equated with that of remedial laws. As well said in a prior case, revenue laws are not
intended to be liberally construed. Considering that taxes are the lifeblood of the government and in Holmes’s
memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented.
Facts:
Rosemarie Acosta and her husband filed with the BIR their Joint Individual Income Tax Return for
the year 1996. Later, respondent filed an amended return and a Non-Resident Citizen Income Tax Return and
paid the BIR P17,693.37 plus interests. In 1997, she filed another amended return indicating an overpayment.
Claiming that the income taxes withheld and paid by Intel Manufacturing Phils., Inc., her employer, and
respondent resulted in an overpayment, Acosta filed a petition for review with the Court of Tax Appeals. The
Commissioner of Internal Revenue moved to dismiss the petition for failure of respondent to file the
mandatory written claim for refund before the CIR. The CTA dismissed respondent’s petition. It ruled that
respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a
petition for review before it. The CA reversed the CTA and directed the latter to resolve respondent’s petition
for review. Applying Section 204(c) of the 1997 National Internal Revenue Code, the CA ruled that
respondent’s filing of an amended return indicating an overpayment was sufficient compliance with
therequirement of a written claim for refund.
Issue:
Whether or not the 1997 Tax Reform Act can be applied retroactively.
Ruling:
No. Petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved
refund of taxes withheld on a 1996 income. Respondent, however, points out that when the petition was filed
with the CTA on April 15, 1999, the 1997 NIRC was already in effect, hence, Section 204(c) should apply,
despite the fact that the refund being sought pertains to a 1996 income tax. Note that the issue on the
retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section 204(c) was not
found in Section 230 of the old Code.
We cannot agree with the Court of Appeals’ finding that the nature of the instant case calls for the
application of remedial laws. Revenue statutes are substantive laws and in no sense must their application be
equated with that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally
construed. Considering that taxes are the lifeblood of the government and in Holmes’s memorable metaphor,
the price we pay for civilization, tax laws must be faithfully and strictly implemented.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF APPEALS and
ALHAMBRA INDUSTRIES, INC.,respondents.
Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial
to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides for non-retroactivity of rulings.
Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it
would be assessed deficiency excise tax.
Facts:
Alhambra Industries, Inc. received a letter from the Commissioner of Internal Revenue assessing it
deficiency ad valorem tax. The former thru counsel filed a protest against the proposed assessment with a
request that the same be withdrawn and cancelled. However, its protest and request for cancellation were
denied stating that the decision was final. It requested for the reconsideration of petitioner's denial of its
protest. It filed a petition for review with the Court of Tax Appeals. The CIR denied its request for
reconsideration declaring again that its decision was final. It paid under protest the disputed ad valorem tax.
The CTA ordered the CIR to refund to private respondent the amount representing erroneously paid ad
valorem tax. It explained that the subject deficiency excise tax assessment resulted from private respondent’s
use of the computation mandated by BIR Ruling 473-88 as basis for computing the ad valorem tax was issued
to Insular-Yebana Tobacco Corporation. The CIR issued BIR Ruling 017-91 to Insular-Yebana Tobacco
Corporation revoking BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code. The CIR sought to
apply the revocation retroactively to private respondent's removals of cigarettes for the period starting 2
November 1990 to 22 January 1991 on the ground that private respondent allegedly acted in bad faith which
is an exception to the rule on non-retroactivity of BIR Rulings. On appeal, the CA affirmed the CTA holding
that the retroactive application of BIR Ruling 017-91 cannot be allowed.
Issue:
Whether or not BIR Ruling 473-88 should be given retroactive application.
Ruling:
No. The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner of Internal Revenue 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 in 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.
Without doubt, private respondent would be prejudiced by the retroactive application of the
revocation as it would be assessed deficiency excise tax.
Non-Retroactivity
COMMISSIONER OF INTERNAL REVENUE v. FILINVEST DEVELOPMENT CORPORATION

G. R. No. 163653, July 19, 2011, PEREZ, J.
COMMISSIONER OF INTERNAL REVENUE v. FILINVEST DEVELOPMENT CORPORATION
G. R. No. 167689, July 19, 2011, PEREZ, J.
Section 246 of the 1993 NIRC provides that rulings, circulars, rules and regulations promulgated by the
BIR have no retroactive application if to so apply them would be prejudicial to the taxpayers. Admittedly, this
rule does not apply: (a) where the taxpayer deliberately misstates or omits material facts from his return or in
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.
Facts:
Acting on the request of FLI, the BIR issued Ruling No. S-34-046-97 on February 3, 1997 finding that
the exchange of real properties is among those contemplated underSection 34 (c) (2) of the old National
Internal Revenue Code (NIRC). With the BIRs reiteration of the foregoing ruling upon the request for
clarification filed by FLI, the latter, together with FDC and FAI, complied with all the requirements imposed in
the ruling.In 2000, FDC received from the BIR a formal notice of demand to pay deficiency income and
documentary stamp taxes, plus interests and compromise penalties. FAI likewise received the same for
deficiency income taxes. FDC and FAI filed their respective requests for reconsideration/protest. In view of
the failure of the Commissioner of Internal Revenue to resolve their request for reconsideration/protest
within the aforesaid period, FDC and FAI filed a petition for review with the Court of Tax Appeals. The latter
rendered a decision cancelling the rest of deficiency income and documentary stamp taxes assessed against
FDC and FAI for the years 1996 and 1997 with the exception of the deficiency income tax on the interest
income FDC supposedly realized from the advances it extended in favor of its affiliates. On appeal made by
FDC, the CA reversed the decision of the CTA. With the denial of the partial motion for reconsideration filed
by CIR, the latter also filed the petition for review before the CA which was denied.
Issue:
Whether or not the principle on non-retroactivity of BIR rulings applies in this case.
Ruling:
No. In its appeal before the CA, the CIR argued that the BIR Ruling No. 116-98 dated 30 July 1998 was
later modified in BIR Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos evidencing
lendings or borrowings extended by a corporation to its affiliates are akin to promissory notes, hence, subject
to documentary stamp taxes. In brushing aside the foregoing argument, however, the CA applied Section 246
of the 1993 NIRC. Not being the taxpayer who, in the first instance, sought a ruling from the CIR, however,
FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings.
______________________________________________________________________________________________________________________________
SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S. ALVAREZ v. BPI FAMILY SAVINGS
BANK, INC.
G.R. No. 165617, February 25, 2011, VILLARAMA, JR.
BPI FAMILY SAVINGS BANK, INC. v. SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S.
ALVAREZ
G.R. No. 165837, February 25, 2011, VILLARAMA, JR., J.
The retroactive application of RR No. 4-99 is more consistent with the policy of aiding the exercise of the
right of redemption. As the Court of Tax Appeals concluded in one case, RR No. 4-99 has curbed the inequity of
imposing a capital gains tax even before the expiration of the redemption period since there is yet no transfer of
title and no profit or gain is realized by the mortgagor at the time of foreclosure sale but only upon expiration of
the redemption period. In his commentaries, De Leon expressed the view that while revenue regulations as a
general rule have no retroactive effect, if the revocation is due to the fact that the regulation is erroneous or
contrary to law, such revocation shall have retroactive operation as to affect past transactions, because a wrong
construction of the law cannot give rise to a vested right that can be invoked by a taxpayer.
Facts:
In 1995, Supreme Transliner, Inc. obtained a loan from BPI Family Savings Bank secured by a real
estate mortgage. For non-payment of the loan, the mortgage was extrajudicially foreclosed and the property
was sold to the bank as the highest bidder. Before the expiration of the one-year redemption period, the
mortgagors redeemed the property and a certificate of redemption was issued by the bank. The mortgagors
then filed a complaint against the bank to recover the allegedly unlawful and excessive charges before the
RTC of Lucena City. The trial court rendered its decisiondismissing the complaint and the bank’s
counterclaims. On appeal, the CA reversed the trial court and also denied the parties respective motions for
reconsideration.
Issue:
Whether or not the foreclosing mortgagee should pay capital gains tax upon execution of the
certificate of sale.
Ruling:
No. RR No. 4-99 issued on March 16, 1999 amends RMO No. 6-92 relative to the payment of capital
gains tax and documentary stamp tax on extrajudicial foreclosure sale of capital assets initiated by banks,
finance and insurance companies. It provides that in case the mortgagor exercises his right of redemption
within one year from the issuance of the certificate of sale, no capital gains tax shall be imposed because no
capital gains has been derived by the mortgagor and no sale or transfer of real property was realized.
Although the subject foreclosure sale and redemption took place before the effectivity of RR No. 4-99,
its provisions may be given retroactive effect in this case.
Considering that herein petitioners-mortgagors exercised their right of redemption before the
expiration of the statutory one-year period, petitioner bank is not liable to pay the capital gains tax due on the
extrajudicial foreclosure sale.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF APPEALS and
ALHAMBRA INDUSTRIES, INC.,respondents.
Section 246 of the Tax Code provides for non-retroactivity of rulings. Petitioner claims that private
respondent falls under the third exception in Sec. 246, i.e., that the taxpayer has acted in bad faith. Bad faith
imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of
fraud; a breach of a known duty through some motive of interest or ill will. We find no convincing evidence that
private respondents implementation of the computation mandated by BIR Ruling 473-88 was ill-motivated or
attended with a dishonest purpose.
Facts:
Alhambra Industries, Inc. received a letter from the Commissioner of Internal Revenue assessing it
deficiency ad valorem tax. The former thru counsel filed a protest against the proposed assessment with a
request that the same be withdrawn and cancelled. However, its protest and request for cancellation were
denied stating that the decision was final. It requested for the reconsideration of petitioner's denial of its
protest. It filed a petition for review with the Court of Tax Appeals. The CIR denied its request for
reconsideration declaring again that its decision was final. It paid under protest the disputed ad valorem tax.
The CTA ordered the CIR to refund to private respondent the amount representing erroneously paid ad
valorem tax. It explained that the subject deficiency excise tax assessment resulted from private respondent’s
use of the computation mandated by BIR Ruling 473-88 as basis for computing the ad valorem tax was issued
to Insular-Yebana Tobacco Corporation. The CIR issued BIR Ruling 017-91 to Insular-Yebana Tobacco
Corporation revoking BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code. The CIR sought to
apply the revocation retroactively to private respondent's removals of cigarettes for the period starting 2
November 1990 to 22 January 1991 on the ground that private respondent allegedly acted in bad faith which
is an exception to the rule on non-retroactivity of BIR Rulings. On appeal, the CA affirmed the CTA holding
that the retroactive application of BIR Ruling 017-91 cannot be allowed.
Issue:
Whether or not BIR Ruling 473-88 should be given retroactive application.
Ruling:
No. Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides for non-
retroactivity of rulings. Without doubt, private respondent would be prejudiced by the retroactive application
of the revocation as it would be assessed deficiency excise tax.
Petitioner claims that private respondent falls under the third exception in Sec. 246, i.e., that the
taxpayer has acted in bad faith. Bad faith imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest
or ill will. We find no convincing evidence that private respondents implementation of the computation
mandated by BIR Ruling 473-88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a
sign of good faith, private respondent immediately reverted to the computation mandated by BIR Ruling 017-
91 upon knowledge of its issuance on February 11, 1991.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED

G.R. No. L-66653, June 19, 1986, Paras, J.
Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of
Section 327 of the National Internal Revenue Code which provides for the non-retroactivity of rulings.
Facts:
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the

Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati,
Metro Manila. Sometime in March 1979, said branch office applied with the Central Bank for authority to
remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it
paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the
amount of P6,499,999.30. Claiming that the 15% profit remittance tax should have been computed on the
basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit
of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. Private respondent
then filed with respondent court, a petition for review, for the recovery of the above-mentioned amount of
P172,058.81. Respondent court rendered a decision granting a tax credit in favour of Respondent. Hence, the
case.
Issue:
Whether respondent is entitled to a refund because Memorandum Circular No. 8-82 dated March 17,
1982 had revoked and/or repealed the BIR ruling of January 21, 1980.
Ruling:
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the
Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. The prejudice that would result to private respondent
Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are
concerned, admittedly, Burroughs Limited does not fall under any of them.
______________________________________________________________________________________________________________________________
BRITISH AMERICAN TOBACCO v. JOSE ISIDRO N. CAMACHO

G.R. No. 163583, August 20, 2008, Ynares-Santiago, J.
With the changes in the law and administrative rulings, unfortunately for petitioner, this result will not
cause a downward reclassification of Lucky Strike. The ruling was made before the introduction or the
classification of the cigarette thus falling under the new ruling.
Facts:
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2
which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1,
1997. New brands or those registered after January 1, 1997, shall be initially assessed at their suggested retail
price until such time that the appropriate survey to determine their current net retail price is conducted. In
June 2001 British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and
Lucky Strike Menthol Lights cigarettes, with has a suggested retail price of P9.90 per pack. Pursuant to Sec.
145 (c), the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17,
2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others,
a periodic review every two years or earlier of the current net retail price of new brands and variants thereof
for the purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum
Order No. 6-2003 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing
current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations
No. 22-2003 was issued on August 8, 2003 to implement the revised tax classification of certain new brands
introduced in the market after January 1, 1997, based on the survey of their current net retail price. The
survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the
current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the
BIR recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail
price is above P10.00 per pack. Thus, it filed before the RTC of Makati a petition for injunction with prayer for
the issuance of a TRO and/or writ of preliminary injunction. The petition sought to enjoin the implementation
of Section 145 of the NIRC on the ground that they discriminate against new brands of cigarettes, in violation
of the equal protection and uniformity provisions of the Constitution.
While the petition was pending, RA 9334, took effect on January 1, 2005. Under RA 9334, the excise
tax due on petitioner’s products was increased to P25.00 per pack. Respondent Commissioner assessed
petitioner’s importation of 911,000 packs of Lucky Strike cigarettes at the increased tax rate of P25.00 per
pack, rendering it liable for taxes in the total sum of P22,775,000.00. Hence, petitioner petition for review,
assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward
classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the
continued use of Annex "D" as the tax base of existing brands of cigarettes gives undue protection to said
brands which are still taxed based on their price as of October 1996 notwithstanding that they are now sold
at the same or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as
Marlboro and Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at
the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack.
Issue:
Whether the Lucky Strike cigarette should be taxed at P26.06 per pack
Ruling:
Yes. With the changes in the law and administrative rulings, unfortunately for petitioner, this result
will not cause a downward reclassification of Lucky Strike. It will be recalled that petitioner introduced Lucky
Strike in June 2001. However, as admitted by petitioner itself, the BIR did not conduct the required market
survey within three months from product launch. As a result, Lucky Strike was never classified based on its
actual current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the
requisite market survey in order to fix the tax classification of Lucky Strike. In the meantime, Lucky Strike
was taxed based on its suggested net retail price of P9.90 per pack, which is within the high-priced tax
bracket. It was only after the lapse of two years or in 2003 that the BIR conducted a market survey which was
the first time that Lucky Strike’s actual current net retail price was surveyed and found to be from P10.34 to
P11.53 per pack, which is within the premium-priced tax bracket. The case of petitioner falls under a
situation where there was no reclassification based on its current net retail price which would have been
invalid as previously explained. Thus, we cannot grant petitioner’s prayer for a downward reclassification of
Lucky Strike because it was never reclassified by the BIR based on its actual current net retail price.
BIR Rulings or Administrative Rulings
PHILIPPINE BANK OF COMMUNICATIONS v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 112024, January 28, 1999, Quisumbing, J.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings which
are issued from time to time by the Commissioner of Internal Revenue. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to
apply and implement.
Facts:
Philippine Bank of Communications (PBCom) filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were
settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued
Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently,
however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended
December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax
payable for the year. But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986. Petitioner requested the Commissioner of Internal Revenue, among others, for a tax
credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property
rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent
Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before
the Court of Tax Appeals (CTA). The CTA rendered a decision which, as stated on the outset, denied the
request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was
filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986
amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by
PBCom against its tax payment in the succeeding year. Petitioner filed a Motion for Reconsideration but was
denied. Thereafter, PBCom filed a petition for review however the Court of Appeals affirmed in toto the CTA's
resolution dated July 20, 1993. Hence this petition.
Issue:
Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two
years to ten years.
Ruling:
Yes. Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular
states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and
that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten
(10) years under Article 1144 of the Civil Code.
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular created a
clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret
the law; rather it legislated guidelines contrary to the statute passed by Congress.
A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against
judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the Government in estoppel to correct
or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is
not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by
the Commissioner of Internal Revenue.
______________________________________________________________________________________________________________________________
TEAM ENERGY CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 190928, January 13, 2014, Peralta, J.
The court held that the taxpayer can file his administrative claim for refund or issuance of tax credit
certificate anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year
prescriptive period, his claim is still filed on time. The Commissioner will then have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day or does not decide it on that day, the
taxpayer still has 30 days to file his judicial claim with the CTA.
Facts:
Petitioner filed with the Bureau of Internal Revenue (BIR) its first to fourth quarterly value-added tax
(VAT) returns for the calendar year 2002. Subsequently, on December 22, 2003, petitioner filed an
administrative claim for refund of unutilized input VAT for calendar year 2002. However, due to respondent’s
inaction, petitioner elevated its claim before the CTA First Division on April 22, 2004. In his Answer,
respondent alleged that in an action for refund the burden of proof is on the taxpayer to establish its right to
refund and failure to sustain the burden is fatal to the claim for refund/credit. The CTA First Division
rendered judgment granting the tax credit in favour of petitioner. Not satisfied, respondent filed his Motion
for Partial Reconsideration against said decision, which the CTA First Division denied. Respondent filed a
Petition for Review with the CTA En Banc which affirmed the CTA En Banc affirmed the CTA First Division’s
decision with the modification that the refundable amount be reduced to P51,134,951.40. Unfazed, petitioner
filed a motion for reconsideration against said Decision, but the same was denied. Hence, the present petition.
Issue:
Whether or not petitioner timely filed its judicial claim for refund of input VAT for the first quarter of
2002.
Ruling:
Yes. It is clear that the two-year prescriptive period provided in Section 112 (A) of the NIRC of 1997,
as amended, should be counted not from the payment of the tax, but from the close of the taxable quarter
when the sales were made. This law is clear, plain and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain and unequivocal.
Here, there is no question that petitioner timely filed its administrative claim with the Bureau of
Internal Revenue within the required period. However, since its administrative claim was filed within the
two-year prescriptive period and its judicial claim was filed on the first day after the expiration of the 120-
day period granted to respondent, to decide on its claim, the court ruled that petitioner’s claim for refund for
the first quarter of 2002 should be granted.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED

G.R. No. L-66653, June 19, 1986, Paras, J.
Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of
Section 327 of the National Internal Revenue Code which provides for the non-retroactivity of rulings.
Facts:
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the

Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati,
Metro Manila. Sometime in March 1979, said branch office applied with the Central Bank for authority to
remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it
paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the
amount of P6,499,999.30. Claiming that the 15% profit remittance tax should have been computed on the
basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit
of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. Private respondent
then filed with respondent court, a petition for review, for the recovery of the above-mentioned amount of
P172,058.81. Respondent court rendered a decision granting a tax credit in favour of Respondent. Hence, the
case.
Issue:
Whether respondent is entitled to a refund because Memorandum Circular No. 8-82 dated March 17,
1982 had revoked and/or repealed the BIR ruling of January 21, 1980.
Ruling:
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the
Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. The prejudice that would result to private respondent
Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are
concerned, admittedly, Burroughs Limited does not fall under any of them.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. AICHI FORGING COMPANY OF ASIA, INC.

G.R. No. 184823, October 6, 2010, Del Castillo, J.
A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege,
or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or
illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his
compliance with the procedural due process as non-observance of the prescriptive periods within which to file
the administrative and the judicial claims would result in the denial of his claim.
Facts:
Respondent Aichi Forging Company of Asia, Inc. is registered with the Bureau of Internal Revenue
(BIR) as a Value-Added Tax (VAT) entity and its products, "close impression die steel forgings" and "tool and
dies," are registered with the Board of Investments (BOI) as a pioneer status. On September 30, 2004,
respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in
the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the
Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center. On even
date, respondent filed a Petition for Review with the CTA for the refund/credit of the same input VAT.
Respondent claims a tax refund/credit but the petitioner denied it alleging that it filed out of time. Trial
ensued, the Second Division of the CTA rendered a Decision partially granting respondent’s claim for
refund/credit. Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the
judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under
Sections 112(A) and 229 of the NIRC since the year 2004 was a leap year but it was denied. Petitioner thus
elevated the matter to the CTA En Banc via a Petition for Review which affirmed the Second Division’s
Decision. Hence, the instant petition.
Issue:
Whether respondent’s judicial and administrative claims for tax refund/credit were filed within the
two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.
Ruling:
The petition has merit. Unutilized input VAT must be claimed within two years after the close of the
taxable quarter when the sales were made. 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 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. Thus, in this case, the administrative claim was
timely filed applying the ruling in Commissioner of Internal Revenue v. Primetown Property Group, Inc., as
between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of
1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail following
the legal maxim, Lex posteriori derogat priori.
However, notwithstanding the timely filing of the administrative claim, the court said that the judicial
claim was prematurely filed. In this case, the administrative and the judicial claims were simultaneously filed
on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-
day period. For this reason, we find the filing of the judicial claim with the CTA premature. The 120-day
period is crucial in filing an appeal with the CTA. In fine, the premature filing of respondent’s claim for
refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by
the CTA.
Principle of exhaustion of Administrative Remedies in Taxation
SILICON PHILIPPINES, INC., (FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.) v.

G.R. No. 184360 & 184361, February 19, 2014, VILLARAMA, JR., J.
Resort to the courts prior to the expiration of the 120-day period is a patent violation of the doctrine of
exhaustion of administrative remedies, a ground for dismissing the judicial suit due to prematurity.
Facts:
Silicon filed with the CIR, claims for tax credit or refund which are attributable to zero-rated sales for
the period January 1, 1999 to March 31, 1999 and April 1, 2000 to June 30, 2000. Due to the inaction of the
CIR, Silicon filed a Petition for Review with the CTA on March 30, 2001, to toll the running of the two-year
prescriptive period. CTA denied both claims. Silicon appealed to CTA En Banc. It partially granted the petition.
Issue:
Whether the tax credit claims should be denied for filing it before the CTA during the pendency of the
claim before the CIR.
Ruling:
Yes, the language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that
“the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from the
date of submission of complete documents,” the law clearly gives the Commissioner 120 days within which to
decide the taxpayer’s claim. Philippine jurisprudence is awash with cases affirming and reiterating the
doctrine of exhaustion of administrative remedies. Such doctrine is basic and elementary.
______________________________________________________________________________________________________________________________
CITY OF LAPU-LAPU v. PHILIPPINE ECONOMIC ZONE AUTHORITY

G.R. No. 184203, November 26, 2014, LEONEN, J.
In case of an erroneous assessment, the taxpayer must exhaust the administrative remedies provided
under the Local Government Code before resorting to judicial action. Instead of a petition for declaratory relief,
the PEZA should have directly resorted to a judicial action. The PEZA should have filed a complaint for
injunction, the “appropriate ordinary civil action” to enjoin the City from enforcing its demand and collecting the
assessed taxes from the PEZA. After all, a declaratory judgment as to the PEZA’s tax-exempt status is useless
unless the City is enjoined from enforcing its demand.
Facts:
The Export Processing Zone Authority (EPZA) was created under PD 66. Section 21 of Presidential
Decree No. 66 declared the EPZA exempt from payment of real property taxes. PEZA was created by virtue of
Republic Act No. 7916. City of Lapu-Lapu demanded from the PEZA P32,912,350.08 in real property taxes for
the period from 1992 to 1998 on the PEZA’s properties. PEZA filed a petition for declaratory relief with the
Regional Trial Court from payment of real property taxes. Trial court held that it is exempt from real property
taxes. CA affirmed. The Province of Bataan likewise filed a suit to collect real property taxes. Trial court held
PEZA liable. CA granted the PEZA’s petition for certiorari. It set aside the trial court’s decision and nullified all
the Province’s proceedings with respect to the collection of real property taxes from the PEZA.
Issue:
Whether PEZA should have exhausted administrative remedies first and was the petition for
declaratory relief proper.
Ruling:
No, the trial court should have dismissed the PEZA’s petition for declaratory relief for lack of
jurisdiction.
Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer
depends on whether the assessment was erroneous or illegal.
An erroneous assessment “presupposes that the taxpayer is subject to the tax but is disputing the
correctness of the amount assessed.” With an erroneous assessment, the taxpayer claims that the local
assessor erred in determining any of the items for computing the real property tax, i.e., the value of the real
property or the portion thereof subject to tax and the proper assessment levels.
______________________________________________________________________________________________________________________________
BUREAU OF CUSTOMS v. THE HONORABLE AGNES VST DEVANADERA, ACTING SECRETARY,

DEPARTMENT OF JUSTICE; HONORABLE JOVENCITO R. ZUÑO, PEDRITO L. RANCES, ARMAN A. DE
ANDRES, PAUL CHI TING CO, KENNETH PUNDANERA, MANUEL T. CO, SALLY L. CO, STANLEY L. TAN,
ROCHELLE E. VICENCIO, LIZA R. MAGAWAY, JANICE L. CO, VIVENCIO ABAÑO, GREG YU, EDWIN
AGUSTIN, VICTOR D. PIAMONTE, UNIOIL PETROLEUM PHILIPPINES, INC., AND OILINK,
INTERNATIONAL, INC.
G.R. No. 193253, September 08, 2015, PERALTA, J.
Given that the petition for certiorari should have been filed with the CTA, the mistake committed by the
BOC in filing such petition before the CA may be excused. In this regard, Court takes note that nothing in R.A. No.
1125, as amended by R.A. No. 9282, indicates that a petition for certiorari under Rule 65 may be filed with the
CTA.
Facts:
Commissioner Morales, in a letter of even date, directed the President of OILINK to pay the BOC the
administrative fine of P2,764,859,304.80 for violation of CAO No. 4-2004, in relation to Section 2504 of the
TCCP when it refused to furnish the Audit Team copies of the required documents, despite repeated demands.
Unioil decided to withdrew its oil product from Oilink. Atty. Balmyrson M. Valdez, a member of the petitioner
BOC's Anti-Oil Smuggling Coordinating Committee that investigated the illegal withdrawal by UNIOIL of oil
products consigned to OILINK, valued at P181,988,627.00 with corresponding duties and taxes in the amount
of P35,507,597.00, accused the private respondents of violation of Sections 3601 and 3602, in relation to
Sections 2503 and 2530, paragraphs f and 1 (3), (4) and (5), of the TCCP. DOJ dismissed. BOC filed an MR
which was denied. BOC filed a petition for review before the CA which was denied due to procedural lapses.
Issue:
Whether there is a need to relax the strict compliance with procedural rules in order that the ends of
justice may be served.
Ruling:
Yes. Despite the enactment of R.A. No. 9282 on March 30, 2004, it was only about ten (10) years later
in the case of City of Manila v. Hon. Grecia-Cuerdo that the Court ruled that the authority of the CTA to take
cognizance of such petitions is included in the powers granted by the Constitution, as well as inherent in the
exercise of its appellate jurisdiction. While the rule on perfection of appeals cannot be classified as a difficult
question of law, mistake in the construction or application of a doubtful question of law, as in this case, may
be considered as a mistake of fact, excusing the BOC from the consequences of the erroneous filing of its
petition with the CA.
Double Taxation
THE MANUFACTURERS LIFE INSURANCE CO. v. BIBIANO L. MEER

G. R. No. L-2910, June 29, 1951, BENGZON, J.
What is important, the law does not contemplate premiums collected in the Philippines. It is enough that
the insurer is doing insurance business in the Philippines, irrespective of the place of its organization or
establishment.
Facts:
Manufacturers Life Insurance Company 's head office at Toronto, applied the provisions of the
automatic premium loan clauses; and the net amount of premiums so advanced or loaned totalled
P1,069,254.98 for failure of the insured to pay the corresponding premiums for one or more years. On this
sum the defendant Collector of Internal Revenue assessed P17,917.12—which Manulife paid in protest.
Issue:
Whether or not the collection of the alleged deficiency premium taxes constitutes double taxation?
Ruling:
No, in any event there is no constitutional prohibition against double taxation.
The appellant takes the position that as the advances of premiums were made in Toronto, such
premiums are deemed to have been paid there—not in the Philippines— and therefore those payments are
not subject to local taxation. The thesis overlooks the actual fact that the loans are made to policyholders in
the Philippines, who in turn pay therewith the premium to the insurer thru the Manila branch. Approval of
appellant's position will enable foreign insurers to evade the tax by contriving to require that premium
payments shall be made at their head offices.
Principle of Reciprocity
COMMISSIONER OF INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC., AND COURT OF APPEALS
G.R. No. 127105, June 25, 1999, GONZAGA-REYES, J.
Private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the
United States in respect of the taxes imposable upon royalties earned from sources within the Philippines as
those allowed to their German counterparts under the RP-Germany Tax Treaty.
Facts:
S.C. Johnson and Son, Inc., was obliged to pay royalties to SC Johnson and Son USA for the use of the
trademark or technology, based on a percentage of net sales and subjected the same to 25% withholding tax
on royalty payments. [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim
for refund of overpaid withholding tax on royalties, USA is only subject to 10% withholding tax pursuant to
the most-favored nation clause of the RP-US Tax Treaty (b) (iii)] in relation to the RP-West Germany Tax
Treaty. Commissioner did not act on said claim for refund. Private respondent S.C. Johnson & Son, Inc. (S.C.
Johnson) then filed a petition for review before the Court of Tax Appeals (CTA).CTA granted the refund.
Commissioner of Internal Revenue thus filed a petition for review with the Court of Appeals.
Issue:
Whether SC Johnson and Son, USA is entitled to the "most favored nation" tax rate of 10% on
royalties as provided in the RP-US tax treaty in relation to the RP-West Germany tax treaty.
Ruling:
No, the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply
only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid
under similar circumstances. This would mean that private respondent must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties
earned from sources within the Philippines as those allowed to their German counterparts under the RP-
Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting.
Article 24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other
hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double
taxation, does not provide for similar crediting of 20% of the gross amount of royalties paid.
Direct Duplicate Taxation
ERICSSON TELECOMMUNICATIONS, INC. v. CITY OF PASIG, REPRESENTED BY ITS CITY MAYOR, HON.
VICENTE P. EUSEBIO, ET AL.
G.R. No. 176667, November 22, 2007, AUSTRIA-MARTINEZ, J.
The imposition of local business tax based on petitioner’s gross revenue will inevitably result in the
constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for the
same thing – inasmuch as petitioner’s revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which local business tax has already been paid.
Facts:
The City of Pasig (respondent) issued another Notice of Assessment to Ericsson Telecommunications
Inc. on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001,
amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999
and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that the local business
tax should be based on gross receipts and not gross revenue. The city denied the protest. This prompted
petitioner to file a petition for review with the Regional Trial Court. RTC ruled in favor of Ericsson. CA
reversed.
Issue:
Whether the local business tax should be computed based on gross receipts.
Ruling:
Yes, the imposition of local business tax based on petitioner’s gross revenue will inevitably result in
the constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for
the same thing – inasmuch as petitioner’s revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which local business tax has already been paid.
______________________________________________________________________________________________________________________________
NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.; SUPPLIES
STATION, INC.; and HARDWARE WORKSHOP, INC., vs. ANTHONY ACEVEDO, in his capacity as THE
TREASURER OF MANILA; and THE CITY OF MANILA
G.R. No. 180651, July 30, 2014, BERSAMIN, J.
There is double taxation when the same taxpayer is taxed twice when he should be taxed only once for
the same purpose by the same taxing authority within the same jurisdiction during the same taxing period, and
the taxes are of the same kind or character.
Facts:
The City of Manila assessed and collected taxes from Nursery Care Corporation et al., pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue
Code of Manila. At the same time, the City of Manila imposed additional taxes upon the petitioners pursuant
to Section 21 of the Revenue Code of Manila (Tax on Business Subject to the Excise, Value-Added or
Percentage Taxes under the NIRC), as amended, as a condition for the renewal of their respective business
licenses for the year 1999. To comply under Section 21, the petitioners paid under protest and later on
requested the Office of the City Treasurer for the tax credit or refund of the local business taxes paid under
protest. They point out that although Section 21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement against the petitioners constituted double taxation because the
local business taxes under Section 15 and Section 17 of the Revenue Code of Manila were already being paid
by them.
Issue:
Whether or not there is Double Taxation.
Ruling:
Yes. Double taxation is taxing the same person twice by the same jurisdiction for the same thing.
Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject
matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation under both
Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter
– the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting
business within the City of Manila contribute to city revenues; (3) by the same taxing authority – petitioner
City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila;
(5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business
tax imposed on gross sales or receipts of the business. Based on the foregoing reasons, petitioner should not
have been subjected to taxes under Section 21 of the Manila Revenue Code for the fourth quarter of 2001,
considering that it had already been paying local business tax under Section 14 of the same ordinance.
Indirect Duplicate Taxation
LA SUERTE CIGAR AND CIGARETTE FACTORY, BATAAN CIGAR AND CIGARETTE FACTORY, INC., LA
PERLA INDUSTRIES, INC., PIONEER TOBACCO CORPORATION, INSULAR-YEBANA TOBACCO
CORPORATION, LAS BUENAS FABRICA DE CIGARILLOS, INC., LA DICHA CIGAR & CIGARETTE FACTORY,
CONSOLIDATED TOBACCO INDUSTRIES OF THE PHILIPPINES, INC., LA CAMPANA FABRICA DE
TABACOS, INC., ASSOCIATED ANGLO-AMERICAN TOBACCO CORPORATION, FORTUNE TOBACCO
CORPORATION, BAGUMBUHAY CIGAR AND CIGARETTE FACTORY, STANDARD CIGARETTE
MANUFACTURING CO., INC., and D.L. TERUEL TOBACCO CO., INC., v. COURT OF TAX APPEALS and HON.
MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue
G.R. No. L-36130, January 17, 1985, CUEVAS, J.
Prior to the amendment of said Act, Sec. 6 and 7 thereof, already covered the inspection of leaf tobacco,
partially manufactured tobacco or local sale and leaf tobacco and its products for export. If the intention of
Congress was to apply the amendment to those items already covered by Act 2613, then the word "leaf" should
have been easily included to modify the term "tobacco". The omission of the word "leaf" is a clear indication that
Congress intended to include within the purview of the law a new item; namely, manufactured tobacco products
for domestic sale and imported tobacco for factory use.
Facts:
Commissioner of Internal Revenue issued Memorandum Circular No. 30-67 requiring the inspection
of all locally produced leaf tobacco and partially manufactured tobacco intended for domestic sale, for factory
use or for export and the collection of the corresponding inspection fees. Pursuant to said Memorandum CIR
collected from La Suerte Cigar and Cigarette Factory the following inspection fees which the latter paid under
protest. Thereafter, La Suerte sought the refund of the aforementioned fees on the ground that the
amendatory portion reading " To require, whenever it shall be deemed expedient, the inspection of and
affixture of inspection labels to tobacco removed from province of its origin to another or other provinces
before such removal or to tobacco for domestic sale or factory use. " in Sec. 6(c) of Tobacco Inspection Law,
refers to leaf tobacco whether for local sale or factory use and does not include cigars and cigarettes for
domestic sale or consumption.
Issue:
Whether or not the phrase “or to tobacco for domestic sale or factory use" in Sec. 6(c) of Tobacco
Inspection Law, refers to leaf tobacco for local sale or factory use.
Ruling:
No. The word "leaf", although used to modify the term "tobacco" only in the Explanatory Note to then
House Bill No. 735 was omitted when the Bill was signed into law (RA 31). However, when General Circular
No. V-27 dated October 29, 1946 was issued to implement the provisions of Sections 6, 7 and 14 of Tobacco
Inspection Law, the word "leaf" was erroneously included therein, causing damage to the financial stability of
the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported leaf and
partially manufactured tobacco for factory use were not collected for more than twenty (20) years. As a result
thereof, the Philippine Tobacco Board, a policy making body of the National Government on Tobacco
Authority, adopted Resolution No. 2-67 interpreting the phrase "tobacco for domestic sale" as referring to
wholesale disposal of tobacco products by cigar and cigarettes factories to its dealers while the phrase
"tobacco for factory use" meant "imported leaf tobacco" intended for use by cigar and cigarette factories in
the manufacture of tobacco products. The assailed Revenue Memorandum Circular was issued to rectify the
error in General Circular No. V-27 and to interpret the phrase "tobacco for domestic sale or factory use".
______________________________________________________________________________________________________________________________
EUSEBIO VILLANUEVA, ET AL., v. CITY OF ILOILO

G.R. No. L-26521, December 28, 1968, CASTRO, J.
It is a well-settled rule that a license tax may be levied upon a business or occupation although the land
or property used in connection therewith is subject to property tax.
Facts:
The municipal believing, obviously, that with the passage of the Local Autonomy Act, it had acquired
the authority or power to enact Ordinance 11, series of 1960, “AN ORDINANCE IMPOSING MUNICIPAL
LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES”. By the virtue
of such oridnance, the City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the
years 1960-1964 the sum of P5,824.30. Eusebio Villanueva has likewise been paying real estate taxes on his
property. Spouses Villanueva et al. lodged a complaint praying that Ordinance 11, series of 1960, be declared
invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of
the equal protection clause of the Constitution, and that the City be ordered to refund the amounts collected
from them under the said ordinance.
Issue:
Whether Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
Ruling:
No. While it is true that the Villanueva et at. are taxable under the aforesaid provisions of the
National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to the same occupation, calling or activity by both the State and a political
subdivision thereof. It is a well-settled rule that a license tax may be levied upon a business or occupation
although the land or property used in connection therewith is subject to property tax. The State may collect
an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the
imposition of the latter kind of tax being in no sense a double tax.
In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of
tax. It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although
imposed by the same taxing authority, are not of the same kind or character.
__________________________________________________________________________________________________________________________
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, v. CITY OF MANILA, ET AL

G.R. No. L-16619, June 29, 1963, DIZON, J.:
It is already settled in this connection that both a license fee and a tax may be imposed on the same
business or occupation, or for selling the same article, this not being in violation of the rule against double
taxation
Facts:
Compania General de Tabacos de Filipinas or Tabacalera filed this action in the Court of First
Instance of Manila to recover from City of Manila and its Treasurer, Marcelino Sarmiento the sum of
P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the
third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees
prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer
of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.
Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the
license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos.
3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting
to the sum of P15,208.00 under the three ordinances mentioned heretofore is an overpayment made by
mistake, and therefore refundable.
Issue:
Whether the said ordinance is a tax.
Ruling:
No. Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to
engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of
Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors,
whether imported or locally manufactured. On the other hand, it is clear that Ordinances Nos. 3634, 3301,
and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures
enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such
merchandise. Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor
since it refers to all subjects of commerce and traffic; whatever is usually bought and sold in trade or market;
goods or wares bought and sold for gain; commodities or goods to trade; and commercial commodities in
general. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of
engaging in the sale of liquor and the three ordinances mentioned heretofore impose is a tax for revenue
purposes based on the sales made of the same article or merchandise. It is already settled in this connection
that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, this not being in violation of the rule against double taxation.
__________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, v. SOLIDBANK CORPORATION

G.R. No. 148191, November 25, 2003, PANGANIBAN, J.:
The institution of the withholding tax system does not alter the fact that the 20 percent portion of their
passive income constitutes part of their actual earnings, except that it is paid directly to the government on their
behalf in satisfaction of the 20 percent final income tax due on their passive incomes.
Facts:
For the calendar year 1995, Solidbank Corporation seasonably filed its Quarterly Percentage Tax
Returns reflecting gross receipts, pertaining to 5% Gross Receipts Tax rate in the total amount
of P1,474,691,693.44 with corresponding gross receipts tax payments. Thereafter, Solidbank alleges that the
total gross receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15 representing
gross receipts from passive income which was already subjected to 20% final withholding tax. Court of Tax
Appeals rendered a decision in Asian Bank Corporation vs. Commissioner of Internal Revenue, wherein it was
held that the 20% final withholding tax on a banks interest income should not form part of its taxable gross
receipts for purposes of computing the gross receipts tax. On the strength of the aforementioned decision,
Solidbank filed with the Bureau of Internal Revenue a letter-request for the refund or issuance of tax credit
certificate in the aggregate amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for
the year 1995. On the other hand, CIR claims that although the 20% FWT of Solidbank’s interest income was
not actually received by thembecause it was remitted directly to the government, the fact that the amount
redounded to the banks benefit makes it part of the taxable gross receipts in computing the 5% GRT.
Issue:
Whether or not the 20% final withholding tax on banks interest income forms part of the taxable
gross receipts in computing the 5% gross receipts tax.
Ruling:
Yes. Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent
final withholding tax (FWT). This tax is withheld at source and is thus not actually and physically received by
the banks, because it is paid directly to the government by the entities from which the banks derived the
income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (GRT) which is
imposed by the Tax Code on their gross receipts, including the passive income. Since the 20% FWT
is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is
subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction
of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20
percent portion of the passive income of banks would actually be paid to the banks and then remitted by
them to the government in payment of their income tax.
Tax Pyramiding
PEOPLE OF THE PHILIPPINES, vs. SANDIGANBAYAN (Fourth Division) and BIENVENIDO A. TAN JR.,
G.R. No. 152532,August 16, 2005, PANGANIBAN, J.:
The inclusion of the ad valorem tax in the tax base would only yield a circuitous manner of computation
that will never end in just one ad valorem tax figure properly chargeable against a taxpayer. This is tax
pyramiding, which has no basis either in fact or in law. It has been rejected by this Court, the legislature, and our
tax authorities, since 1922.The intent behind the law is clearly to obviate a tax imposed upon another tax.
Facts:
Pursuant to a Letter of Authority and Memorandum of Authority, an investigation was conducted by

Bureau of Internal Revenue examiners on the ad valorem and specific tax liabilities of San Miguel Corp.
covering the period from January 1, 1985 to March 31, 1986. If was revealed that SMC has a deficiency on
specific and ad valorem taxes totaling P342,616,217.88 (Specific Tax P 33,817,613.21 and Ad Valorem
Tax P308,798,604.67). BIR sent a letter to SMC demanding the payment of its deficiency tax. SMC protested
the assessment alleging that the said specific tax deficiency was already paid when the BIR approved SMCs
request that its excess ad valorem payments be applied to its specific tax balance and that the computation of
the ad valorem tax deficiency was erroneous since the BIR examiners disallowed the deduction of the price
differential (cost of freight from brewery to warehouse) and ad valorem tax. The protest was denied by the
BIR thru a letter and signed by Commissioner Bienvenido Tan, Jr. SMC offered the amount of P10,000,000.00
for the settlement of the assessment. This was concurred in a Memorandum and the recommendation was
approved by Commissioner Tan. Later on, Commissioner Tan was convicted for violation of Section 3(e) of
Anti-Graft and Corrupt Practices Act on the ground the court find that the compromise agreement to have
been entered into illegally.
Issue:
Whether or not the compromise agreement entered into by Commissioner Tan is proper.
Ruling:
Yes. Tan is well within his power to accept the P10 million compromise offer. This is actually
abatement not compromise as termed by SMC. Tan is actually prudent to accept the P10 million offer so as to
avoid a protracted and costly litigation. The CIR has the power to abate or cancel the whole or any unpaid
portion of a tax liability, inclusive of increments, if its assessment is excessive or erroneous, or if the
administration costs involved do not justify the collection of the amount due.
Ad valorem taxes and specific taxes are both excise taxes on alcohol products. The payment by
installment of a portion of the total specific tax deficiency of SMC, in addition to the application of its
and unused ad valorem tax deposits to the remaining portion, fully covered the total net specific
tax shortfall. BIR committed an oversight in failing to credit the amount of deposits to the specific
tax deficiency, as well as an error in crediting the same amount to a subsequent ad valorem tax liability.
In computing its ad valorem tax liabilities for the taxable period involved in the present case, SMC
deducted from its brewers gross selling price the specific tax, price differential, and ad valorem tax. The
BIR allowed the deduction of the specific tax, but not the deduction of the price differential and ad
valorem tax, thus increasing the tax base and consequently the ad valorem tax liabilities of SMC.. The
taxable period covered in this case is January 1, 1985 to March 31, 1986. Prior to the amendment of the
NIRC of 1977 by EO 22 on July 1, 1986, the ad valorem tax was not excluded from the brewers wholesale
price. But this does not mean that such tax cannot be deducted. A tax should not be imposed upon
another tax. This is tax pyramiding, which has no basis either in fact or in law. Private respondent has
shown by mathematical analysis that the inclusion of the ad valorem tax in the tax base would only yield
a circuitous manner of computation that will never end in just one ad valorem tax figure properly
chargeable against a taxpayer.
In fact, Commissioner of Internal Revenue v. American Rubber Co. held that a taxpayer cannot be
compelled to pay a tax on the tax itself. Having shown the appropriateness of deducting the ad valorem
tax from the tax base upon which it is computed, Commissioner Tan has shown prudence in exercising
his power under Section 204(2) of the NIRC of 1977 to abate an unjust, excessively assessed, and
unreasonable tax; and to accept the offer of P10 million, if only to avoid protracted and costly litigation.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. AMERICAN RUBBER COMPANY and COURT OF TAX

APPEALS
G.R. No. L-19667, November 29, 1966, REYES, J.B.L., J.
Separate itemization of the sales tax in the invoices was permitted to avoid the taxpayer being
compelled to pay a sales tax on the tax itself. It does not seem either just or proper that a step suggested by the
Internal Revenue authorities themselves to protect the taxpayer from paying a double tax should now be used to
block his action to recover taxes collected without legal sanction.
Facts:
American Rubber Company (ARC), a domestic corporation, was engaged in producing rubber. Its
products are known in the market as Preserved Latex, Pale Crepe No. 1, Pale Crepe No. 2, Ribbed Smoked
Sheets Nos. 1 and 2, Flat Bark Rubber, 2X Brown Crepe and 3X Brown Crepe. ARC sold its foregoing rubber
products locally and as prescribed by the Petitioner's regulations declared same for tax purposes which
respondent accordingly assessed. ARC paid, under protest, the corresponding sales taxes thereon claiming
exemption therefrom under Section 188 (b) of the National Internal Revenue Code.
After paying under protest, ARC claimed refund of the sales taxes paid by it on the ground that its
rubber products were agricultural products exempt from sales tax, and upon refusal of the Commissioner of
Internal Revenue, brought the case on appeal to the Court of Tax Appeals. The respondent Commissioner
interposed defenses, denying that ARC’s products were agricultural ones within the exemption. In its
decision, now under appeal, the Tax Court held Preserved Latex, Flat Bark Rubber, and 3X Brown Crepe to be
agricultural products, "because the labor employed in the processing thereof is agricultural labor", and hence,
the sales of such products were exempt from sales tax, but declared Pale Crepe No. 1, Ribbed Smoked Sheets
Nos. 1 and 3, as well as 2X Brown Crepe to be manufactured products, sales of which were subject to the tax.
Issue:
Whether ARC is entitled to recover the sales tax paid by it, but passed on to and paid by the buyers of
its products.
Ruling:
YES. The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of the
manufacturer, producer or importer, who is exclusively made liable for its timely payment. There is no proof
that the tax paid by plaintiff is the very money paid by its customers. Where the tax money paid by the
plaintiff came from is really no concern of the Government, but solely a matter between the plaintiff and its
customers. Anyway, once recovered, the plaintiff must hold the refund taxes in trust for the individual
purchasers who advanced payment thereof, and whose names must appear in plaintiff's records.
Finally, a more important reason that militates against extensive and indiscriminate application of
the Medina vs. City of Baguio ruling is that it would tend to perpetuate illegal taxation; for the individual
customers to whom the tax is ultimately shifted will ordinarily not care to sue for its recovery, in view of the
small amount paid by each and the high cost of litigation for the reclaiming of an illegal tax. In so far,
therefore, as it favors the imposition, collection and retention of illegal taxes, and encourages a multiplicity of
suits, the Tax Court's ruling under appeal violates morals and public policy.
Shifting of Tax Burden
COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION

The shifting of the tax burden by manufacturers-sellers is a business prerogative resulting from the
collective impact of market forces," and that it is "erroneous to construe Section 135(a) only as a prohibition
against the shifting by the manufacturers-sellers of petroleum products of the tax burden to international
carriers, for such construction will deprive the manufacturers-sellers of their business prerogative to determine
the prices at which they can sell their products."
Facts:
Pilipinas Shell argues that a plain reading of Section 135 of the NIRC reveals that it is the petroleum
products sold to international carriers which are exempt from excise tax for which reason no excise taxes are
deemed to have been due in the first place. It points out that excise tax being an indirect tax, Section 135 in
relation to Section 148 should be interpreted as referring to a tax exemption from the point of production and
removal from the place of production considering that it is only at that point that an excise tax is imposed.
Respondent also contends that our ruling that Section 135 only prohibits local petroleum manufacturers like
respondent from shifting the burden of excise tax to international carriers has adverse economic impact as it
severely curtails the domestic oil industry. Requiring local petroleum manufacturers to absorb the tax burden
in the sale of its products to international carriers is contrary to the State’s policy of "protecting gasoline
dealers and distributors from unfair and onerous trade conditions," and places them at a competitive
disadvantage since foreign oil producers, particularly those whose governments with which we have entered
into bilateral service agreements, are not subject to excise tax for the same transaction.
Issue:
Whether or not the respondent is exempt from tax.
Ruling:
YES. Under Section 129 of the NIRC, excise taxes are those applied to goods manufactured or
produced in the Philippines for domestic sale or consumption or for any other disposition and to things
imported. Excise taxes as used in our Tax Code fall under two types – (1) specific tax which is based on weight
or volume capacity and other physical unit of measurement, and (2) ad valorem tax which is based on selling
price or other specified value of the goods. Aviation fuel is subject to specific tax under Section 148 (g) which
attaches to said product "as soon as they are in existence as such."A tax is not excise where it does not subject
directly the produce or goods to tax but indirectly as an incident to, or in connection with, the business to be
taxed.
On the basis of Philippine Acetylene, we held that a tax exemption being enjoyed by the buyer cannot
be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the
manufacturer or seller. The excise tax imposed on petroleum products under Section 148 is the direct liability
of the manufacturer who cannot thus invoke the excise tax exemption granted to its buyers who are
international carriers. And following our pronouncement in Maceda v. Macarig, Jr. we further ruled that
Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax to the
international carriers who buy petroleum products from the local manufacturers. Said international carriers
are thus allowed to purchase the petroleum products without the excise tax component which otherwise
would have been added to the cost or price fixed by the local manufacturers or distributors/sellers.
______________________________________________________________________________________________________________________________
PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS
G.R. No. L-19707, August 17, 1967, CASTRO, J.
The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or
producer and not a tax on the purchaser except probably in a very remote and inconsequential sense.
Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible.
Facts:
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases.
During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the National
Power Corporation (NPC), an agency of the Philippine Government, and to the Voice of America (VOA) an
agency of the United States Government. The sales to the NPC amounted to P145, 866.70, while those to the
VOA amounted to P1, 683.00 on account of which the respondent Commission of Internal Revenue assessed
against, and demanded from, the petitioner the payment of P12, 910.60 as deficiency sales tax and surcharge.
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the
VOA are exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one,
appealed to the Court of Tax Appeals. The tax court ruled that the tax on the sale of articles or goods in
section 186 of the Code is a tax on the manufacturer and not on the buyer
Issue:
Whether or not the petitioner is exempt from sales tax.
Ruling:
NO. It is contended that the immunity thus given to the NPC would be impaired by the imposition of a
tax on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately
shifted by the latter to the former.
If a claim of exemption from sales tax based on state immunity cannot command assent, much less
can a claim resting on statutory grant. It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter
that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax
separately and defining taxable gross receipts as the amount received less the amount of the tax added,
merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that
the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's
obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing
else.
But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of
the tax is largely a matter of economics. Then, it can no longer be contended that a sales tax is a tax on the
purchaser.
Tax Avoidance
ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON v. ELLICE AGRO-INDUSTRIAL CORPORATION,
MARGO MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II,
ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, RODOLFO B. REYNO, RENATO S.
GONZALES, VICENTE C. NOLAN, NESTOR N. BATICULON
G.R. No. 156819, December 11, 2003, YNARES-SANTIAGO, J.
The legal right of a taxpayer to reduce the amount of what otherwise could be his taxes or altogether
avoid them, by means which the law permits, cannot be doubted.
Facts:
On March 28, 1979, the spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala,
Raul Gala, and Rita Benson, and their encargados VirgilioGaleon and Julian Jader formed and organized the
Ellice Agro-Industrial Corporation (Ellice).As payment for their subscriptions, the Gala spouses transferred
several parcels of land located in the provinces of Quezon and Laguna to Ellice. Subsequently, on September
16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, VirgilioGaleon and Julian Jader incorporated the Margo
Management and Development Corporation (Margo).
Petitioners want to disregard the separate juridical personalities of Ellice and Margo for the purpose
of treating all property purportedly owned by said corporations as property solely owned by the Gala
spouses.
The petitioners first contention in support of this theory is that the purposes for which Ellice and
Margo were organized should be declared as illegal and contrary to public policy. They claim that the
respondents never pursued exemption from land reform coverage in good faith and instead merely used the
corporations as tools to circumvent land reform laws and to avoid estate taxes.
Issue:
Whether or not Piercing of the Veils of Corporate Fiction of Ellice and Margo be applied for the
alleged illegal purposes and used only for estate planning.
Ruling:
NO. In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of
the allegedly illegal purposes that petitioners are complaining of. It is well to note that, if a corporation’s
purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether
the corporation has purposes other than those stated, and mandamus will lie to compel it to issue the
certificate of incorporation.
The petitioners’ allegation that Ellice and Margo were run without any of the typical corporate
formalities, even if true, would not merit the grant of any of the relief set forth in their prayer. We cannot
disregard the corporate entities of Ellice and Margo on this ground. At most, such allegations, if proven to be
true, should be addressed in an administrative case before the SEC.
______________________________________________________________________________________________________________________________
HENG TONG TEXTILES CO., INC. (before), PHILIP MANUFACTURING CORPORATION (now) v.
COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS
G.R. No. L-19737, August 26, 1968, MAKALINTAL, J.
An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a
taxpayer may diminish his liability by any means which the law permits. The intention to minimize taxes, when
used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than
mere preponderance, and cannot, be justified by mere speculation. This is because fraud is never lightly to be
presumed.
Facts:
In 1952 the then Collector of Internal Revenue assessed against the petitioner deficiency sales taxes
and surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58. The
assessment was appealed to the Board of Tax Appeals, where the case was transferred to the Court of Tax
Appeals upon its organization in 1954, and there was affirmed in its decision dated February 28, 1952.
The deficiency taxes in question were assessed on importations of textiles from abroad. The goods
were withdrawn from Customs by Pan-Asiatic Commercial Co., Inc., which paid, in the name of the petitioner,
the corresponding advance sales tax under section 183(b) of the Internal Revenue Code. The assessment for
the deficiency, however, was made against the petitioner, Heng Tong Textiles Co., Inc. on the ground that it
was the real importer of the goods and did not pay the taxes due on the basis of the gross selling prices
thereof.
Issue:
Whether or not the petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50%
on the deficiency.
Ruling:
NO. If anything, we perceive in the entire set-up an arrangement through which the sales taxes due
could be minimized, by having Pan-Asiatic Commercial, as indorsee of the goods, withdraw the same from
Customs upon payment of the advance sales tax and then execute a sale thereof to Heng Tong Textiles at cost,
or at a negligible profit. As it turned out, according to the Court of Tax Appeals, "the goods were made to
appear as having (thus) been sold ... so that no sales tax was paid by petitioner upon the sales of such goods ...
(and) neither, was any sales tax paid on the supposed sales of said goods by the Pan-Asiatic Commercial to
the petitioner as the sales were made apparently at cost." This is so because "during the period in question,"
the Court of Tax Appeals added, "the sales tax on sales of imported articles was based on the gross selling
price thereof, the advance sales tax paid upon removal of the goods from the customhouse being credited
against the tax on the actual gross selling price paid by the importer.
In our opinion, however, the arrangement resorted to does not by itself alone justify the penalty
imposed. Section 183 (a), paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253,
speaks of willful neglect to file the return or willful making of a false or fraudulent return. An attempt to
minimize one's tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish
his liability by any means which the law permits. The intention to minimize taxes, when used in the context of
fraud, must be proved to exist by clear and convincing evidence amounting to more than mere
preponderance, and cannot, be justified by mere speculation. This is because fraud is never lightly to be
presumed. Its actuation is not incompatible with good faith on its part, that is, with a genuine belief that by
indorsing the goods to Pan-Asiatic Commercial so that the latter could, as it did, take delivery thereof, Pan-
Asiatic Commercial would in law be considered the importer. It may even be true, as the petitioner insists,
that it was Pan-Asiatic Commercial that financed the importations but placed them in the name of the
petitioner as a matter of accommodation, in which case the element of fraud would be ruled out, although
from the legal viewpoint and as far as the right of the Government to collect the taxes was concerned the
petitioner was the real importer and hence must shoulder the tax burden.
______________________________________________________________________________________________________________________________
DELPHER TRADES CORPORATION, and DELPHIN PACHECO v. INTERMEDIATE APPELLATE COURT and
HYDRO PIPES PHILIPPINES, INC.
G.R. No. L-69259, January 26, 1988, GUTIERREZ, JR., J.
The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid
them, by means which the law permits, cannot be doubted.
Facts:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of
real estate in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila).On April 3,
1974, the said co-owners leased to Construction Components International Inc. the same property with the
right of first refusal granted to the lessee should the lessor decide to sell the property. On August 3, 1974,
lessee Construction Components International, Inc. assigned its rights and obligations under the contract of
lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin
Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of exchange was executed between lessors Delfin
and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter
the leased property together with another parcel of land also located in Malinta Estate, Valenzuela, Metro
Manila for 2,500 shares of stock of defendant corporation with a total value of P1, 500,000.00.
On the ground that it was not given the first option to buy the leased property pursuant to the lease
agreement, respondent Hydro Pipes Philippines, Inc., filed a complaint for reconveyance in its favor under
conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco
and Delphin Pacheco. Petitioner alleged that they refer to this scheme as "estate planning."
Issue:
Whether or not the scheme as "estate planning" is valid to avoid estate tax.
Ruling:
YES. The petitioners maintain that the Pachecos did not sell the property. They argue that there was
no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer
is not within the letter, or even spirit of the contract. On the other hand, the private respondent argues that
Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. It maintains that
there was actual transfer of ownership interests over the leased property when the same was transferred to
Delpher Trades Corporation in exchange for the latter's shares of stock.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also
belong to the same family group. Moreover, there was no attempt to state the true or current market value of
the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only
P14.00 a square meter.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their properties and at the same time save
on inheritance taxes. The records do not point to anything wrong or objectionable about this "estate
planning" scheme resorted to by the Pachecos.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot
be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a
third party. The Pacheco family merely changed their ownership from one form to another. The ownership
remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal
under the lease contract.
Tax Evasion
COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR., Represented by

Special Co-administrators Lorna Kapunan and Mario Luza Bautista
G.R. No. 147188, September 14, 2004, DAVIDE, JR., C.J.
Tax evasion is a scheme used outside of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.
Facts:
The case at bar stemmed from a Notice of Assessment sent to CIC by the CIR for deficiency income tax
arising from an alleged simulated sale of the Cibeles Building. CIC authorized Toda, President and owner of its
issued and outstanding capital stock, to sell the Cibeles Building and the 2 parcels of land on which the
building stands for an amount of not less than P90 million. Toda purportedly sold the property for P100
million to Rafael Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI)
for P200 million. These 2 transactions were evidenced by Deeds of Absolute Sale notarized on the same day
by the same notary public.For the sale of the property to RMI, Altonaga paid capital gains tax in the amount
of P10 million. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced
by a Deed of Sale of Shares of Stocks. Then Toda died. BIR sent an assessment notice and demand letter to the
CIC for deficiency income tax for the year 1989. The Estate ofToda thereafter filed a letter of protest.CIR
dismissed the protest, stating that a fraudulent scheme was deliberately perpetuated by the CIC wholly
owned and controlled by Toda by covering up the additional gain ofP100 million, which resulted in the
change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon
to an individual capital gains, thus evading the higher corporate income tax rate of 35%.
Issue:
Whether there is tax evasion.
Ruling:
Yes. Tax avoidance and tax evasion are the 2 most common ways used by taxpayers in escaping from
taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be
used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used
outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional
civil or criminal liabilities.Tax evasion connotes the integration of 3 factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith,"
"willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful.
All these factors are present in the instant case. It is significant to note that prior to the purported
sale of the Cibeles property by CIC to Altonaga, CIC received P40 million from RMI,and not from Altonaga.
That P40 million was debited by RMI and reflected in its trial balance as "other inv. – Cibeles Bldg." Also,
another P40 million was debited and reflected in RMI’s trial balance as "other inv. – Cibeles Bldg." This would
show that the real buyer of the properties was RMI, and not the intermediary Altonaga.The scheme resorted
to by CIC in making it appear that there were 2 sales of the subject properties, i.e., from CIC to Altonaga, and
then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid
especially that the transfer from him to RMI would then subject the income to only 5% individual capital
gains tax, and not the 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and
did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham,
and without business purpose and economic substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a
nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation
of tax liabilities than for legitimate business purposes constitutes one of tax evasion.
Generally, a sale or exchange of assets will have an income tax incidence only when it is
consummated. The incidence of taxation depends upon the substance of a transaction. The tax consequences
arising from gains from a sale of property are not finally to be determined solely by the means employed to
transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement
of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for
tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the
true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities,
would seriously impair the effective administration of the tax policies of Congress.
Exemption from Taxation
JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIÑO FOUNDATION INC., CENTER FOR
ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND JOINED
BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER MOTHER
MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER MOTHER
ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB," BETTY I. STRASSER, RUBY
C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL, CARMEN CAROMINA, LILIA G.
YARANON, DIANE MONDOC v. VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT
AUTHORITY(BCDA); JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO,
TUNTEX (B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF
ENVIRONMENT AND NATURAL RESOURCES
G. R. No. 119775, October 24, 2003, CARPIO MORALES, J.
Tax exemption cannot be implied as it must be categorically and unmistakably expressed.
Facts:
RA 7227 created BCDA and Subic Special Economic Zone (Subic SEZ). It granted the Subic SEZ
incentives ranging from tax and duty-free importations, exemption of businesses therein from local and
national taxes, to other hallmarks of a liberalized financial and business climate. And it expressly gave
authority to the President to create through executive proclamation, subject to the concurrence of the local
government units directly affected, other SEZ in the areas covered respectively by the Clark military
reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay. BCDA entered into a MOA
and Escrow Agreement with TUNTEX and ASIAWORLD. BCDA, TUNTEX and ASIAWORD executed a Joint
Venture Agreementwhereby they bound themselves to put up a joint venture company known as the Baguio
International Development and Management Corporation which would lease areas within Camp John Hay and
Poro Point for the purpose of turning such places into principal tourist and recreation spots, as originally
envisioned by the parties under their Memorandum of Agreement.
Issue:
Whether or not Proclamation No. 420 is constitutional by providing for national and local tax
exemption within and granting other economic incentives to the John Hay SEZ.
Ruling:
No. It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by
Congress with tax exemption, investment incentives and the like. There is no express extension of the
aforesaid benefits to other SEZs still to be created at the time via presidential proclamation.The
deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment privileges accorded
it under the law, as the following exchanges between our lawmakers show during the second reading of the
precursor bill of R.A. No. 7227 with respect to the investment policies that would govern Subic SEZ which are
now embodied in the aforesaid Section 12. While the grant of economic incentives may be essential to the
creation and success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be
sustained. The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the
same to the John Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay
SEZ find support in the other laws specified under Section 3 of Proclamation No. 420, which laws were
already extant before the issuance of the proclamation or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the
legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or
corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other
than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass
ordinances on exemption only from local taxes.The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax exemption must have the concurrence of a majority of
all the members of Congress.In the same vein, the other kinds of privileges extended to the John Hay SEZ are
by tradition and usage for Congress to legislate upon.Contrary to public respondents' suggestions, the
claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from
the language of the law on which it is based; it must be expressly granted in a statute stated in a language too
clear to be mistaken.Tax exemption cannot be implied as it must be categorically and unmistakably
expressed. If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUEv. PHILIPPINE ASSOCIATED SMELTING AND REFINING

CORPORATION
G.R. No. 186223, October 01, 2014, REYES, J.
If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund
even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred
only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.
Facts:
PASAR is a domestic corporation engaged in the business of processing, smelting, refining and
exporting refined copper cathodes and other copper products, and a registered Zone Export Enterprise with
the Export Processing Zone Authority (EPZA). PASAR uses petroleum products for its manufacturing and
other processes, and purchases it from local distributors, which import the same and pay the corresponding
excise taxes. The excise taxes paid are then passed on by the local distributors to its purchasers. In this
particular case, Petron passed on to PASAR the excise taxes it paid on the petroleum products bought by the
latter. PASAR filed a claim for refund and/or tax credit with the Office of the Regional Director of Region XIV,
which denied the same.
Issue:
Whether or not PASAR is the proper party to claim the tax credit/refund on the excise taxes paid on
the petroleum products purchased from Petron.
Ruling:
Yes. Section 17 of the EPZA Law certainly covers petroleum supplies used, directly or indirectly. The
supplies are not subject to customs and internal revenue laws and regulations, nor to local tax
ordinances. It is clear that Section 17(1) considers such supplies exempt even if they are used
indirectly, as they had been in this case.In this case, there is no dispute that petitioner is entitled to
exemption from the payment of excise taxes by virtue of its being an EPZA registered enterprise. As
stated by the CTA, the only thing left to be determined is whether or not petitioner is entitled to the amount
claimed for refund. Applying the foregoing rulings in this case, it is therefore undeniable that PASAR is
exempted from payment of excise taxes.
The rule that it is the statutory taxpayer which has the legal personality to file a claim for refundfinds
no applicability in this case. In Philippine Airlines, Inc. v. Commissioner of Internal Revenue(G.R. No. 198759,
2013),the Court distinguished between the kinds of exemption enjoyed by a claimant in order to determine
the propriety of a tax refund claim. "If the law confers an exemption from both direct or indirect taxes, a
claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On
the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is
regarded as the proper party to file the refund claim." In PASAR's case, Section 17 of P.D. No. 66, as affirmed
in Commissioner of Customs, specifically declared that supplies, including petroleum products, whether used
directly or indirectly, shall not be subject to internal revenue laws and regulations. Such exemption includes
the payment of excise taxes, which was passed on to PASAR by Petron. PASAR, therefore, is the proper party
to file a claim for refund.
Grounds of Exemption
BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWER CORPORATION

G.R. No. 152675, April 28, 2004, PUNO, J.
The removal of the blanket exclusion of government instrumentalities from local taxation is one of the
most significant provisions of the 1991 LGC. Section 193 of the LGC, an express and general repeal of all statutes
granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under
its Charter.
Facts:
Enron and NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC
and transfer its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement
provided that NPC shall be responsible for the payment of all taxes that may be imposed on the power station,
except income taxes and permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement
to BPC. BPC registered itself with the BOI as a pioneer enterprise. BOI issued a certificate of registration to
BPC as a pioneer enterprise entitled to a tax holiday for a period 6 years. The construction of the power
station in Batangas City was then completed. BPC operated the station. The City, thru its legal officer Deguito,
sent a letter to BPC demanding payment of business taxes and penalties, BPC refused to pay, citing its tax-
exempt status as a pioneer enterprise for 6 years under Section 133(g) of the LGC.
Issue:
Whether or not the NPC’s tax exemption privileges under its Charter were withdrawn by Section 193
of the LGC.
Ruling:
Yes. The effect of the LGC on the tax exemption privileges of the NPC has already been extensively
discussed and settled in the recent case of National Power Corporation v. City of Cabanatuan(2003, G.R.
No. 149110). In said case, this Court recognized the removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most significant provisions of the 1991
LGC. Specifically, we stressed that Section 193 of the LGC, an express and general repeal of all statutes
granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter.
To recall, prior to the enactment of the Local Government Code, various measures have been enacted
to promote local autonomy. Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax
base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve
development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory
control over personnel of national line agencies.Considered as the most revolutionary piece of legislation on
local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of
LGUs to include taxes which were prohibited by previous laws x xx.Consequently, when NPC assumed the tax
liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPC’s tax exemption
privileges had already been in effect for 6 months. Thus, while BPC remains to be the entity doing business in
said city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT
Agreement and the 1991 Local Government Code.
______________________________________________________________________________________________________________________________

REVENUE
G.R. No. 115455, October 30, 1995, MENDOZA, J.
Legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a
degree as are the courts. This Court does not sit as a third branch of the legislature, much less exercise a veto
power over legislation.
Facts:
RA 7716 did not "originate exclusively" in the House of Representatives(HR) as required by Art. VI,
§24 of the Constitution. Amendment by substitution, in the manner urged by Tolentino, concerns a mere
matter of form. In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively
in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the
exercise of this power, the Senate may propose an entirely new bill as a substitute measure. Now it is
contended by the PPI that by removing the exemption of the press from the VAT while maintaining those
granted to others, the law discriminates against the press. CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive
system of taxation. R.A. No. 7716 also violates Art. VI, §28(1) which provides that "The rule of taxation shall
be uniform and equitable. The Congress shall evolve a progressive system of taxation."Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite
policy of granting tax exemption to cooperatives that the present Constitution embodies provisions on
cooperatives.
Issue:
Whether or not RA 7716 is constitutional.

Ruling:
Yes. We have held that, as a general proposition, the press is not exempt from the taxing power of the
State and that what the constitutional guarantee of free press prohibits are laws which single out the press or
target a group belonging to the press for special treatment or which in any way discriminate against the press
on the basis of the content of the publication, and R.A. No. 7716 is none of these. It would suffice to say that
since the law granted the press a privilege, the law could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise
of its sovereign prerogative.
It is not true that P.D. No. 1955 singled out cooperatives by withdrawing their exemption from
income and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to withdraw the exemptions
and preferential treatments theretofore granted to private business enterprises in general, in view of the
economic crisis which then beset the nation. It is true that after P.D. No. 2008, §2 had restored the tax
exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, §1, but then again
cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives
applied to all, including government and private entities. The Constitution does not really require that
cooperatives be granted tax exemptions in order to promote their growth and viability. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no discrimination to cooperatives, no violation of any
constitutional policy can be charged.
Kinds of exemption
Express
COMMISSIONER OF INTERNAL REVENUE v. MANILA ELECRIC COMPANY (MERALCO)
G.R. No. 181459, June 9, 2014, PERALTA, J.
Section 32(B)(7)(a) of the Tax Code expressly provides that income derived by foreign governments
from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on
deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or
enjoying refinancing from foreign governments, and (iii) international or regional financial institutions
established by foreign governments are excluded from gross income.
Facts:
Meralco obtained several loans from NorddeutscheLandesbankGirozentrale (NORD/LB) Singapore

Branch. Under the agreements, the income received by NORD/LB, by way of respondent MERALCO’s interest
payments, shall be paid in full without deductions, as respondent MERALCO shall bear the obligation of
paying/remitting to the BIR the corresponding ten percent (10%) final withholding tax.Meralco paid the
corresponding tax. It then discovered that NORD/LB is a foreign government-owned financing institution in
Germany. It then filed a request for a BIR Ruling with the CIR with regard to the tax exempt status of
NORD/LB. The BIR issued a Ruling declaring that the interest payments made to NORD/LB Singapore Branch
are exempt from the ten percent (10%) final withholding tax, since it is a financing institution owned and
controlled by the foreign government of Germany.Meralco filed a claim for tax refund on the basis of the BIR
Ruling for exemption. The claim was denied by the BIR but granted by the CTA En Banc.
Issue:
Whether Meralco is entitled to a tax refund based on the exemption given by the BIR
Ruling:
Yes, Meralco is entitled to its claim for tax refund. Meralco was able to prove the factual basis for its
claim of tax refund. The certification issued by the Embassy of the Federal Republic of Germany, dated March
27, 2002, explicitly states that NORD/LB is owned by the State of Lower Saxony, Saxony-Anhalt and
Mecklenburg-Western Pomerania, and serves as a regional bank for the said states which offers support in
the public sector financing. Such certification was used by the Commissioner himself as basis in issuing BIR
Ruling No. DA-342-2003, which categorically declared that the interest income remitted by respondent
MERALCO to NORD/LB Singapore Branch is not subject to Philippine income tax, and accordingly, not subject
to ten percent (10%) withholding tax.Contrary to CIR’s view, the same constitutes a compelling basis for
establishing the tax exempt status of NORD/LB.
______________________________________________________________________________________________________________________________
WESTERN MINOLCO CORPORATION v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX

APPEALS
G.R. No. L-61632, August 16, 1983, GUTIERREZ, JR., J.
It bears repeating that the law looks with disfavor on tax exemptions and he who would seek to be thus
privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.
Facts:
Western Minolco was granted a Certificate of Qualification of Tax Exemption by the Bureau of Mines.
It borrowed funds from several financial institutions and paid the 35% transaction tax. It then applied for a
refund of the amount of tax paid alleging that it was not liable to pay the transaction tax by virtue of the
Certificate issued in accordance with the Mining Act. The CIR denied the claim for refund. Before the CTA, the
CIR argued that the exemption under the Mining Act relates to importations of machines and equipment
while the transaction tax was levied on transactions pertaining to commercial papers. Western Minolco
alleged that the tax was paid in the nature of a business tax and it was exempt from such under the Mining
Law. The CTA denied the exemption
Issue:
Whether Western Minolco is exempt from the 35% transaction tax
Ruling:
No, it is not exempt from the 35% transaction tax. Western Minolco Corporation failed to justify its
claimed exemption from the transaction tax. The transaction tax paid was not actually imposed upon it in the
conduct of its mining business or in the importation of machinery, spare parts and or equipment listed in the
stamped "ANNEX I" of its certificate of qualification for tax exemption and which are indispensable in the
operation and used exclusively on its mineral land.The 35% transaction tax is an income tax on interest
earnings to the lenders or placers. The latter are actually the taxpayers. Western Minolco merely withheld the
tax before paying to the financial institutions the interests earned by them and later remitted the same to the
CIR.
Implied or by Inference
YARANON, DIANE MONDOC v.VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT
AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX
(B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES
Tax exemption cannot be implied as it must be categorically and unmistakably expressed.
Facts:
RA 7227 created the BCDA and gave it the power to create a special economic zone (SEZ) in Camp
John Hay. It also created the Subic SEZ which exemption businesses therein from local and national taxes.
President Ramos then issued Proclamation No. 420 which established a SEZ on a portion of Camp John Hay.
Petitioners challenged the constitutionality of the proclamation as it grants certain tax exemptions, like that
of that granted Subic SEZ, which can only be granted by the legislature as it was not expressly provided under
RA 7227.
Issue:
Whether the RA 7227 granted a similar tax exemption given to Subic SEZ to yet to be established
Special Economic Zones
Ruling:
No, the law did not provide a similar tax exemption. It is clear that under Section 12 of R.A. No. 7227
it is only the Subic SEZ which was granted by Congress with tax exemption, investment incentives and the
like. There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via
presidential proclamation.While the grant of economic incentives may be essential to the creation and
success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The
incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the
John Hay SEZ finds no support therein.
The nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless
limited by a provision of the state constitution, that has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress,
the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on
exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitution's imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of Congress.The
clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably
expressed.If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
Nature of Tax Exemption
FELS ENERGY, INC., v.THE PROVINCE OF BATANGAS andTHE OFFICE OF THE PROVINCIAL ASSESSOR OF
BATANGAS
G.R. No. 168557, February 16, 2007
Taxation is the rule and exemption is the exception.

Facts:
NPC entered into a lease contract with Polar Energy over diesel engine power barges moored at
Balayan Bay, Batangas. Polar assigned its rights to FELS. FELS then received an assessment of real property
taxes on the power barges from the Provincial Assessor. FELS referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real estate taxes under the lease agreement. The Local Board of
Assessment Appeals ruled that the power barges constitute real property for taxation purposes because they
were installed at a specific location with permanency. As the owner of the barges, FELS, a private corporation,
is the one being taxed, not NPC and hence liable to pay the real property taxes to the local government. The
exemption of NPC from real property taxes cannot extend to FELS. The Central BAA eventually affirmed the
decision. The CA denied FELS’s appeal.
Issue:
Whether the power barges are exempt from real estate tax under the Local Government Code
Ruling:
No, the power barges are not exempt from real estate tax. The barges are considered real property
subject to real property tax. Taxation is the rule and exemption is the exception.The law does not look with
favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted. Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we
hold that FELS is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The
privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and
does not bind a third person not privy thereto, in this case, the Province of Batangas.
______________________________________________________________________________________________________________________________
ARTURO M. TOLENTINO v. SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. 115455, August 25, 1994, MENDOZA, J.
The removal of the tax exemption was not to discriminate between broadcast and press media but to
effect the withdrawal of the exemption as mandated by the law.
Facts:
The consolidated cases challenge the constitutionality of RA 7716, a law restructuring the VAT
System. The Philippine Press Institute questioned the withdrawal of the exemption previously granted for the
printing, publication and sale of books newspapers, magazines, etc. as an abridgment of press freedom and
discrimination from broadcast media.
Issue:
Whether RA 7716, in so far as it withdrew the tax exemption, is unconstitutional
Ruling:
No, the law is not unconstitutional. If the press is now required to pay a value-added tax on its
transactions, it is not because it is being singled out, much less targeted, for special treatment but only
because of the removal of the exemption previously granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions, likewise previously granted exemption, have been delisted
as part of the scheme to expand the base and the scope of the VAT system. The law would perhaps be open to
the charge of discriminatory treatment if the only privilege withdrawn had been that granted to the press. But
that is not the case.
______________________________________________________________________________________________________________________________
THE PROVINCE OF MISAMIS ORIENTAL, represented by its PROVINCIAL TREASURER v. CAGAYAN

ELECTRIC POWER AND LIGHT COMPANY, INC. (CEPALCO)
G.R No. L-45335, January 12, 1990
The “in-lieu-of-all-taxes” clause is considered as an exempting clause from the payment of local taxes.
Facts:
CEPALCO was granted a franchise under RA 3247 and RA 6020 to install, operate and maintain an
electric light and power system in Cagayan De Oro and its suburbs. Both uniformly provide that the franchise
tax of three per centum of the gross earnings shall be in lieu of all taxes and assessments of whatever
authority upon privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the
grantee from which taxes and assessments the grantee is hereby expressly exempted. By virtue of the Local
Tax Code (PD 231) where notwithstanding other statutes, businesses are subject to franchise tax, the
Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO. It
refused to pay, alleging that it is exempt from all taxes except franchise tax. It eventually paid under protest.
The CFI eventually ordered the province to return to CEPALCO the sum it paid under protest.
Issue:
Whether the exemption provided under the special laws exempt CEPALCO from provincial franchise
tax.
Ruling:
Yes, CEPALCO is exempt. There is no provision in P.D. No. 231 expressly or impliedly amending or
repealing Section 3 of R.A. No. 6020. The perceived repugnancy between the two statutes should be very clear
before the Court may hold that the prior one has been repealed by the later, since there is no express
provision to that effect. Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only to CEPALCO,
while P.D. No. 231 is a general tax law. The presumption is that the special statutes are exceptions to the
general law (P.D. No. 231) because they pertain to a special charter granted to meet a particular set of
conditions and circumstances.
The franchise of respondent CEPALCO expressly exempts it from payment of "all taxes of whatever
authority" except the three per centum (3%) tax on its gross earnings. The “in-lieu-of-all-taxes” clause
exempts CEPALCO from paying the provincial franchise tax. The Local Tax Regulation issued by the Secretary
of Finance also made it clear that the franchise tax provided in the Local Tax Code may be imposed only on
companies with franchises that do not contain the exempting clause.
______________________________________________________________________________________________________________________________
Batangas Power Corporation, petitioner, v. Batangas City and National Power Corporation,
respondents
G.R. No. 152675, April 28, 2004, Puno, J.
The removal of the blanket exclusion of government instrumentalities from local taxation as one of the
most significant provisions of the 1991 LGC.
Facts:
On June 12, 1992 Enron Power Development Corporation (Enron) entered into a Build Operate and
Transfer (BOT) agreement with National Power Corporation (NPC) wherein the former would supply a
power station to NPC and transfer its plant to the latter after ten years. Under such agreement, NPC will be
responsible for the payment of all taxes that may be imposed on the power station except income taxes and
permit fees. Subsequently, Enron transferred all its rights under the BOT agreement in favour of Batangas
Power Corporation (BPC). On April 15, 1999 Batangas City (the City) sought to collect business taxes from
BPC. BPC alleged that the City’s claim should be directed to NPC under the BOT agreement. NPC contended
that the City cannot collect taxes from them as it constitutes an indirect tax from NPC which is tax exempt
under its charter. By virtue of the non-payment of taxes, the City refused to issue a business permit to BPC. As
a result, a petition for injunction was filed in the Regional Trial Court to enjoin the city from the issuance of
business permit. RTC dismissed the petition ruling that NPC’s tax exemption was withdrawn under the Local
Government Code. NPC contended that their charter is a special law and thus cannot be repealed by a general
law like the National Government Code.
Issue:
Whether or not NPC’s tax exemption is withdrawn under the Local Government Code
Ruling:
Yes, NPC’s tax exemption is withdrawn under the Local Government Code. Taxation has become a
tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges
pursuant to Article X, section 5 of the 1987 Constitution. For a long time, the country’s highly centralized
government structure has bred a culture of dependence among local government leaders upon the national
leadership. It has also dampened the spirit of initiative, innovation and imaginative resilience in matters of
local development on the part of local government leaders. The only way to shatter this culture of
dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose.Considered as the most revolutionary piece of
legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the
tax base of LGUs to include taxes which were prohibited by previous laws.
______________________________________________________________________________________________________________________________
Philippine Basketball Association, petitioner, v. Court of Appeals, Court of Tax Appeals, and
Commissioner of Internal Revenue, respondents
G.R. No. 119122, August 8, 2000, Purisima, J.
It bears stressing that the government can never be in estoppel, particularly in matters involving taxes.
It is a well-known rule that erroneous application and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and that the Government is never estopped by mistake or error on
the part of its agents
Facts:
On June 21, 1989, Philippine Basketball Association (PBA) received an assessment letter from the
Commissioner of Internal Revenue (Commissioner) for the payment of deficiency amusement tax. PBA
contested the assessment relying on BIR Memorandum Circular No. 49-73 providing that the power to levy
and collect amusement tax on admission tickets was transferred to the local governments by virtue of the
Local Tax Code; and BIR Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross
receipts from admission tickets to places of amusement was transferred to local governments under P.D. No.
231.
Issue:
Whether or not the power and authority to levy and collect amusement taxes of professional
basketball games is vested with the local government.
Ruling:
No, the power and authority to levy and collect amusement taxes on professional basketball games is
not under the power of the local government. The Local Tax Code of 1973 provides that the province can only
impose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert
halls, circuses and other places of amusement. The authority to tax professional basketball games is not
therein included. Erroneous is the stance of petitioner that respondent Commissioners issuance of BIR Ruling
No. 231-86and BIR Revenue Memorandum Circular No. 8-8, both upholding the authority of the local
government to collect amusement taxes, should bind the government or that, if there is any revocation or
modification of said rule, the same should operate prospectively.
Construed Striclty against the Taxpayer
Mactan Cebu International Airport, petitioner, v. Hon. Ferdinand J. Marcos in his capacity as presiding
judge in the regional trial court of Cebu City, The City of Cebu, represented by its Mayor, Hon. Tomas
R. Osmea, and Eustquio B. Cesa, respondents
G.R. No. 120082, September 11, 1996, Davide, Jr, J.
Taxes are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construed strictissimijuris against the taxpayer and liberally in favor of the
taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken.However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled by the government in the course of its operations.
Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic
Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City. On October 11, 1994, Office of the Treasurer of the City of Cebu demanded payment of Realty tax
belonging to MCIAA. Petitioner contended that it is exempt from the payment of realty taxes under its charter;
furthermore, although it is a government owned corporation, it stands on the same footing of an
instrumentality and thus the local government units cannot levy taxes upon them. Respondent City, however,
asserted that MCIAA is not an instrumentality of the government but merely a government-owned
corporation performing proprietary functions. As such, all exemptions previously granted to it were deemed
withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code.
Issue:
Whether or not the local government unit of Cebu City can impose real property taxes on MCIAA
Ruling:
Yes, the local government of Cebu City can impose real property taxes on MCIAA. Thus, reading
together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in section
133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and charges of
any kind on the national government, its agencies and instrumentalities, and local government units';
however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, '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.
______________________________________________________________________________________________________________________________
Commissioner of Internal Revenue, petitioner, v. The Philippine American Accident Insurance

Company, Inc., The Philippine American Assurance Company, Inc., and The Philippine American
General Insurance Co., Inc., respondents
G.R. No. 141658, March 18, 2005, Carpio, J.
The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the
taxpayer is clearly subject to the tax being levied against him.
Facts:
Respondents are domestic corporations licensed to transact business in the country. From 1971 to
1972 they are paying 3% tax imposed on lending investors under protest. On January 31, 1973 respondents
sent a letter-claim to the Commissioner of Internal Revenue (Commissioner) for refund of taxes paid under
protest but did not receive the same. Thus respondents herein filed a petition to the Court of Tax Appeals
(CTA) which granted their claim for refund. The Court of Appeals (CA) affirmed the CTA decision. The
Commissioner contended that that the refund granted to respondents is in the nature of a tax exemption, and
cannot be allowed unless granted explicitly.
Issue:
Whether or not the respondents are entitled to refund
Ruling:
Yes, the respondents are entitled to refund. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed.
Where there is doubt, tax laws must be construed strictly against the government and in favor of the
taxpayer. This is because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed
beyond what the statutes expressly and clearly import. Therefore, the refunds are not in the nature of tax
exemption since the respondents should not be subject to the tax imposed and thus they are entitled to such.
______________________________________________________________________________________________________________________________
National Power Corporation, petitioner, v. City of Cabanatuan, respondent

G.R. no. 149110, April 9, 2003, Puno, J.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions.
Facts:
National Power Corporation (NPC) is a government-owned and controlled corporation created under
Commonwealth Act No. 120. It is tasked to undertake the development of hydroelectric generations 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. Concomitant to its mandated duty, petitioner has, among others, the
power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for
the purpose of developing hydraulic power and supplying such power to the inhabitants. For many years, it
sells electric power to residents of Cabanatuan City. Subsequently, pursuant to an Ordinance, the city of
Cabanatuan assessed of franchise tax. It refused to pay alleging that Cabanatuan City has no power to tax
government entities. A collection suit was filed in the Regional Trial Court (RTC). The RTC ruled that despite
the enactment of RA 7160 (Local Government Code), the exemption of NPC still subsist since Section 193 of
the Local Government Code withdrawing all tax exemption privileges enjoyed by all persons constitute an
implied repeal which is not favored, and because local governments have no power to impose tax
instrumentalities of the national government. The Court of Appeals reversed the RTC decision.
Issue:
Whether or not the exemption of NPC still subsist despite passage of the Local Government Code
Ruling:
No, the exemption of NPC is not anymore subsisting. In the case at bar, the NPC's sole refuge is
section 13 of Rep. Act No. 6395 exempting from, among others, all income taxes, franchise taxes and realty
taxes to be paid to the National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities. However, section 193 of the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of
NPC, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from
local taxes. Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and
non-profit hospital or educational institution, NPC clearly does not belong to the exception. It is therefore
incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from
local taxes.
Compensation and Set-off
Republic of the Philippines, plaintiff-appellee, v. Mambulao Lumber Company, et al., defendants-

appellants
G.R. No.L-17725, February 28, 1962, Barrera, J.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action
or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither
are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.
Facts:
Pursuant to Section 1 of RA 115, the Mambulao Lumber Company (Mambulao) is paying

reforestation charges to the Republic of the Philippines. The amount collected shall be expended by the
director of forestry, with the approval of the secretary of agriculture and commerce, for reforestation and
afforestation of watersheds, denuded areas and other public forest lands, which upon investigation, are found
needing reforestation or afforestation. Mambulao contends that since the Republic of the Philippines has not
made use of those reforestation charges collected from it for reforesting the denuded area of the land covered
by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it
should be compensated with what Mambulao owed the Republic of the Philippines for reforestation charges.
Issue:
Whether or not the reforestation charges paid by Mambulao can be subject to compensation or set
off.
Ruling:
No, the reforestation charges paid by Mambulao cannot be subject to compensation or set off. The
amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the
Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or
not.
______________________________________________________________________________________________________________________________
MELECIO R. DOMINGO, AS COMMISSIONER OF INTERNAL REVENUEV.HON. LORENZO C. GARLITOS, IN

HIS CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE OF LEYTE,
AND SIMEONA K. PRICE, AS ADMINISTRATRIX OF THE INTESTATE
ESTATE OF THE LATE WALTER SCOTT PRICE
8 SCRA 443June 29, 1963, LABRADOR, J.
Legal compensation takes place and extinguishes both debts to the concurrent amount even as against
the government; Provided that all the requisites mentioned in Article 1279 of the Civil Code are present: (1) That
each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;(3) That the two debts be due;(4) That they be
liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
Facts:
The Supreme Court declared as final and executory the CFI’s order for the payment by the intestate
estate of the late Walter Scott Price of the estate and inheritance taxes, including charges and penalties
(worth around P40,000.00). To enforce the claims of the government, the fiscal filed a petition before the CFI
for the execution of the judgment. In its defense, the administratrix alleged that the government is also
indebted to the estate for services rendered in the amount of more than P262,000.00, which amount was
already appropriated for that purpose by RA 2700. The CFI dismissed the petition of the fiscal on the ground
of compensation.
Issue:
Whether or not the estate and inheritance taxes may still be collected on the ground that there was
no compensation.
Ruling:
No. Article 1290 of the Civil Code provides that“When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation.” In this case, all the
requisites of legal compensation under Article 1279 are present. The claim of the government for inheritance
and estate taxes is already overdue, demandable, and fully liquidated per the SC decision. The claim of the
intestate estate for services rendered is also overdue, demandable, and fully liquidated per RA 2700.
Compensation therefore takes place by operation of law, and both debts are extinguished to the concurrent
amount.
______________________________________________________________________________________________________________________________
ENGRACIO FRANCIA v. INTERMEDIATE APPELLATE COURT AND HO FERNANDEZ

162 SCRA 753 June 28, 1988, GUTIERREZ, JR., J.
There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. Tax collection cannot await the results of a lawsuit against the government. The government and
taxpayer are also not mutually creditors and debtors of each other. A claim for taxes also do not arise from
contracts, but grow out of the duty of the individual taxpayer to the government.
Facts:
Francia is the registered owner of a house and lot in Pasay City with an area of 328 sq. m. Since 1963
to 1977, Francia failed to pay his real estate taxes totaling P2,400.00. In October 1977, a 125 sq. m. portion of
Francia's property was expropriated by the Republic for P4,116.00 representing the assessed value of the
portion.
In December 1977, Francia’s property was sold at public auction by the City Treasurer of Pasay City
to satisfy Francia’s tax arrears. Ho Fernandez was the highest bidder. After the lapse of the redemption
period, a final bill of sale was issued. In March 1979, Francia was notified that Fernandez filed a petition for
the issuance of a new certificate of title. Francia filed a complaint to annul the auction sale on the ground that
his tax delinquency was already extinguished by legal compensation. Both the lower court and IAC ruled
against Francia.
Issue:
Whether or not the auction sale is void on the ground that Francia’s tax delinquencies were set-off by
the government’s act of expropriation.
Ruling:
No. There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal or greater than the tax being collected for the following reasons: First, by reasons of public policy, tax
collection cannot await the results of a lawsuit against the government. Second, the government and taxpayer
are not mutually creditors and debtors of each other (as required by Art. 1278 of the Civil Code). Third, a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. They are not in the
nature of contracts between parties but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not required.
Therefore, the real estate taxes due to the government and the just compensation due to Franciais
not subject to set-off; and the Pasay City government may rightly place the subject property in public auction
to satisfy Francia’s tax delinquencies.
______________________________________________________________________________________________________________________________
PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and
THE COURT OF TAX APPEALS
294 SCRA 687 August 28, 1998, ROMERO, J.
Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer
are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due
to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.
Facts:
The BIR sent a letter to Philex asking it to settle its excise tax liabilities amounting to nearly P124
million. Philex protested the demand for payment, stating that it has pending claims for VAT input
credit/refund in the amount of nearly P120 million plus interest. In view of the denial of its protest, Philex
raised the issue to the courts, but both the CTA and the CA ruled against Philex.
Days before the CA denied its position, Philex was able to obtain its VAT input credit/ refund for the
subject taxable years. Philex now contends that the grant should ipso jure off-set its excise tax liabilities since
both had already become due and demandable, as well as liquidated.
Issue:
Whether or not the excise taxes due may be off-set by Philex’s VAT input credit/ refund.
Ruling:
No. Philex's theory, which holds that its VAT input credit/refund would automatically off-set its tax
liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner
by which taxpayers may credit and offset their tax liabilities.
To be sure, Philex’s reliance in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc., which
held that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner, is no longer without any support in statutory law. The ruling therein
was anchored on Section 51(d) of the 1939 Tax Code, which was already deleted with the enactment of the
National Internal Revenue Code of 1977.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. CITYTRUST BANKING CORPORATION

499 SCRA 477 August 22, 2006, CORONA, J.
Philippine jurisdiction disfavors set-off or legal compensation of tax obligations for the following
reasons: (1) taxes are of a distinct kind, essence and nature, and these impositions cannot be so classed in merely
the same category as ordinary obligations; (2) the applicable laws and principles governing each are peculiar,
not necessarily common to each and (3) public policy is better subserved if the integrity and independence of
taxes be maintained.
Facts:
Citytrust made an overpayment of its income taxes for taxable year 1984-1985 and sought a refund,
which CIR denied. Citytrust sought relief before the CTA and won. On MR,CIR argued that the refund should
not be granted because of BIR’s deficiency tax assessments against Citytrust for taxable year 1984. The case
reached the SC, only to be remanded back to the CTA for the reception of CIR’s evidence to establish the 1984
deficiency taxes of Citytrust.
Eventually, Citytrust settled all its deficiency assessments for taxable year 1984 and demanded for
the refund before the CTA. However, CIR still refused to refund.This time, CIR raised its deficiency tax
assessments against Citytrustfor taxable year 1985. Both the CTA and CA denied CIR’s objections for refund.
Issue:
Whether or not the refund should be denied on the ground that it should be set-off against Citytrust’s
1985 tax deficiencies.
Ruling:
No. In this case, the claims for refund of Citytrust may not be subject to set-off with the claims of CIR’s
1985 deficiency tax assessments. Aside from the fact that tax obligations may not be set-off against ordinary
obligations, claims for deficiency tax assessments cannot be heard in hearings for claims for refund. The fact
that due to the circumstances of the case, the SC decided to join the hearing for refund and the hearing for the
(1984) deficiency tax assessment (since the 1985 deficiency tax assessment was not covered by the SC’s
decision) does not mean that one can off-set the other.
Compromise
WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. LUCIO QUIJANO, President &
General Managerv.THE HON. COURT OF TAX APPEALS and
THE BUREAU OF INTERNAL REVENUE BEING REPRESENTED BY
THE COMMISSIONER OF INTERNAL REVENUE
64 SCRA 555 June 30, 1975, ESGUERRA, J.
It is now a well settled doctrine that compromise penalty cannot be imposed or collected without the
agreement or conformity of the tax payer.
Facts:
The Commissioner of Internal Revenue caused the investigation of Wonder Mechanical on two
separate occasions (1955 and 1960) to ascertain whether or not the latter had any tax liability. In both cases,
the CIR found that Wonder Mechanical has tax liabilities. CIR thereafter assessed Wonder Mechanical of its
deficiency taxes (including surcharges), and suggested the payment of P3,300.00 and P5,020.00 as
compromise penalty. It does not appear that Wonder Mechanical accepted the compromise penalty.
Issue:
Whether or not Wonder Mechanical may be compelled to pay the compromise penalty.
Ruling:
No. In this case, it does not appear that Wonder Mechanical accepted the compromise penalty offered
to it by CIR. Hence, the CIR may not compel Wonder Mechanical to pay the compromise penalty.
Tax Amnesty
PEOPLE OF THE PHILIPPINESv. HON. MARIANO CASTAÑEDA JR., Judge of the Court of First Instance of
Pampanga, Branch III
G.R. No. L-46881 September 15, 1988 J. Feliciano
A tax amnesty, much like to a tax exemption, is never favored nor presumed in law and if granted by
statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.
Facts:
By virtue of Republic Act No. 2338 which is the Act to Provide for Reward Informers of Violations of
the Internal Revenue and Customs Laws, William Chan, one of the informers submitted a sworn information
concerning alleged violations of provision of the Internal Revenue Code committed by the private
respondents.
Valencia filed a motion to quash on the ground of failure to conduct preliminary investigation and
benefit of tax amnesty provided in PD. No. 307. Motion to quash was opposed by the State Prosecutor and
argued that the respondent was not entitles to the tax amnesty provided by PD. No. 307. CFI Judge Castaneda
granted the motion to quash and dismissed all the criminal information with respect to Valencia.
Issue:
Whether or not the accused Valencia is entitled to the benefits available under P.D. No. 370.
Ruling:
No. Accused Valencia argued that the People were estopped from questioning his entitlement to the
benefits of the tax amnesty, considering that agents of the BIR had already accepted his application for tax
amnesty and his payment of the required fifteen percent (15%) special tax.
This contention does not persuade. At the time he paid the special fifteen percent (15%) tax under
P.D. No. 370, accused Francisco Valencia had in fact already been subjected by the BIR to extensive
investigation such that the criminal charges against him could not be condoned under the provisions of the
amnesty statute. Further, acceptance by the BIR agents of accused Valencia's application for tax amnesty and
payment of the fifteen percent (15%) special tax was no more than a ministerial duty on the part of such
agents. Accused Valencia does not pretend that the BIR had actually ruled that he was entitled to the benefits
of the tax amnesty statute. In any case, even assuming, though only arguendo, that the BIR had so ruled, there
is the long familiar rule that "erroneous application and enforcement of the law by public officers do not
block, subsequent correct application of the statute and that the government is never estopped by mistake or
error on the part of its agent." which finds application in the case at bar. Valencia's payment of the special
fifteen percent (15%) tax must be regarded as legally ineffective.
______________________________________________________________________________________________________________________________
ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 179115September 12, 2012 J. Perlas-Bernabe
A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute 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 or presumed in law. The grant of a tax amnesty,
similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing
authority.
Facts:
Asia International Auctioneers (AIA) is a duly organized corporation operating within the Subic
Special Economic Zone. It is engaged in the importation of used motor vehicles and heavy equipment which it
sells to the public through auction.
On August 25, 2004, AIA received from the CIR a Formal Letter of Demand, dated July 9, 2004,
containing an assessment for deficiency value added tax (VAT) and excise tax in the amounts of P
102,535,520.00 and P 4,334,715.00, respectively, or a total amount of P 106,870,235.00, inclusive of penalties
and interest, for auction sales conducted on February 5, 6, 7, and 8, 2004.
AIA filed a Manifestation and Motion with Leave of the Honorable Court to Defer or Suspend Further
Proceedings on the ground that it availed of the Tax Amnesty Program under Republic Act 9480(RA 9480),
otherwise known as the Tax Amnesty Act of 2007. On February 13, 2008, it submitted to the Court a
Certification of Qualification issued by the BIR on February 5, 2008 stating that AIA "has availed and is
qualified for Tax Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA 9480.
Issue:
Whether or not AIA is covered by the Tax Amnesty Program.
Ruling:
Yes.The CIR contends that AIA is disqualified under Section 8(a) of RA 9480 from availing itself of the
Tax Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes. This argument is
untenable.
The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency VAT
and excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument that AIA is
"deemed" a withholding agent for these deficiency taxes is fallacious.
RA 9399 was passed prior to the passage of RA 9480. RA 9399 does not preclude taxpayers within its
coverage from availing of other tax amnesty programs available or enacted in futurolike RA 9480. More so, RA
9480 does not exclude from its coverage taxpayers operating within special economic zones. As long as it is
within the bounds of the law, a taxpayer has the liberty to choose which tax amnesty program it wants to
avail.
Lastly, the Court takes judicial notice of the "Certification of Qualification" issued by Eduardo A.
Baluyut, BIR Revenue District Officer, stating that AlA "has availed and is qualified for Tax Amnesty for the
Taxable Year 2005 and Prior Years" pursuant to RA 9480. In the absence of sufficient evidence proving that
the certification was issued in excess of authority, the presumption that it was issued in the regular
performance of the revenue district officer's official duty stands.
______________________________________________________________________________________________________________________________
YARANON, DIANE MONDOC v.VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT
AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX
(B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES
Hence, it is only the legislature, as limited by the provisions of the Constitution, which has full power to
exempt any person or corporation or class of property from taxation. The Constitution itself may provide for
specific tax exemptions or local governments may pass ordinances providing for exemption from local taxes, but,
otherwise, it is only the legislative branch which has the power to grant tax exemptions, its power to exempt
being as broad as its power to tax.
Facts:
RA 7227 created the BCDA and gave it the power to create a special economic zone (SEZ) in Camp
John Hay. It also created the Subic SEZ which exemption businesses therein from local and national taxes.
President Ramos then issued Proclamation No. 420 which established a SEZ on a portion of Camp John Hay.
Petitioners challenged the constitutionality of the proclamation as it grants certain tax exemptions, like that
of that granted Subic SEZ, which can only be granted by the legislature as it was not expressly provided under
RA 7227.
Issue:
Whether the RA 7227 granted a similar tax exemption given to Subic SEZ to yet to be established
Special Economic Zones
Ruling:
No, the law did not provide a similar tax exemption. It is clear that under Section 12 of R.A. No. 7227
it is only the Subic SEZ which was granted by Congress with tax exemption, investment incentives and the
like. There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via
presidential proclamation.While the grant of economic incentives may be essential to the creation and
success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The
incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the
John Hay SEZ finds no support therein.
The nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless
limited by a provision of the state constitution, that has full power to exempt any person or corporation or
class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress,
the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on
exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitution's imposition that a law
granting any tax exemption must have the concurrence of a majority of all the members of Congress.The
clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably
expressed.If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and
TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
Tax v. License
ERMITA-MALATE HOTEL AND MOTEL OPERATORS ASSOCIATION, INC

v. THE HONORABLE CITY MAYOR OF MANILA
G.R. No. L-24693 July 31, 1967J. Fernando
The increase in taxes not only discourages hotels or motels in doing any business other than legal but
also increases the revenue of the local government unit concerned. And taxation is a valid exercise of police
power as well. Taxation may be made to implement a police power and the amount, object, and instance of
taxation is dependent upon the local legislative body.
Facts:
Ermita-Malate Hotel and Motel Operators Association, and one of its members Hotel del Mar Inc.
petitioned for the prohibition of Ordinance 4670 which was approved by then acting mayor Astorga on June
14, 1963 to be applicable in the City of Manila. They claimed that the ordinance was beyond the powers of the
Manila City Board to regulate due to the fact that hotels were not part of its regulatory powers. They also
asserted that Section 1 of the challenged ordinance was unconstitutional and void for being unreasonable and
violative of due process insofar because it would impose P6,000.00 license fee per annum for first class
motels and P4,500.00 for second class motels.
Issue:
Whether Ordinance No. 4760 of the City of Manila is violativeof the due process clause?
Ruling:
No. The SC ruled in favor of Astorga. There is a presumption that the laws enacted by Congress is
valid. Without a showing or a strong foundation of invalidity, the presumption stays. As in this case, there was
only a stipulation of facts and such cannot prevail over the presumption. Further, the ordinance is a valid
exercise of police power. There is no question but that the challenged ordinance was precisely enacted to
minimize certain practices hurtful to public morals. This is to minimize prostitution.
The increase in taxes not only discourages hotels or motels in doing any business other than legal but
also increases the revenue of the local government unit concerned. And taxation is a valid exercise of police
power as well. Taxation may be made to implement a police power and the amount, object, and instance of
taxation is dependent upon the local legislative body. The due process contention is likewise untenable, due
process has no exact definition but has reason as a standard. In this case, the precise reason why the
ordinance was enacted was to curb down prostitution in the city which is reason enough and cannot be
defeated by mere singling out of the provisions of the said ordinance alleged to be vague.
______________________________________________________________________________________________________________________________
SMART COMMUNICATIONS, INCv. MUNICIPALITY OF MALVAR, BATANGAS

G.R. No. 204429 February 18, 2014J. Carpio
The Court ruled that since the main purpose of the ordinance is to regulate certain construction
activities of the identified special projects, which included “cell sites” or telecommunications towers, the fees
imposed in the Ordinance are primarily regulatory in nature, and not primarily revenue-raising. While the fees
may contribute to the revenues of the Municipality, this effect is merely incidental.
Facts:
Smart Communications, Inc. (Smart) is a domestic corporation engaged in the business of providing
telecommunications services to the general public. In the course of its business, Smart constructed a
telecommunications tower within the territorial jurisdiction of the Municipality of Malvar, Batangas (Malvar).
Malvar passed Ordinance No. 18 entitled “An Ordinance Regulating the Establishment of Special
Projects.” Thereafter, Smart received from the Permit and Licensing Division of Malvar an assessment letter
for the construction of its telecommunications tower. Smart challenged the validity of said ordinance upon
which the assessment was based, arguing that the “fees” imposed under the ordinance are actually taxes since
they are not regulatory, but revenue-raising.
Issue:
Whether or not that the "fees" in Ordinance No. 18 are actually taxes since they are not regulatory,
but revenue-raising.
Ruling:
No. the Supreme Court explained that consistent with the constitutional mandate, the Local
Government Code(LGC) grants municipalities the power to levy taxes, fees and charges not otherwise levied
by provinces. Section 147 of the same law, allows municipalities to impose and collect such reasonable fees
and charges on business and occupation and on the practice of any profession or calling, commensurate with
the cost of regulation, inspection and licensing before any person may engage in such business or occupation,
or practice such profession or calling.
Under the LGC, the term “charges” refer to pecuniary liability, as rents or fees against persons or
property, while the term “fee” means “a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.
The High Tribunal pointed out that in the whereas clauses of the assailed ordinance, the primary
purpose is to regulate the “placing, stringing, attaching, installing, repair and construction of all gas mains,
electric, telegraph and telephone wires, conduits, meters and other apparatus” listed therein, which included
telecommunications tower.
Evidently, the purpose of the ordinance is to regulate the enumerated activities particularly related
to the construction and maintenance of various structures. Thus, the fees in the ordinance are not impositions
on the building or structure itself but on the activity subject of government regulation, such as the installation
and construction of the structures.
The Court ruled that since the main purpose of the ordinance is to regulate certain construction
activities of the identified special projects, which included “cell sites” or telecommunications towers, the fees
imposed in the Ordinance are primarily regulatory in nature, and not primarily revenue-raising. While the
fees may contribute to the revenues of the Municipality, this effect is merely incidental.
The Supreme Court reiterated its ruling in Victorias Milling Co., Inc. v. Municipality of Victorias (134
Phil. 180 [1968]) that the purpose and effect of the imposition determine whether it is a tax or a fee, and that
the lack of any standards for such imposition gives the presumption that the same is a tax.
Further, the High Court said that, as in the case of Progressive Development Corporation v. Quezon City
(254 Phil. 635, 643 [1989]), “if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue
is also obtained does not make the imposition a tax.”
______________________________________________________________________________________________________________________________
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY

G.R. No. 36081 April 24, 1989J. Feliciano
To be considered a license fee, the imposition must relate to an occupation or activity that so engages
the public interest in health, morals, safety and development as to require regulations for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses
of the regulation, taking into account not only the costs of direct regulation but also its incidental consequences
as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to
the city to cover the latter’s administrative expenses.
Facts:
The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and
operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee.
Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on
rentals or lease of space in privately-owned public markets in Quezon City. Progressive Development Corp.,
owner and operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city
on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot
impose
Issue:
Whether the supervision fee / license tax is a tax on income.
Ruling:
No. The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax
(distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local
Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged.
To be considered a license fee, the imposition must relate to an occupation or activity that so engages
the public interest in health, morals, safety and development as to require regulations for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the probable
expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental
consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the
fees or taxes due to the city to cover the latter’s administrative expenses.
The use of the gross amount of stall rentals, as basis for the determination of the collectible amount
of license tax, does not by itself convert orrender the license tax into a prohibited city tax on income. For
ordinarily, the higher the amount of stallrentals, the higher the aggregate volume of foodstuffs and related
items sold in the privately owned market;and the higher the volume of goods sold in such market, the greater
extent and frequency of inspection andsupervision that may be reasonably required in the interest of the
buying public.
______________________________________________________________________________________________________________________________
LAND TRANSPORTATION OFFICE [LTO] v. CITY OF BUTUAN

G.R. No. 131512, January 20, 2000, Vitug, J.
The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of
government to raise revenue in order to support its existence and carry out its legitimate objectives. Although
correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the
other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations.
Facts:
The Sangguniang Panglungsod ("SP") of Butuan, on 16 August 1992, passed SP Ordinance No. 916-92
providing for the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the
registration of the vehicle, and fees for the issuance of a permit for the driving thereof. Petitioner LTO
explains that one of the functions of the national government that, indeed, has been transferred to local
government units is the franchising authority over tricycles-for-hire of the Land Transportation Franchising
and Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to register all motor vehicles
and to issue to qualified persons of licenses to drive such vehicles. Respondent City of Butuan asserts that one
of the salient provisions introduced by the Local Government Code is in the area of local taxation which
allows LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all
kinds of licenses or permits for the driving of tricycles.
Issue:
Whether the LGC granted LGUs the power to issue all kinds of licenses or permits for the driving of
tricyles.
Ruling:
No. The reliance made by respondents on the broad taxing power of local government units,
specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along
with eminent domain, are inherent powers of sovereignty which the State might share with local government
units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public
purpose and legislative in nature but the similarities just about end there. To construe the tax provisions of
Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which
evidently has not been intended. If it were otherwise, the law could have just said so in Section 447 and 458
of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power
on franchising of tricycles has been provided. Repeal by implication is not favored. The power over tricycles
granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs is the power to regulate their
operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax
provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of
withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of
licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised
pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the
road worthiness of these motor vehicles and the competence of drivers prescribed by R.A. 4136. Not
insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with
the extant body of laws.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MARITIME SHIPPING

G.R. No. 74965, November 9, 1994, Mendoza, J.
The Bureau of Internal Revenue's claim for unpaid internal revenue taxes gives rise to a tax lien upon all
the properties and assets, movable or immovable, of the insolvent as taxpayer. This tax claim must be given
preference over any other claim of any other creditor, in respect of any and all properties of the insolvent.
Facts:
The Commissioner of the Internal Revenue sent demand letters to the respondent Maritime Company
of the Philippines for deficiency in the payment of tax. The assessment became final and executory but private
respondent did not pay its tax liability; thus, the Commissioner of Internal Revenue issued warrants of
distraint of personal property and levy of real property of private respondent. A "Receipt for Goods, Articles,
and Things Seized under Authority of the National Internal Revenue Code" was executed, covering the six
barges subject of the case. The four of the barges were levied upon execution by respondent deputy sheriff to
satisfy a judgment for unpaid wages and other benefits of employees of respondent.
Issue:
Whether the claims of workers are preferred over the unpaid tax liabilities.
Ruling:
No With regard to the contention of the NLRC that taxes are absolutely preferred claims only with
respect to movable or immovable properties on which they are due and that since the taxes sought to be
collected in this case are not due on the barges in question the government's claim cannot prevail over the
claims of employees of the respondent since Art. 110 of the Labor Code applies only in case of bankruptcy or
judicial liquidation of the employer. This case does not involve the liquidation of the employer's business.
KINDS OF TAXES
Direct Taxes
ERNESTO M. MACEDA v. HON. CATALINO MACARAIG, JR.

G.R. No. 88291 June 8, 1993, Nocon, J.
A Direct Tax is the tax imposed where the person supposed to pay the tax really pays it without
transferring the burden to someone else while Indirect Tax is that where the tax is imposed upon goods before
reaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.
Facts:
The petition seeks to nullify certain decisions, orders, ruling, and resolutions of the respondents
(Macaraig et. al) for exempting the National Power Corporation (NPC) from indirect tax and duties.
Commonwealth Act 120 created NPC as a public corporation. RA 6395 revised the charter of NPC and
provided in detail the exemption of NPC from all taxes, duties and other charges by the government. There
were many resolutions and decisions that followed after RA 6395 which talked about the exemption and non-
exemption from taxes of NPC. Petitioner now contends that P.D. No. 938 repealed the indirect tax exemption
of NPC as the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as
amended by P.D. No. 380, does not expressly include "indirect taxes."
Issue:
Whether or not NPC is exempt from indirect taxes.
Ruling:
Yes. NPC is a non-profit public corporation created for the general good and welfare of the people.
From the very beginning of its corporate existence, NPC enjoyed preferential tax treatment to enable it to pay
its debts and obligations. From the changes made in the NPC charter, the intention to strengthen its
preferential tax treatment is obvious. The tax exemption is intended not only to insure that the NPC shall
continue to generate electricity for the country but more importantly, to assure cheaper rates to be paid by
consumers.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed
NPC. Its section 13(d) is the starting point of this bone of contention among the parties. P.D. No. 380 added
phrase "directly or indirectly" to said Section 13(d). Then came P.D. No. 938 which amended Sec. 13(a), (b),
(c) and (d) into one very simple paragraph: The Corporation . . . is hereby declared exempt from the payment
of ALL FORMS OF taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings. The above conclusion that then
President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase "All FORMS OF" is supported by
the fact that he did not do the same for the tax exemption provision for the foreign loans to be incurred. P.D.
No. 938 did not amend the same and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. The tax exemption stood as is — with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees,
imposts, other charges . . . to be imposed" in the future — surely, an indication that the lawmakers wanted the
NPC to be exempt from ALL FORMS of taxes — direct and indirect. It is clear, therefore, that NPC had been
granted tax exemption privileges for both direct and indirect taxes under P.D. No. 938.
______________________________________________________________________________________________________________________________
CIR v. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

G.R. No. 140230, December 15, 2005, Garcia, J.
Direct taxes are those that are exacted from the very person who, it is intended or desired, should pay
them; they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.
Facts:
PLDT is a grantee of a franchise under to install, operate and maintain a telecommunications system
throughout the Philippines. For equipment, machineries and spare parts it imported for its business PLDT
paid the BIR its tax due. Subsequently, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its
tax exemption privilege under Section 12 of R.A. 7082. As response, the BIR issued a ruling that PLDT shall be
subject only to the 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or
earnings thereof; The "in lieu of all taxes" provision under Section 12 of RA 7082 clearly exempts PLDT from
all taxes including the 10% value-added tax (VAT). Armed with the foregoing BIR ruling, PLDT filed a claim
for tax credit/refund of the VAT. With its claim not having been acted upon by the BIR, and obviously to
forestall the running of the prescriptive period therefor, PLDT filed with the CTA a petition for review. The
CTA rendered a decision granting PLDT’s petition. BIR Commissioner moved for a reconsideration but the
CTA denied the motion. Unable to accept the CTA decision, the BIR Commissioner elevated the matter to the
Court of Appeals (CA) by way of petition for review.
Issue:
Whether or not PLDT is exempt from paying VAT, compensating taxes, advance sales taxes and
internal revenue taxes on its importations.
Ruling:
No. It bears to stress that the liability for the payment of the indirect taxes lies only with the seller of
the goods or services, not in the buyer thereof. Thus, one cannot invoke one’s exemption privilege to avoid
the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased.
Hence, it is important to determine if the tax exemption granted to a taxpayer specifically includes the
indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax
exemption embraces only those taxes for which the buyer is directly liable. As may be noted, the clause "in
lieu of all taxes" in Section 12 of RA 7082 is immediately followed by the limiting or qualifying clause "on this
franchise or earnings thereof", suggesting that the exemption is limited to taxes imposed directly on PLDT
since taxes pertaining to PLDT’s franchise or earnings are its direct liability. Accordingly, indirect taxes, not
being taxes on PLDT’s franchise or earnings, are outside the purview of the "in lieu" provision.
Indirect Taxes
DIAZ and TIMBOL v. THE SECRETARY OF FINANCE

G.R. No. 193007, July 19, 2011, Abad, J.
In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The
seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to
the buyer. In such a case, what is transferred is not the seller’s liability but merely the burden of the VAT.
Facts:
Petitioners filed this petition for declaratory relief assailing the validity of the impending imposition
of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users
of tollways in stopping the BIR action. Petitioners hold the view that Congress did not, when it enacted the
NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee
is a "user’s tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service;
and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate
the non-impairment clause of the constitution.
Issue:
Whether or not toll fees collected by tollway operators are considered as taxes.
Ruling:
No, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A
tax is imposed under the taxing power of the government principally for the purpose of raising revenues to
fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the
tollways. Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT
as an indirect tax. The seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases
to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good,
property or service. Consequently, VAT on tollway operations is not really a tax on the tollway user, but on
the tollway operator. Under Section 105 of the Code, VAT is imposed on any person who, in the course of
trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is
the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway
user as part of the toll fees. For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees
were deemed as a "user’s tax."
______________________________________________________________________________________________________________________________
PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-19707, August 17, 1967, Castro, J.
The sales tax "shall be paid by the manufacturer or producer," who must "make a true and complete
return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually
removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due
thereon."
Facts:
During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the
National Power Corporation, an agency of the Philippine Government, and to the Voice of America an agency
of the United States Government. The sales to the NPC amounted to P145,866.70, while those to the VOA
amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against,
and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge,
pursuant to the following-provisions of the National Internal Revenue Code. The petitioner denied liability for
the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. It asked for a
reconsideration of the assessment and, failing to secure one, appealed to the Court of Tax Appeals. The court
ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and
not on the buyer with the result that the petitioner cannot claim exemption from the payment of sales tax
simply because its buyer — the National Power Corporation — is exempt from the payment of all taxes." With
respect to the sales made to the VOA, the court held that goods purchased by the American Government or its
agencies from manufacturers or producers are exempt from the payment of the sales tax under the
agreement between the Government of the Philippines and that of the United States, provided the purchases
are supported by certificates of exemption. Accordingly, the assessment was revised and the petitioner's
liability was reduced from P12,910.60, as assessed by the respondent commission, to P12,812.16. Hence, the
case.
Issue:
Whether or not petitioner is liable for the payment of tax on the sales it made to the NPC and the VOA
because both entities are exempt from taxation.
Ruling:
No. It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does
the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional
amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining
taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the
seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the
tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the
amount added because of the tax is paid to get the goods and for nothing else. But the tax burden may not
even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of
economics. Thus, the tax imposed is a tax on the manufacturer or producer and not a tax on the purchaser
except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-
exempt entities like the NPC is permissible.
______________________________________________________________________________________________________________________________
SILKAIR (SINGAPORE) PTE. LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. Nos. 171383 & 172379, November 14, 2008, J. Carpio
The proper party to seek a refund of an indirect tax is the statutory taxpayer, the person on whom the
tax is imposed by law and who paid the same even if he shifts the burden to another.
Facts:
Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine
representative office in Cebu City. It is engaged in business as an on-line international carrier. From 1 January
1999 to 31 December 1999, petitioner purchased aviation jet fuel from Petron for use on petitioner's
international flights. Based on the Aviation Delivery Receipts and Invoices presented, P3.67 per liter as excise
(specific) tax was added to the amount paid by petitioner on its purchases of aviation jet fuel. Petitioner
claims that it is exempt from the payment of excise tax under Section 135 of the 1997 National Internal
Revenue Code and under Article 4 of the Air Transport Agreement. Petitioner contends that in reality, it paid
the excise taxes due on the transactions and Petron merely remitted the payment to the Bureau of Internal
Revenue (BIR). Petitioner believes that its tax exemption under Section 135 of the NIRC also includes its
entitlement to a refund from the BIR in any case of erroneous payment of excise tax.
Issue:
Whether petitioner is the proper party to claim a refund for the excise taxes paid.
Ruling:
No. An excise tax is an indirect tax where the tax burden can be shifted to the consumer but the tax
liability remains with the manufacturer or producer. The proper party to question, or seek a refund of an
indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another. Petitioner, as the purchaser and end-consumer, ultimately
bears the tax burden, but this does not transform petitioner's status into a statutory taxpayer.
The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of
the products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax is
already paid by Petron. Petron, being the manufacturer, is the "person subject to tax." In this case, Petron,
which paid the excise tax upon removal of the products from its Bataan refinery, is the "person liable for tax."
Petitioner is neither a "person liable for tax" nor "a person subject to tax." There is also no legal duty on the
part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in
the aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the
excise tax is imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid to the BIR.
______________________________________________________________________________________________________________________________
ASIA INTERNATIONAL AUCTIONEERS, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,

Respondent.
G.R. No. 179115, September 26, 2012, J. Perlas-Bernabe
In indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or
passed on to another person.
Facts:
AIA is a duly organized corporation operating within the Subic Special Economic Zone. It is engaged
in the importation of used motor vehicles and heavy equipment which it sells to the public. AIA received from
the CIR a Formal Letter of Demand containing an assessment for deficiency value added tax (VAT) and excise
tax for a total amount of P 106,870,235.00. AIA filed a protest. The CIR failed to act on the protest, prompting
AIA to file a petition for review before the CTA. CIR filed a motion to dismiss and denied receipt of the protest
letter. In 2007, RA 9480 took effect granting a tax amnesty to qualified taxpayers for all national internal
revenue taxes for the taxable year 2005 and prior years. The CIR contends that AIA is disqualified under
Section 8(a) of RA 9480 from availing itself of the Tax Amnesty Program because it is "deemed" a withholding
agent for the deficiency taxes. The CIR also argues that AIA, being an accredited investor/taxpayer situated at
the Subic Special Economic Zone, should have availed of the tax amnesty granted under RA 9399 and not
under RA 9480.
Issue:
Whether or not CIR is correct in its argument that AIA cannot avail of the tax amnesty because it is
disqualified for bein a withholding agent.
Ruling:
No. The argument of CIR is untenable. A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose penalties on persons otherwise guilty of violating a tax law.
The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency VAT and
excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument that AIA is "deemed" a
withholding agent for these deficiency taxes is fallacious. Indirect taxes, like VAT and excise tax, are different
from withholding taxes. To distinguish, in indirect taxes, the incidence of taxation falls on one person but the
burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods
before reaching the consumer who ultimately pays for it. On the other hand, in case of withholding taxes, the
incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is not
shifted to the withholding agent who merely collects, by withholding, the tax due from income payments to
entities arising from certain transactions and remits the same to the government. Due to this difference, the
deficiency VAT and excise tax cannot be "deemed" as withholding taxes merely because they constitute
indirect taxes. Moreover, records support the conclusion that AIA was assessed not as a withholding agent
but, as the one directly liable for the said deficiency taxes.
RA 9399 does not preclude taxpayers within its coverage from availing of other tax amnesty
programs. RA 9480 does not exclude taxpayers operating within special economic zones. A taxpayer has the
liberty to choose a tax amnesty program as long as it is within the bounds of law. The outstanding deficiency
taxes of AlA are deemed fully settled because of its availment of the Tax Amnesty Program under RA 9480.Ï
______________________________________________________________________________________________________________________________
THE COMMISIONER OF INTERNAL REVENUE, Petitioner, vs. ACESITE (PHILIPPINES) HOTEL

CORPORATION, Respondent.
G.R. No. 147295, February 16, 2007, J. Velasco, Jr.
The indirect tax of VAT can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT.
Facts:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases 6,768.53 square
meters of the hotel’s premises to the Philippine Amusement and Gaming Corporation (PAGCOR). For January
1996 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of
food and beverages to PAGCOR. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the
amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.
PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to CIR.
However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero
rate as it was rendered to a tax-exempt entity. Acesite filed an administrative claim for refund.
Issue:
Whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero
percent (0%) VAT rate.
Ruling:
Yes. P.D. 1869 grants PAGCOR an exemption from the payment of taxes. It gives PAGCOR a blanket
exemption to taxes with no distinction on whether the taxes are direct or indirect. It is true that VAT can
either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is
computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has
the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the
latter method, charging an additional 10% of the gross sales and rentals. The use of either method does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT. The indirect tax of VAT can be shifted
or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by
extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is
exempting PAGCOR from being liable to indirect taxes.
VAT exemption extends to Acesite. Thus, while it was proper for PAGCOR not to pay the 10% VAT
charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax. Such exemption falls within Sec. 108 [b] [3] of R.A. 8424. There are
undoubtedly erroneous payments of the VAT pertaining to the effectively zero-rate transactions between
Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact,
that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made
the payments. Tax refunds are based on the principle of quasi-contract or solutio indebiti. It is a time-honored
doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the
Government is not exempted from the application of this doctrine. Since the records show that Acesite proved
its actual VAT payments subject to refund, the BIR must release the refund to respondent without any
unreasonable delay.
NATIONAL INTERNAL REVENUE CODE (NIRC) OF 1997, AS AMENDED
INCOME TAXATION
Criteria in imposing Philippine Income Tax Law
RUFINO R. TAN, petitioner, vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG,
as COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109289, October 3, 1994, J. Vitug
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Facts:
The special civil action for prohibition challenges the constitutionality of Republic Act No. 7496, also
known as the Simplified Net Income Taxation Scheme ("SNIT"). It is asserted that the enactment of Republic
Act No. 7496 violates Article VI, Section 28(1) which states that “the rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation” and Article III, Section 1 stating that
“no person shall be deprived of . . . property without due process of law, nor shall any person be denied the
equal protection of the laws.” Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the tax on corporations and
partnerships.
Issue:
Whether or not Republic Act No. 7496 is unconstitutional.
Ruling:
No. The contention clearly forgets, however, that such a system of income taxation has long been the
prevailing rule even prior to Republic Act No. 7496. Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike
both in privileges and liabilities. Uniformity does not forfend classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class What may instead be perceived to
be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system
towards the schedular approach in the income taxation of individual taxpayers and to maintain, by and large,
the present global treatment on taxable corporations. We certainly do not view this classification to be
arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating what he believes to
be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not.
With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters
which rightly rest on legislative judgment but where a tax measure becomes so unconscionable and unjust as
to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude,
the power to tax cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached. The plea of petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail. The due process clause may correctly be invoked only when
there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No
such transgression is so evident to us.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEAS AIRWAYS CORPORATION

and COURT OF TAX APPEALS, respondents.
G.R. No. L-65773-74, April 30, 1987, J. Melencio-Herrera
For the source of income to be considered as coming from the Philippines, it is sufficient that the income
is derived from activity within the Philippines.
Facts:
CIR seeks a review on certiorari of the decision of CTA which set aside the assessment of deficiency
income taxes against BOAC. The CTA position was that income from transportation is income from services so
that the place where services are rendered determines the source. BOAC is a 100% British Government-
owned corporation engaged in the international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines.
Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the period
covered by the assessments, it maintained a general sales agent in the Philippines — Wamer Barnes and
Company, Ltd., and later Qantas Airways — which was responsible for selling BOAC tickets covering
passengers and cargoes.
Issue:
Whether or not the revenue derived by private respondent British Overseas Airways Corporation
(BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here,
constitute income of BOAC from Philippine sources, and, accordingly, taxable.
Ruling:
Yes. BOAC is a resident foreign corporation. BOAC, during the periods covered by the subject-
assessments, maintained a general sales agent in the Philippines. The regular sale of tickets, its main activity,
is the very lifeblood of the airline business, the generation of sales being the paramount objective. There
should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during
the period covered by the assessments. The definition of gross income is broad and comprehensive to
include proceeds from sales of transport documents. As used in our income tax law, "income" refers to the
flow of wealth. The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to
1970-71 amounted to P10,428,368 .00. The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in
the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for
fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by
the Philippine government. In consideration of such protection, the flow of wealth should share the burden of
supporting the government. The absence of flight operations to and from the Philippines is not determinative
of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline
at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that
activity ... which produced the income. Unquestionably, the passage documentations in these cases were sold
in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the
Philippines. BOAC is hereby ordered to pay the amount of P534,132.08 as deficiency income tax. Its claim for
refund is denied. The off-line air carrier liable for the 32% tax on its taxable income.
______________________________________________________________________________________________________________________________
SOUTH AFRICAN AIRWAYS, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

G.R. No. 180356, February 16, 2010, J. Velasco, Jr.
International air carriers that do not have flights to and from the Philippines but nonetheless earn
income from other activities in the country will be taxed at the rate of 32% of such income.
Facts:
Petitioner South African Airways is a foreign corporation organized and existing under and by virtue
of the laws of the Republic of South Africa. In the Philippines, it is an international air carrier having no
landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel Limited
Corporation. Aerotel sells passage documents for compensation or commission for petitioner’s off-line flights
for the carriage of passengers and cargo between ports or points outside the territorial jurisdiction of the
Philippines. Petitioner filed with BIR a claim for the refund as erroneously paid tax on Gross Philippine
Billings (GPB). The CTA stated that petitioner is liable to pay a tax of 32% on its income derived from the
sales of passage documents in the Philippines. On this ground, the CTA denied petitioner’s claim for a refund.
Issue:
Whether or not the income derived by petitioner from the sale of passage documents covering
petitioner’s off-line flights is Philippine-source income subject to Philippine income tax.
Ruling:
Yes. Petitioner is subject to income tax at the rate of 32% of its taxable income. Petitioner’s
interpretation of Sec. 28(A)(3)(a) of the 1997 NIRC is that, since it is an international carrier that does not
maintain flights to or from the Philippines, thereby having no GPB as defined, it is exempt from paying any
income tax at all. Its argument has no merit. We point out that Sec. 28(A)(3)(a) of the 1997 NIRC does not, in
any categorical term, exempt all international air carriers from the coverage of Sec. 28(A)(1) of the 1997
NIRC. Clearly, no difference exists between British Overseas Airways and the instant case, wherein petitioner
claims that the former case does not apply. Thus, British Overseas Airways applies to the instant case. The
findings therein that an off-line air carrier is doing business in the Philippines and that income from the sale
of passage documents here is Philippine-source income must be upheld.
Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32%
tax on all income from sources within the Philippines. Sec. 28(A)(3) is an exception to this general rule. In the
instant case, the general rule is that resident foreign corporations shall be liable for a 32% income tax on their
income from within the Philippines, except for resident foreign corporations that are international carriers
that derive income "from carriage of persons, excess baggage, cargo and mail originating from the
Philippines" which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an
international carrier with no flights originating from the Philippines, does not fall under the exception. As
such, petitioner must fall under the general rule.
To reiterate, the correct interpretation of the above provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine
Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless
earn income from other activities in the country will be taxed at the rate of 32% of such income.
______________________________________________________________________________________________________________________________
ALEXANDER HOWDEN & CO., LTD., H.G. CHESTER & OTHERS ET AL., v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. L-19392, 14 April 1965, (Bengzon, J.)
Section 24 of the Tax Code does not require a foreign corporation to be engaged in business in the
Philippines, in order for its income from sources within the Philippines to be taxable. It subjects foreign
corporations not doing business in the Philippines to tax for income from sources within the Philippines.
Facts:
Commonwealth Insurance Co entered into reinsurance contracts with 32 British insurance

companies not engaged in trade or business in the Philippines with Commonwealth agreeing to cede a
portion of the premiums on insurances underwritten in the Philippines. Commonwealth remitted
P798,297.47 to Alexander Howden & Co, Ltd. as reinsurance premiums and filed on behalf of Alexander
Howden & Co, an income tax return declaring the sum paid as the gross income and as such paid the BIR
P66,112 as tax. Alexander Howden filed a claim for refund for the amount paid stating that it is exempted
from withholding tax reinsurance premiums received since it is not authorized to do business in the
Philippines.
Issue:
Whether or not the portions of premiums earned from insurances locally underwritten by a domestic
corporation, ceded to and received by non-resident foreign reinsurance companies subject to income tax
Ruling:
Yes. Appellants should not confuse activity that creates in come with business in the course of which
an income is realized. An activity may consist of a single act; while business implies continuity of transactions.
An income may be earned by a corporation in the Philippines although such corporation conducts all its
business abroad. Precisely, Section 24 of the Tax Code does not require a foreign corporation to be engaged in
business in the Philippines, in order for its income from sources within the Philippines to be taxable. It
subjects foreign corporations not doing business in the Philippines to tax for income from sources within the
Philippines. If by source of income is meant the business of the taxpayer, foreign corporations not engaged in
business in the Philippines would be exempt from taxation on their income from sources within the
Philippines. Furthermore, as used in our income tax law, "income" refers to the flow of wealth. Such flow, in
the instant case, proceeded from the Philippines. Such income enjoyed the protection of the Philippine
government. As wealth flowing from within the taxing jurisdiction of the Philippines and in consideration for
protection accorded it by the Philippines, said income should properly share the burden of maintaining the
government.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL

G.R. No. 153793, 29 August 2006, First Division, (Ynares-Santiago, J.)
The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines.
Facts:
Baier-Nickel, a non-resident German citizen, president of a domestic corporation, filed a claim for
refund with the BIR, contending that her sales commission income is not taxable in the Philippines because
the same was a compensation for her services rendered in Germany and therefore considered as income from
sources outside the Philippines.
Issue:
Whether or not Baier-Nickel’s income is considered as income from sources outside the Philippines.
Ruling:
Yes. While it is the rule that “source of income” relates to the property, activity or service that
produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the
place where the labor or service was performed that determines the source of the income. There is therefore
no merit in petitioner's interpretation which equates source of income in labor or personal service with the
residence of the payor or the place of payment of the income. The documents presented by respondent did
not constitute substantial evidence that it was in Germany where she performed the income-producing
service and thus the tax refund should be denied.
Income
Definition
HERNANDO B. CONWI, ET. AL. v. COURT OF TAX APPEALS AND COMMISSIONER OF INTERNAL
REVENUE
G.R. No. L-48532, 31 August 1992, Second Division, (Nocon, J.)
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.
Facts:
Conwi, et. al are employees of Procter and Gamble. During 1970 and 1971, they were assigned to
subsidiaries of Procter and Gamble outside for which they were compensated in US dollars. Conwi, et. al. filed
their income tax returns with the tax due computed by applying the dollar-to-peso conversion based on the
floating rate under BIR Ruling No. 70-027. In 1973, they filed amended tax returns for 1970 and 1971, this
time using the par value of the peso as basis which results to overpayment of tax. Conwi, et. al now claims for
refund of the overpaid amount. The CTA ruled that the proper conversion rate for the payment of Philippine
income tax dollar earnings are the rates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-
71. The claim for tax refund was denied.
Issue:
Whether the Court of Tax Appeals erred that the proper rate of conversion of dollar earnings for tax
purposes is the prevailing free marker rate of exchange and not the par value of the peso
Ruling:
No. The CTA was correct in ruling that the proper rate of conversion is the prevailing free marker
rate of exchange. Conwi being subject to Philippine income tax, their dollar earnings should be converted into
Philippine pesos in computing the income tax due therefrom, in accordance with the provisions of Revenue
Memorandum Circular No. 7-71 and 41-71. Said revenue circulars were a valid exercise of the authority given
to the Secretary of Finance by the Legislature which enacted the Internal Revenue Code. And these are
presumed to be a valid interpretation of said code until revoked by the Secretary of Finance himself.
Nature and Basis
COMMISSIONER OF INTERNAL REVENUE v. E. LEDNICKY AND MARIA VALERO LEDNICKY

G.R. Nos. L-18169, L-18286, and L-21434, 31 July 1964, (Reyes, J.B.L., J.)
The fundamental doctrine of income taxation that the right of a government to tax income emanates
from its partnership in the production of income, by providing the protection, resources, incentives, and proper
climate for such production.
Facts:
Spouses Lednicky, both American citizens residing in the Philippines, have derived all their income
from Philippine sources for the taxable years under question. They claimed a deduction for the amount paid
to the US Government as federal income tax and requested the refund of excess tax paid.
Issue:
Whether or not a citizen of the US residing in the Philippines, who derives income wholly from
sources within the Philippines, may deduct from his gross income the income taxes he has paid to the US
government
Ruling:
The law's intent that the right to deduct income taxes paid to foreign government from the taxpayer's
gross income is given only as an alternative or substitute to his right to claim a tax credit for such foreign
income taxes under section 30 (c) (3) and (4); so that unless the alien resident has a right to claim such tax
credit if he so chooses, he is precluded from deducting the foreign income taxes from his gross income. For it
is obvious that in prescribing that such deduction shall be allowed in the case of a taxpayer who does not
signify in his return his desire to have to any extent the benefits of paragraph (3) (relating to credits for taxes
paid to foreign countries). the statute assumes that the taxpayer in question also may signify his desire, to
claim a tax credit and waive the deduction; otherwise, the foreign taxes would always be deductible, and their
mention in the list of non-deductible items in Section 30 (c) might as well have been omitted, or at least
expressly limited to taxes on income from sources outside the Philippine Islands.
While the taxpayers would have to pay two taxes on the same income, the Philippine government
only receives the proceeds of one tax. As between the Philippines, where the income was earned and where
the taxpayer is domiciled, and the United States, where that income was not earned and where the taxpayer
did not reside, it is indisputable that justice and equity demand that the tax on the income should accrue to
the benefit of the Philippines. Any relief from the alleged double taxation should come from the United States,
and not from the Philippines, since the former's right to burden the taxpayer is solely predicated on his
citizenship, without contributing to the production of the wealth that is being taxed.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BRITISH OVERSEAS AIRWAYS CORPORATION AND COURT

OF TAX APPEALS
G.R. Nos. 65773-74, 30 April 1987, En Banc, (Melencio-Herrera, J.)
The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines.
Facts:
BOAC is a British owned airline company which had no landing rights in the Philippines during this
time. Consequently, it did not carry passengers or cargo to or from the Philippines, although it maintained a
general sales agent in the Philippines, responsible for selling BOAC tickers covering passengers and cargoes.
The CIR assessed BOAC for deficiency income taxes and was protested by BOAC.
Issue:
Whether or not BOAC a foreign airline company which does not maintain any flight to and from the
Philippines is liable for Philippine income taxation for sales of air tickets.
Ruling:
The "sale of tickets" in the Philippines is the "activity" that produced the income and therefore BOAC
should pay income tax in the Philippines because it undertook an income producing activity in the country.
The tickets exchanged hands here and payments for fares were also made here in Philippine currency; thus,
the situs of the source of payments is the Philippines.
______________________________________________________________________________________________________________________________
ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, AND THE HON.
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.
G.R. No. 160756, March 09, 2010, J. Corona
Income means all the wealth which flows into the taxpayer other than a mere return on capital. 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.An income tax is arbitrary and confiscatory if it
taxes capital because capital is not income. However, the MCIT is not a tax on capital. It is imposed on gross
income.
Facts:
The Chamber of Real Estate and Builders’ Associations, Inc. questioned the validity of Section 27(E)
of the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations. It argued that the
MCIT violates the due process clause because it levies income tax even if there is no realized gain. Further, it
contended that the use of gross income as MCIT base amounts to a confiscation of capital because gross
income, unlike net income, is not "realized gain."
Issue:
Whether pegging the tax base of the MCIT to a corporation's gross income is tantamount to a
confiscation of capital
Ruling:
No. Income means all the wealth which flows into the taxpayer other than a mere return on capital.
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. 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. However, the MCIT is not a tax on capital.The MCIT is imposed on
gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e.,
the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Exclusions from Gross Income
EL ORIENTE, FABRICA DE TABACOS, INC. v. JUAN POSADAS, COLLECTOR OF INTERNAL REVENUE

G. R. No. 34774, September 21, 1931, J. Malcolm
When a corporation receives proceeds from the insurance on the life of its manager,the proceeds are not
taxable as income. In reality, what the corporation receives is in the nature of an indemnity for the loss which it
actually suffered because of the death of its manager.
Facts:
El Oriente Inc. procured a life insurance on the life of its manager. It charged as expenses of its
business all the said premiums and deducted the same from its gross incomes. Upon death of the insured, it
received all the proceeds of the said life insurance policy.
Issue:
Whether the proceeds of insurance taken by a corporation on the life of an important official to
indemnify it against loss in case of his death, are taxable as income
Ruling:
No. The fact that the corporation received proceeds from the insurance on the life of its manager
does not signify that it thereby realized a net profit. In reality, what it received was in the nature of an
indemnity for the loss which it actually suffered because of the death of its manager.Thus, the proceeds of the
life insurance policy represents an indemnity and not therefore taxable as income.
______________________________________________________________________________________________________________________________
MA. ISABEL T. SANTOS, REPRESENTED BY ANTONIO P. SANTOS v. SERVIER PHILIPPINES, INC. AND
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 166377, November 28, 2008, J. Nachura
For retirement benefits to be exempt from tax, the following requisites must concur: (1) a reasonable
private benefit plan is maintained by the employer; (2) the retiring official or employee has been in the service of
the same employer for at least ten (10) years; (3) the retiring official or employee is not less than fifty (50) years
of age at the time of his retirement; and (4) the benefit had been availed of only once.
Facts:
Santos was a manager in Servier Philippines, Inc. since 1991 until her termination in 1999 due to her
illness at the age of 41. As consequence of her termination, she was offered a retirement package. However, a
portion of the retirement benefit was withheld by the company for taxation purposes.
Issue:
Whether the retirement benefit is exempt from tax
Ruling:
No. The retirements benefits are taxable because the petitioner was only 41 yrs old at the time of
retirement and had rendered only 8 years of service; for these benefits to be exempt from tax, the following
requisites must concur: (1) a reasonable private benefit plan is maintained by the employer; (2) the retiring
official or employee has been in the service of the same employer for at least ten (10) years; (3) the retiring
official or employee is not less than fifty (50) years of age at the time of his retirement; and (4) the benefit had
been availed of only once.
______________________________________________________________________________________________________________________________
RE: REQUEST OF ATTY. BERNARDO ZIALCITA FOR RECONSIDERATION OF THE ACTION OF THE
FINANCIAL AND BUDGET OFFICE
Adm. Matter No. 90-6-015-SC, October 18, 1990, J.Gutierrez, Jr.
Compulsory retirement may be considered as a "cause beyond the control of an official or employee".
Consequently, the amount that was received by way of commutation of accumulated leave credits as a result of
compulsory retirement, or terminal leave pay, falls within the enumerated exclusions from gross income and is
therefore not subject to tax.
Facts:
Atty. Zialcita was an employee of GSIS for almost 28 years until he reached the compulsory
retirement age of 65 years. Upon his retirement he was entitled to terminal leave pay, which is the cash value
of his accumulated leave credits.
Issue:
Whether terminal leave pay is included in gross income.
Ruling:
No. Since terminal leave is applied for by an officer or employee who has already severed his
connection with his employer and who is no longer working, then it follows that terminal leave pay should
not be treated as compensation for services rendered at that time. It cannot be viewed as salary. Moreover,
Section 28(b) 7(b) of the National Internal Revenue Code states that any amount received by an official or
employee or by his heirs from the employer as a consequence of separation of such official or employee from
the service of the employer for any cause beyond the control of the said official or employee shall be exempt
from taxation. In this case, terminal leave pay was received upon compulsory retirement, and compulsory
retirement may be considered as a "cause beyond the control of the said official or employee". Consequently,
the amount that was received by way of commutation of accumulated leave credits as a result of compulsory
retirement, or terminal leave pay, falls within the enumerated exclusions from gross income and is therefore
not subject to tax.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED

MINING AND DEVELOPMENT CORPORATION AND THE COURT OF TAX APPEALS
G.R. No. 54908, January 22, 1990, J.Regalado
While income received by a foreign government from its investments in the Philippines in loans, stocks,
bonds or other domestic securities is exempt from tax, scrupulous care must be taken to avoid opening the
floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine corporation
enter into a contract for loans or other domestic securities with private foreign entities, which in turn will
negotiate independently with their governments, could be availed of to take advantage of the tax exemption rule
under discussion.
Facts:
Atlas obtained a loan from Mitsubishi, a Japanese corporation licensed to engage in business in the
Philippines. Mitsubishi thereafter applied for a loan with the Eximbank of Japan to be used as a loan to Atlas.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the
latter. The corresponding 15% tax thereon was withheld. Mitsubishi then filed a claim for tax credit on the
ground that that Mitsubishi was a mere agent of Eximbank, which is a financing institution owned, controlled
and financed by the Japanese Government, a foreign government which is exempt from tax for income
received from its investments in the Philippines in loans under Section 29(b)(7)(A),[6] of the NIRC
Issue:
Whether the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross
income taxation. Apropos thereto, whether Mitsubishi is a mere conduit of Eximbank which will then be
considered as the creditor whose investments in the Philippines on loans are exempt from taxes under the
code.
Ruling:
No. The loan contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. It is strictly between them. Also, Mitsubishi had to secure loans from
other sources, not solely from Eximbank. When MITSUBISHI therefore secured loans from Eximbank, it was
in its own independent capacity as a private entity and not as a conduit of the bank of Japan. Consequently,
the interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from the interest
income paid by MITSUBISHI to EXIMBANK of Japan.What was the subjectedto the 15% withholding tax is not
the interest income paid by MITSUBISHI to EXIMBANK but the interest income earned by MITSUBISHI from
the loan to ATLAS.
Taxation of Domestic Corporations
COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE’S MEDICAL CENTER, INC.

G.R. No. 195909, September 26, 2012, J.Carpio
Section 30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for charitable or
social welfare purposes to be completely exempt from income tax. Nevertheless, if a tax exempt charitable
institution conducts “any” activity for profit, such activity is not tax exempt even as its not-for-profit activities
remain tax exempt. In other words, an institution under said section does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities is merely subject to income tax,
previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
Facts:
St. Luke’s is a hospital organized as a non-stock and non-profit corporation. It filed an administrative
protest with the BIR against the deficiency tax assessments. The BIR claimed that St. Luke’s was actually
operating for profit in 1998 because only 13% of its revenues came from charitable purposes. Thus, a 10%
preferential tax rate shall be imposed on its taxable income under Section 27 (B). On the other hand, St.
Luke’s maintained that it is a non-stock and non-profit institution for charitable and social welfare purposes
exempt from income tax under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se
does not destroy its income tax exemption.
Issue:
Whether St. Luke’s is liable for deficiency income tax under Section 27(B) of the NIRC, which imposes
a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
Ruling:
Yes. Section 30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for
charitable or social welfare purposes to be completely exempt from income tax. Nevertheless, the income of
charitable institutions from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax. In short, if a tax exempt charitable institution conducts “any”
activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt.
Accordingly, such institution does not lose its tax exemption if it earns income from its for-profit activities.
Such income from for-profit activities, is merely subject to income tax, previously at the ordinary corporate
rate but now at the preferential 10% rate pursuant to Section 27(B). Therefore, St. Luke’s, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit
activities.
Taxation of Resident Foreign Corporations
BELLE CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 181298 January 10, 2011 J. Del Castillo
The doing of a single act doesnot constitute business within the meaning of statutes prescribing the
conditions to be complied with the foreign corporations must be qualified to this extent, that a single act may
bring the corporation. In such a case, the single act of transaction is not merly incidental or casual, but is of such
character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the
state, and to make the state a basis of operations for the conduct of a part of corporation's ordinary business.
Facts:
Far East, organized under Philippine Laws entered into a Contract of Sale with Nankai, a foreign
company organized under Japanese Laws with adress at Osaka, Japan. Upon perfection of the contract, Nankai
opened a letter for credit with China Bank issued by Nippon Kangyo Ltd. Tokyo, Japan. 4 days before the
expiration of the Far East license, 3 boats sent by Nanaki arrived in the Philippines were sent to deliver the
goods ordered by Far East. When the license of Far East expired, not all of the items delivered were sent to
Far East. The license of Far East was not renewed. Nankai confirmed and acknowledged delivery of some of
the scrap back to Jpan but asked for damages. Far East wrote to Everett Steamship requsting issuance of a Bill
of Lading for the shipment. Everett informed Far East that the Bill of Lading was issued and signed in Tokyo
upon request of the respondent. Far East had continued requests with the shipping agent and Nankai thus
filed a complaint for Specific Performance. By special appearance, Nankai filed a Motion to Dismiss the
complaint on the lack of jurisdiction over the person of the defendant and subject matter and failure to state a
cause of action against the defendant. This was denied. Far East made an amendment complaint which Nankai
opposed on the ground that it wa an unfair and unjust attempt to establish jurisdiction over the person of
Nankai. The amended complaint was denied. At the trial, Far East showed that the transaction in question
was intended to initate business to be undertaken by Nankai that they have established a temporary office in
Luneta Hotel. Nankai averres that Nankai had no intention of establishing business in the Philippines as the
buying of the scrap was the only transaction it had in the Philippines. The RTC ruled in favor of Nanaki
Issue:
Whether or not the trial court acquired jurisdiction over the subject matter and over the person of
the defendant-appellant.
Ruling:
NO. Even though the defendant objects to the jurisdiction of the court, if at thesame time he alleges
any non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction over him. Even though
he does not intend to confer jurisdiction upon the court, his appearance for some other purpose than to
object to the jurisdiction subjects him to jurisdiction of the court.Even though he does not wish to submit to
the jurisdiction of the court, he cannot ask the court to act upon any question except the question of
jurisdiction, without conferring jurisdiction upon the court.
Thus though a Special appearance to object to the jurisdiction is not a submission, if it is followed by
a motion to dismiss or to quash the motion invokes the jurisdiction of Court to decide the issue raised by the
motion; and a decision of that issue binds the defendant. Therefore if the decision of the motion is based upon
a finding of facts necessary to jurisdiction, this finding binds the defendant and the court acquires jurisdiction
to determine the merits of the case.
Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint
dismissed, but it also went into trial on the merits and presented evidence destined to resist appellee's claim.
Verily, there could not be a better situation of acquired jurisdiction based on consent. Consequently, the
provision of the contract wherein it was agreed that disputes should be submitted to a Board of Arbitration
which may be formed in Japan (in the supposition that it can apply to the matter in dispute - payment of the
scrap), seems to have been waived with appellant's voluntary submission. Apart from the fact that the clause
employs the word "may".
In the instant case, the testimony of Atty. Pablo Ocampo that appellant was doing business in the
Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he was sent to the
Philippines by his company to look into the operation of mines, thereby revealing the defendant's desire to
continue engaging in business here, after receiving the shipment of the iron under consideration, making the
Philippines a base thereof.
______________________________________________________________________________________________________________________________
SOUTH AFRICAN AIRWAYS vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 180356, February 16, 2010, J. Velasco
Resident foreign corporations shall be liable for a 32% income tax on their income from within the
Philippines, except for resident foreign corporations that are international carriers that derive income “from
carriage of persons, excess baggage, cargo and mail originating from the Philippines” which shall be taxed at 2
1/2% of their Gross Philippine Billings.
Facts:
Petitioner South African Airways is a foreign corporation organized and existing under and by virtue
of the laws of the Republic of South Africa. Its principal office is located at Airways Park, Jones Road,
Johannesburg International Airport, South Africa. In the Philippines, it is an internal air carrier having no
landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel Limited
Corporation (Aerotel). Aerotel sells passage documents for compensation or commission for petitioner’s off-
line flights for the carriage of passengers and cargo between ports or points outside the territorial jurisdiction
of the Philippines. Petitioner is not registered with the Securities and Exchange Commission as a corporation,
branch office, or partnership. It is not licensed to do business in the Philippines. It paid a corporate tax in the
rate of 32% of its gross billings. However, it subsequently claims for refund contending that its income should
be taxed at the rate of 2 1/2% of its gross billings.
Issue:
Whether or not South African Airways’ income is sourced within the Philippines and is to be taxed at
32% of the gross billings.
Ruling:
Yes.In the instant case, the general rule is that resident foreign corporations shall be liable for a 32%
income tax on their income from within the Philippines, except for resident foreign corporations that are
international carriers that derive income “from carriage of persons, excess baggage, cargo and mail
originating from the Philippines” which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner,
being an international carrier with no flights originating from the Philippines, does not fall under the
exception. As such, petitioner must fall under the general rule. This principle is embodied in the Latin
maxim,exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be
regarded as coming within the purview of the general rule.
To reiterate, the correct interpretation of the above provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine
Billings, while international air carriers that do not have flights to and from the Philippines but nonetheless
earn income from other activities in the country will be taxed at the rate of 32% of such income.
Taxation of Non-Resident Corporations
N.V. REEDERIJ "AMSTERDAM" and ROYAL INTEROCEAN LINES vs. COMMISSIONER OF INTERNAL
REVENUE,
G.R. No. L-46029 June 23, 1988, J. Gancayco
A foreign corporation doing business in the Philippines is taxable on income solely from sources within
the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with
income earned in the Philippines.
Facts:
Both vessels of petitioner N.V. Reederij “Amsterdam” called on Philippine ports to load cargoes for
foreign destinations. The freight fees for these transactions were paid in abroad. In these two transactions,
petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income
tax has been paid by “Amsterdam” on the freight receipts. As a result, Commissioner of Internal Revenue filed
the corresponding income tax returns for the petitioner. Commissioner assessed petitioner for deficiency of
income tax, as a non-resident foreign corporation NOT engaged in trade or business. On the assumption that
the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal
Interocean Lines filed an income tax return of the aforementioned vessels and paid the tax in pursuant to
their supposed classification. On the same date, petitioner Royal Interocean Lines, as the husbanding agent of
“Amsterdam”, filed a written protest against the abovementioned assessment made by the respondent
Commissioner. The protest was denied. On appeal, CTA modified the assessment by eliminating the 50%
fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal
to the SC.
Issue:
Whether or not N.V. Reederij “Amsterdam” should be taxed as a foreign corporation not engaged in
trade or business in the Philippines.
Ruling:
Yes. Petitioner Amsterdam is a foreign corporation not authorized or licensed to do business in the
Philippines. It does not have a branch in the Philippines, and it only made two calls in Philippine ports, one in
1963 and the other in 1964. In order that a foreign corporation may be considered engaged in trade or
business, its business transactions must be continuous. A casual business activity in the Philippines by a
foreign corporation does not amount to engaging in trade or business in the Philippines for income tax
purposes.
Taxation of Partnerships
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA vs. THE COLLECTOR
OF INTERNAL REVENUE and THE COURT OF TAX APPEALS
G.R. No. L-9996 , October 15, 1957, J. Concepcion
For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships — with the exception only of duly registered general co-partnerships — within the purview of the
term "corporation."
Facts:
Petitioners Evangelistas seek a review of CTA’s decision holding them liable for income tax, real estate
dealer’s tax and residence tax. As stipulated, petitioners borrowed from their father a certain sum for the
purpose of buying real properties. Within February 1943 to April 1994, they have bought parcels of land from
different persons, the management of said properties was charged to their brother Simeon evidenced by a
document. These properties were then leased or rented to various tenants. On September 1954, CIR
demanded the payment of income tax on corporations, real estate dealer’s fixed tax, and corporation
residence tax to which the petitioners seek to be absolved from such payment.
Issue:
Whether petitioners formed a partnership thereby subject to the tax on corporations.
Ruling:
Yes. The essential elements of a partnership are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common fund. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, because of the following observations, among
others: (1) Said common fund was not something they found already in existence; (2) They invested the same,
not merely in one transaction, but in a series of transactions; (3) The aforesaid lots were not devoted to
residential purposes, or to other personal uses, of petitioners herein. Although, taken singly, they might not
suffice to establish the intent necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. For
purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships — with
the exception only of duly registered general co-partnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income tax for corporations.
______________________________________________________________________________________________________________________________
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR. vs. THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342 May 25, 1972
For tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved
by the court in the corresponding testate or intestate proceeding.
Facts:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A civil
case was instituted for the settlement of her state, in which Oña was appointed administrator and later on the
guardian of the three heirs who were still minors when the project for partition was approved. This shows
that the heirs have undivided ½ interest in 10 parcels of land, 6 houses and money from the War Damage
Commission.
Although the project of partition was approved by the Court, no attempt was made to divide the
properties and they remained under the management of Oña who used said properties in business by leasing
or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real
properties and securities. As a result, petitioners’ properties and investments gradually increased. Petitioners
returned for income tax purposes their shares in the net income but they did not actually receive their shares
because this left with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition for review from CTA’s decision.
Issue:
Whether or not there was a co-ownership or an unregistered partnership and thus liable for
deficiency corporate income tax.
Ruling:
Yes. The Tax Court found that instead of actually distributing the estate of the deceased among
themselves pursuant to the project of partition, the heirs allowed their properties to remain under the
management of Oña and let him use their shares as part of the common fund for their ventures, even as they
paid corresponding income taxes on their respective shares. For tax purposes, the co-ownership of inherited
properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or
intestate proceeding.
______________________________________________________________________________________________________________________________
MARIANO P. PASCUAL and RENATO P. DRAGON vs.

THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
G.R. No. 78133 October 18, 1988, J. Gancayco
The sharing of returns does not in itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the individual partners, and the freedom of
each party to transfer or assign the whole property.
Facts:
Petitioners bought two (2) parcels of land and a year after, they bought another three (3) parcels of
land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized net profits. The
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties
granted in the said years. However, the Acting BIR Commissioner assessed and required Petitioners to pay a
total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment asserting that they had availed of tax amnesties way back in 1974.
In a reply, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-
owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of
the National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is subject to individual income tax;
and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of
their individual income tax liabilities but did not relieve them from the tax liability of the unregistered
partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.
Issue:
Whether the Petitioners should be treated as an unregistered partnership.
Ruling:
No. Petitioners Pascual and Dragon are simply under the regime of co-ownership and not under
unregistered partnership. By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
In the present case, there is no evidence that petitioners entered into an agreement to contribute money,
property or industry to a common fund, and that they intended to divide the profits among themselves. The
sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a
joint or common right or interest in the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property. Hence, there is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. They shared in the
gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.
______________________________________________________________________________________________________________________________
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and
sistersv.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
G.R. No. L-68118, October 29, 1985, J.Aquino
“To regard the petitioners as having formed a taxable unregistered partnership would result in
oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality
should be obviated.”
Facts:
Jose Obillos, Sr. completed payment to Ortigas& Co., Ltd. on two lots. He transferred his rights to his
four children, to enable them to build their residences. After having held the two lots for more than a year, the
Obillos siblings resold them to the Walled City Securities Corporation and Olga Cruz Canda and treated the
profit as a capital gain and paid an income tax on one-half thereof or of P16,792.
One day before the expiration of the five-year prescriptive period, the Commissioner of Internal
Revenue (CIR) required the Obillos siblings to pay corporate income tax on the total profit of P134,336 in
addition to individual income tax on their shares thereof, and assessed P37,018 as corporate income tax,
P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56. the
Commissioner also considered the share of the profits of each Obillos in the sum of P33,584 as a " taxable in
full (not a mere capital gain of which ½ is taxable) and required them to pay deficiency income taxes
aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest. Thus, the Obillos
siblings are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by them.
The Obillos siblings contested the assessments. Two Judges of the Tax Court sustained the same.
Judge Roaquin dissented.
Issue:
Whether or not the Obillos siblings formed an unregistered taxable partnership.
Ruling:
No. it is error to consider the Obillos siblings as having formed a partnership under article 1767 of
the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves. As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-
ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated
transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated
sooner or later.
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or interest in
any property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.
What the Commissioner should have investigated was whether the father donated the two lots to the
siblings and whether he paid the donor's tax (See Art. 1448, Civil Code).
______________________________________________________________________________________________________________________________
AFISCO INSURANCE CORPORATION, et. al.v.COURT OF APPEALS, COURT OF TAX APPEALS and
COMISSIONER OF INTERNAL REVENUE
G.R. No. 112675, January 25, 1999, J.Panganiban
“Exemptions are highly disfavored in law and he who claims tax exemption must be able to justify his
claim or right.”
Facts:
The pool of machinery insurers entered into a Quota Share Reinsurance Treaty and a Surplus
Reinsurance Treaty with the MunchenerRuckversicherungs-Gesselschaft (Munich), a non-resident foreign
insurance corporation. The reinsurance treaties required petitioners to form a pool. the pool of machinery
insurers submitted a financial statement and filed an "Information Return of Organization Exempt from
Income Tax" for the year ending in 1975, on the basis of which it was assessed by the Commissioner of
Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the pool, respectively. The
Commissioner of Internal Revenue (CIR) denied the protest and ordered them " to pay deficiency income tax,
interest, and with [h]olding tax”.
The Court of Appeals (CA) ruled in the main that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latter's collection of premiums on behalf of its members, the ceding
companies, was taxable income. It added that prescription did not bar the Bureau of Internal Revenue (BIR)
from collecting the taxes due, because "the taxpayer cannot be located at the address given in the information
return filed."
Issue:
Whether or not the remittances to the pool and MUNICHRE of their respective shares of reinsurance
premiums, pertaining to their individual and separate contracts of reinsurance, were "dividends" subject to
tax.
Ruling:
Yes. The pool is taxable as a corporation, and that the government's right to assess and collect the
taxes had not prescribed. The opinion or ruling of the Commission of Internal Revenue, the agency tasked
with the enforcement of tax law, is accorded much weight and even finality, when there is no showing. That it
is patently wrong, particularly in this case where the findings and conclusions of the internal revenue
commissioner were subsequently affirmed by the CTA, a specialized body created for the exclusive purpose of
reviewing tax cases, and the Court of Appeals.
The pool is a taxable entity distinct from the individual corporate entities of the ceding companies.
The tax on its income is obviously different from the tax on the dividends received by the said companies.
Clearly, there is no double taxation here.
The tax exemptions claimed by the pool cannot be granted, since their entitlement thereto remains
unproven and unsubstantiated. It is axiomatic in the law of taxation that taxes are the lifeblood of the nation.
Hence, "exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to
justify his claim or right." The pool has failed to discharge this burden of proof.
______________________________________________________________________________________________________________________________
MYRTLE FRANCES BROCKI V.AMERICAN EXPRESS COMPANY AND DEMERY'S, INC.

279F.2d785, June 16th, 1960
“It is not questioned that should a state endow a business organization, by whatever name called, with
all the powers and characteristics of a corporation, without declaring it not to be one, it might be found to be a
corporation for diversity purposes.”
Facts:
Myrtle Frances Brocki (Brocki) a citizen of Michigan, filed an action against defendant American
Express Company (American Express), which was alleged to be "a corporation organized and existing under
and by virtue of the laws of the State of New York." The sole basis claimed for jurisdiction was diversity of
citizenship of the parties. The defendant first answered denying the allegation that it was a corporation and
alleging that it was an unincorporated joint-stock association having its principal office in New York City and
having stockholder-members resident in the State of Michigan and other states and asserting that it had no
citizenship other than that of its stockholder-members. American Express Company filed a motion to dismiss
the action for want of jurisdiction. The trial court, holding that diversity jurisdiction was lacking, dismissed
the action.
Issue:
Whether or not American Express is a corporation.
Ruling:
No. It seems plain that jurisdiction may be sustained here only if American Express can be held to be
a corporation of the State of New York. The fact that it may be sued by its common name is not enough. Nor is
it enough to say that American Express's organization has many features which permit it to operate and carry
on its functions in a manner indistinguishable from that followed by corporations. It is significant here that
the statute under which American Express was organized negatives an intention to treat such a joint-stock
association as a corporation. Article I, § 2, of the General Associations Law (McKinney's Consolidated Law of
New York Ann., c. 29, Vol. 18-A), provides: "As used in this chapter: 1. The term `joint stock association'
includes every unincorporated joint stock association, company or enterprise having written articles of
association and capital stock divided into shares, but does not include a corporation or a business trust."
It follows that we must consider this to be an unincorporated association, and hence it cannot be
deemed a citizen, apart from its members, for the purpose of diversity jurisdiction.
There is nothing unusual about provisions in state statutes that for the purposes of those acts joint-
stock associations, and other similar organizations, should be treated as corporations. Michigan has such a
statute. The validity of that provision has been upheld. But such provisions do not operate to make such
foreign organizations corporations for the purpose of diversity jurisdiction. The Michigan court itself has
repeatedly held that for purposes other than those specially named in this statute, and in its constitution,
which is similar to the New York constitution previously referred to, the distinction between corporations
and unincorporated organizations such as this appellee is fully recognized.
Other Corporate Tax Rules
Branch Profit Remittance Tax
MARUBENI CORPORATIONv.COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX APPEALS

G.R. No. 76573, September 14, 1989,J. Fernan
“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.”
Facts:
Marubeni Corporation is a foreign corporation based in Tokyo, Japan and duly licensed to engage in
business under Philippine Laws with branch office in Intramuros, Manila. It had equity investments with
Atlantic Gulf and Pacific Co. of Manila (AG&P) which declared and paid cash dividends to Marubeni’s head
office in Japan and withheld 10% final dividend tax and 15% branch profit remittance tax. Thereafter,
Marubeni sought a ruling from the Bureau of Internal Revenue (BIR) on whether or not the dividends it
received from AG&P are considered as income arising from the business activity in which Marubeni is
engaged subject to the 15% remittance tax. Acting Commissioner Ruben Ancheta ruled that the dividends
received by Marubeni are not considered branch profits for purposes of the 15% profit remittance tax. Thus,
Marubeni sought for its refund or issuance of tax credit but it was denied on the ground that as a recipient of
dividend income and a non-resident stockholder, Marubeni is subject to 25% tax by virtue of a tax treaty
between Philippines and Japan.
Marubeni appealed to the Court of Tax Appeals (CTA) arguing that since the Philippine Branch and
the Tokyo head office are one and the same entity, hence should be considered as a resident foreign
corporation, its dividend income should be subject to a final tax of 10% on the total amount thereof pursuant
to section 24(c)(1) of the Tax Code of 1997.However, CTA affirmed the denial of the refund by the CIR. Hence,
this petition was filed.
Issue:
Whether or not Marubeni Corporation’s dividend income is subject to 15% Branch Profit Remittance
Tax.
Ruling:
No.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.
It is thus clear that Marubeni, having made this independent investment attributable only to the head
office, cannot now claim the increments as ordinary consequences of its trade or business in the Philippines.
______________________________________________________________________________________________________________________________
BANK OF AMERICA NT & SA v.HONORABLE COURT OF APPEALS, AND THE COMMISSIONER OF

INTERNAL REVENUE
G.R. No. 103106, July 21, 1994, J.Vitug
The remittance tax was conceived in an attempt to equalize the income tax burden on foreign
corporations maintaining, on the one hand, local branch offices and organizing, on the other hand, subsidiary
domestic corporations where at least a majority of all the latter's shares of stock are owned by such foreign
corporations.
Facts:
Bank of America NT & SA (Bank of America) is a foreign corporation duly licensed to engage in
business in the Philippines with Philippine branch office inMakati. It paid 15% branch profit remittance tax
on profit from its regular banking unit operations and from its foreign currency deposit unit operations. The
tax was based on net profits after income tax without deducting the amount corresponding to the 15% tax.
Bank of America filed a claim for refund with the Bureau of Internal Revenue argued that the 15%
branch profit remittance tax based on Section 24(b) (2) (ii) of the National Internal Revenue Codeshould be
assessed on the amount actually remitted abroad, which is to say that the 15% profit remittance tax itself
should not form part of the tax base. Commissioner of Internal Revenue, contending otherwise, holds the
position that, in computing the 15% remittance tax, the tax should be inclusive of the sum deemed remitted.
The Court of Tax Appeals (CTA) upheld the bank in its claim for refund on the ground that the
legislative intent behind the aforesaid law was to mitigate at least the harshness of successive taxation. The
use of the word remitted may well be understood as referring to that part of the said total branch profits
which would be sent to the head office as distinguished from the total profits of the branch (not all of which
need be sent or would be ordered remitted abroad).
The Commissioner of Internal Revenue (CIR) filed a timely appeal to the Supreme Court which
referred it to the Court of Appeals (CA). The CA set aside the decision of the Court of Tax Appeals on the
ground that if the legislature indeed had wanted to mitigate the harshness of successive taxation, it would
have been simpler to just lower the rates without in effect requiring the relatively novel and complicated way
of computing the tax. Hence, this petition for review was filed.
Issue:
Whether or not the 15% Branch Profit Remittance tax should be applied on the total amount of profit
remitted abroad based on Section 24(b) (2) (ii) of the National Internal Revenue Code, in the language it was
worded in 1982 (the taxable period relevant to the case at bench).
Ruling:
No. Section 24(b) (2) (ii) of the National Internal Revenue Code provides in part that any profit
remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15%) xxx.
There is absolutely nothing in Section 24(b) (2) (ii), supra, which indicates that the 15% tax on
branch profit remittance is on the total amount of profit to be remitted abroad which shall be collected and
paid in accordance with the tax withholding device provided in Sections 53 and 54 of the Tax Code. The
statute employs "Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen
per cent (15%)". xxx Where the law does not qualify that the tax is imposed and collected at source based on
profit to be remitted abroad, that qualification should not be read into the law.It is a basic rule of statutory
construction that there is no safer nor better canon of interpretation than that when the language of the law is
clear and unambiguous, it should be applied as written. And to our mind, the term "any profit remitted
abroad" can only mean such profit as is "forwarded, sent, or transmitted abroad" as the word "remitted" is
commonly and popularly accepted and understood. To say therefore that the tax on branch profit remittance
is imposed and collected at source and necessarily the tax base should be the amount actually applied for the
branch with the Central Bank as profit to be remitted abroad is to ignore the unmistakable meaning of plain
words.
In the 15% remittance tax, the law specifies its own tax base to be on the "profit remitted abroad."
There is absolutely nothing equivocal or uncertain about the language of the provision. The tax is imposed on
the amount sent abroad, and the law (then in force) calls for nothing further. The taxpayer is a single entity,
and it should be understandable if, such as in this case, it is the local branch of the corporation, using its own
local funds, which remits the tax to the Philippine Government.
Minimum Corporate Income Tax
CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. v.

THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE
JUANITA D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO,
JR.
G.R. No. 160756, March 9, 2010, J. Corona
The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a
corporation in the sale of its goods, i.e., the cost of goodsand other direct expenses from gross sales. Clearly, the
capital is not being taxed.
Facts:
Chamber of Real Estate and Builder’s Associations, Inc. (CREBA) is an association of real estate
developers and builders in the Philippines. CREBA claims that theMinimum Corporate Income Tax (MCIT)
under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive, arbitrary and confiscatory
which amounts to deprivation of property without due process of law. It explains that gross income as
defined under said provision only considers the cost of goods sold and other direct expenses; other major
expenditures, such as administrative and interest expenses which are equally necessary to produce gross
income, were not taken into account. Thus, pegging the tax base of the MCIT to a corporation’s gross income is
tantamount to a confiscation of capital because gross income, unlike net income, is not "realized gain."
Issue:
Whether or not MCIT is violative of Due Process.
Ruling:
No. The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a
corporation in the sale of its goods, i.e., the cost of goodsand other direct expenses from gross sales. Clearly,
the capital is not being taxed.Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieuof
the normal net income tax, and only if the normal income tax is suspiciously low. The MCIT merely
approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced
2% and uses as the base the corporation’s gross income.
Moreover, CREBA alleges that Revenue Regulation (RR) 9-98 is a deprivation of property without due process
of law because the MCIT is being imposed and collected even when there is actually a loss, or a zero or
negative taxable income. RR 9-98, in declaring that MCIT should be imposed whenever such corporation has
zero or negative taxable income, merely defines the coverage of Section 27(E). This means that even if a
corporation incurs a net loss in its business operations or reports zero income after deducting its expenses, it
is still subject to an MCIT of 2% of its gross income. This is consistent with the law which imposes the MCIT
on gross income notwithstanding the amount of the net income. But the law also states that the MCIT is to be
paid only if it is greater than the normal net income. Obviously, it may well be the case that the MCIT would
be less than the net income of the corporation which posts a zero or negative taxable income.
______________________________________________________________________________________________________________________________
THE MANILA BANKING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. NO. 168118, August 28, 2006, J. Sandoval-Guttierrez
For a thrift bank, the date of commencement of operations is the date the particular thrift bank was
registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary
Board of the BSP, whichever comes later, as provided in Revenue Regulation No. 4-95. Manila Bank was
authorized by BSP to operate as a thrift bank in 1999 hence, the imposition of the 2% MCIT should start after 4
years from 1999.
Facts:
Manila Bank, a commercial bank, was registered with BIR in 1961 and was ordered closed due to
insolvency in 1987. In 1998, Comprehensive Tax Reform Act imposed a Minimum Corporate Income Tax on
domestic and resident foreign corporations. The implementing law, Revenue Regulation #9-98, allows a
4year period from the time the corporations were registered with the BIR during which the minimum
corporate income tax should not be imposed. Then in 1999, Manila Bank was allowed to resume its business
operations but now as a thrift bank.
Issue:
Whether or not Manila Bank, acting as a thrift bank, is entitled to a refund of its minimum corporate
income tax paid to BIR for 1999
Ruling:
Yes. Manila Bank, now operating as a thrift bank, is a different entity from the commercial bank
although it used its old business name. For a thrift bank, the date of commencement of operations is the date
the particular thrift bank was registered with the SEC or the date when the Certificate of Authority to Operate
was issued to it by the Monetary Board of the BSP, whichever comes later, as provided in Revenue Regulation
No. 4-95. Manila Bank was authorized by BSP to operate as a thrift bank in 1999 hence, the imposition of the
2% MCIT should start after 4 years from 1999.
______________________________________________________________________________________________________________________________
CYANAMID PHILIPPINES, INC. v. THE COURT OF APPEALS, THE COURT OF TAX APPEALS AND
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 108067, January 20, 2000, J. Quisumbing
In order to determine whether profits are accumulated for the reasonable needs of the business to avoid
the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the
time of accumulation, not intentions declared subsequently, which are mere afterthoughts.Furthermore, the
accumulated profits must be used within a reasonable time after the close of the taxable year.
Facts:
Cyanamid is a corporation organized under Philippine laws and is a wholly owned subsidiary of
American Cyanamid Co. based in Maine, USA. In 1985, the CIR assessed on Cyanamid a deficiency income tax
of P119,817 for the year 1981. Cyanamid protested the assessments particularly the 25% surtax for undue
accumulation of earnings. It claimed that said profits were retained to increase its working capital and it
would be used for reasonable business needs of the company.
Issue:
Whether or not Cyanamid Philippines, Inc. is liable for the accumulated earnings tax for the year
1981
Ruling:
Yes. In order to determine whether profits are accumulated for the reasonable needs of the business
to avoid the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is
manifested at the time of accumulation, not intentions declared subsequently, which are mere
afterthoughts.Furthermore, the accumulated profits must be used within a reasonable time after the close of
the taxable year. In the instant case, Cyanamid Philippines did not establish by clear and convincing evidence
that such accumulation of profit was for the immediate needs of the business. Also, the amendatory provision
of Section 25 of the 1977 NIRC, which was PD 1739, enumerated the corporations exempt from the
imposition of improperly accumulated tax: (a) banks; (b) non-bank financial intermediaries; (c) insurance
companies; and (d) corporations organized primarily and authorized by the Central Bank of the Philippines to
hold shares of stocks of banks. Cyanamid Philippines does not fall among those exempt classes.
HELVERING v. NATIONAL GROCERY CO.

304 U.S. 282, May 16, 1938
Depreciation in the market value of securities which the corporation continues to hold does not, as
matter of law, preclude a finding that the accumulation of the year's profits was in excess of the reasonable
needs of the business.
Facts:
National Grocery Company is a New Jersey corporation, which operates chain stores. Since 1911, it
has had $200,000 capital stock, all owned beneficially by Henry Kohl. In the year ending January 31, 1931, the
corporation's books showed a net profit of $682,850.38, after paying $104,000 to Kohl as salary and the
regular federal corporation income tax of 12%. Its surplus, as shown by its books, increased during the year
from $7,245,824.26 to $7,938,965.54; that is $ 693,141.28. However, it paid no dividend. The Commissioner
of Internal Revenue, having found that the corporation had been availed of for the purpose of preventing the
imposition of the surtax upon Kohl by permitting the gains and profits to accumulate, assessed upon it, under
section 104 of the Revenue Act of 1928, a deficiency tax of $477, 322.81 for the tax year. The corporation
contends that section 104 was not applicable because there were no 'gains and profits' within the tax year
because the depreciation in the securities owned, none of which were sold, exceeded $2,000,000.
Issue:
Whether or not the National Grocery Company is liable to pay the improperly accumulated earnings
tax.
Ruling:
Yes. National Grocery Company's accumulation of earnings was far in excess of the 'reasonable
needs' of the corporate business. Depreciation in the market value of securities which the corporation
continues to hold does not, as matter of law, preclude a finding that the accumulation of the year's profits was
in excess of the reasonable needs of the business. Also, the list of these bonds and stocks showed that they
were in no way related to a grocery business and that there was no need of accumulating any part of the
year's earnings for the purpose of financing the business was shown by the balance sheet. The notes payable
and the mortgage had also been discharged. Hence, the purpose of accumulating this huge surplus was to
escape the imposition upon Kohl of surtaxes. He needed personally further sums and took these in the form of
loans. These loans are incompatible with a purpose to strengthen the financial position of the National
Grocery Company, but entirely accord with a desire to get the equivalent of his dividends under another
guise. Moreover, no conceivable expansion could have utilized so large a surplus. The high taxes were first
imposed in 1919. After that time no dividend was paid until after the close of the taxable year here involved.
Thus, independently of the presumption prescribed in section 104(b) of the act, there was ample evidence to
support the finding that National Grocery Company is liable for the improperly accumulated earnings tax.
Tax Sparing Credit (TSC)
COMMISSIONER OF INTERNAL REVENUE v. PROCTER & GAMBLE PHILIPPINE MANUFACTURING

CORPORATION AND THE COURT OF TAX APPEALS
G.R. No. 66838, December 02, 1991, J. Feliciano
The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of
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.
Facts:
Procter and Gamble Philippines declared dividends payable to its parent company and sole
stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding
tax to the BIR which amounted to Php 8.3M. It subsequently filed a claim with the CIR for a refund or tax
credit, claiming that pursuant to Section 24(b)(1) of the NIRC, as amended by PD No. 369, the applicable rate
of withholding tax on the dividends remitted was only 15%.
Issue:
Whether or not P&G Philippines is entitled to the refund or tax credit.
Ruling:
YES. The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate
stockholders of 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. Such tax
credit for taxes deemed paid in the Philippines must, as a minimum, reach an amount equivalent to 20
percentage points which represents the difference between the regular 35% dividend tax rate and the
preferred 15% tax rate. Since the US Congress desires to avoid or reduce double taxation of the same income
stream, it allows a tax credit of both (i) the Philippine dividend tax actually withheld, and (ii) the tax credit for
the Philippine corporate income tax actually paid by P&G Philippines but deemed paid by P&G USA.
Moreover, under the Philippines-United States Convention with respect to Taxes on Income, the Philippines,
by 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, and established a treaty obligation on the part of the United States
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 Philippine subsidiary.
Exemmption from Tax on Corporations
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF TAX APPEALS AND YOUNG
MEN’S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC.
G.R. No. 124043, October 14, 1998, J. Panganiban
While the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC
is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption
does not apply to income derived from any of their properties, real or personal, or from any of their activities
conducted for profit, regardless, of the disposition made of such income. Moreover, what is exempted by Article
VI, Section 28, paragraph 3 of the 1987 Constitution is not the institution itself; the exemption pertains only to
property taxes.
Facts:
Young Men’s Christian Association of the Philippines, Inc. (YMCA), a non-stock, non-profit institution,
which conducts various programs and activities that are beneficial to the public pursuant to its religious,
educational, and charitable objectives, is contesting the tax assessment made upon it by the CIR, citing Article
VI, Section 28, paragraph 3 of the 1987 Constitution.
Issue:
Whether or not the rental income of the YMCA from its real estate is subject to tax
Ruling:
Yes. The income of whatever kind and character of an organization not organized for profit but
operated exclusively for the promotion of social welfare from any of their properties, real or personal, or
from any of their activities conducted for profit, regardless of the disposition made of such income, shall be
subject to the tax imposed under this Code.While the income received by the organizations enumerated in
Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income
received by them as such," the exemption does not apply to income derived from any of their properties, real
or personal, or from any of their activities conducted for profit, regardless, of the disposition made of such
income. Moreover, what is exempted by Article VI, Section 28, paragraph 3 of the 1987 Constitution is not the
institution itself; the exemption pertains only to property taxes. Thus, YMCA is exempt from the payment of
property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-
stock, non-profit educational institution is insufficient to justify its exemption from the payment of income
tax.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE’S MEDICAL CENTER, INC.

G.R. No. 195909, September 26, 2012, J. Carpio
ST. LUKE’S MEDICAL CENTER, INC. v. COMMISSIONER OF INTERNAL REVENUE.

G.R. NO. 195960
An institution under Sec. 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit
activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Sec.
27(B).
Facts:
St. Luke's is a non-stock non-profit hospital. It accepts both paying and non-paying patients. The BIR
assessed St. Luke's deficiency taxes for 1998 comprised of deficiency income tax, VAT, and withholding tax.
BIR claimed that St. Luke’s should be liable for income tax at a preferential rate of 10% as provided in Sec.
27(B) of NIRC. Further, BIR claimed that St. Luke’s was actually operating for profit in 1998 because only 13%
of its revenues came from charitable purposes. Moreover, the hospital’s board of trustees, officers and
employees directly benefit from its profits and assets. St. Luke's countered by saying that its free services to
patients was 65% of its operating income and that no part of its income inures to the benefit of any
individual, and that it is exempt from income tax under Sec. 30(E) and (G) of NIRC. It argued that the making
of profit per se does not destroy its income tax exemption.
Issue:
Whether or not St. Luke’s is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals..
Ruling:
Yes. St. Luke’s is a corporation that is not “operated exclusively” for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned. Sec. 30(E) and (G) of the NIRC requires
that an institution be “operated exclusively” for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Sec. 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Sec. 27(B). St. Luke’s fails to meet the requirements under Sec. 30(E) and
(G) of the NIRC to be completely tax exempt from all its income. However, it remains a proprietary non-profit
hospital under Sec. 27(B) of the NIRC as long as it does not distribute any of its profits to its members and
such profits are reinvested pursuant to its corporate purposes. St. Luke’s, as a proprietary non-profit hospital,
is entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
______________________________________________________________________________________________________________________________
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL

REVENUE, represented by JOSE MARIO BUNAG, in his capacity as Commissioner of the Bureau of
Internal Revenue, and JOHN DOE and JANE DOE, who are Promulgated: persons acting for, in behalf or
under the authority of respondent
G.R. No. 215427, December 10, 2014, PERALTA, J.
The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is
subject to tax. This is the most sound and logical interpretation because a person could not have been exempted
from paying taxes which it was not liable to pay in the first place.
Facts:
Pursuant to the decision of the Court in the case entitled Philippine Amusement and Gaming
Corporation (PAGCOR) v. The Bureau of Internal Revenue, et al. which was promulgated on March 15, 2011,
wherein the Court upheld the constitutionality and validity of Section 1 of RA No. 9337 insofar as it amends
Section 27(C) of the NIRC by excluding petitioner PAGCOR from the enumeration of the GOCCs exempted
from liability for corporate income tax, respondent BIR issued Revenue Memorandum Circular No. 33-2013
(RMC) which clarifies the Income Tax and Franchise Tax due from petitioner PAGCOR, its contractees and
licensees. Under the said RMC, PAGCOR is liable to pay income tax and 5% franchise tax on its income from its
operations and licensing of gambling casinos, gaming clubs and other similar recreation or amusement
places, gaming pools (income from gaming operations), as well as its income from its operation of necessary
and related services (income from other related services). Contending that the RMC constitutes an erroneous
interpretation and application of the aforementioned decision of the Supreme Court, PAGCOR, filed the
present Petition seeking a clarification with respect to its tax liabilities.
Issue:
Whether or not PAGCOR is liable to pay corporate income tax on both its income from gaming
operations as well as its income from other related services.
Ruling:
No. After a thorough study of the arguments and points raised by the parties, and in accordance with
our Decision dated March 15, 2011, we sustain petitioner’s contention that its income from gaming
operations is subject only to five percent (5%) franchise tax under P.D. 1869, as amended, while its income
from other related services is subject to corporate income tax pursuant to P.D. 1869, as amended, as well as
R.A. No. 9337. This is demonstrable.
First. Under P.D. 1869, as amended, petitioner is subject to income tax only with respect to its
operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of R.A. No.
8424 clearly pertains only to petitioner’s income from operation of related services. Such income tax
exemption could not have been applicable to petitioner’s income from gaming operations as it is already
exempt therefrom under Section 13 of P.D. 1869. Indeed, the grant of tax exemption or the withdrawal
thereof assumes that the person or entity involved is subject to tax. This is the most sound and logical
interpretation because petitioner could not have been exempted from paying taxes which it was not liable to
pay in the first place. This is clear from the wordings of P.D. 1869, as amended, imposing a franchise tax of
five percent (5%) on its gross revenue or earnings derived by petitioner from its operation under the
Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature, which
necessarily include corporate income tax.
Second. Every effort must be exerted to avoid a conflict between statutes; so that if reasonable
construction is possible, the laws must be reconciled in that manner. As we see it, there is no conflict between
P.D. 1869, as amended, and R.A. No. 9337. The former lays down the taxes imposable upon petitioner, as
follows: (1) a five percent (5%) franchise tax of the gross revenues or earnings derived from its operations
conducted under the Franchise, which shall be due and payable in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or
national government authority; (2) income tax for income realized from other necessary and related services,
shows and entertainment of petitioner. With the enactment of R.A. No. 9337, which withdrew the income tax
exemption under R.A. No. 8424, petitioner’s tax liability on income from other related services was merely
reinstated.It cannot be gain said, therefore, that the nature of taxes imposable is well defined for each kind of
activity or operation. There is no inconsistency between the statutes; and in fact, they complement each
other.
Third. Even assuming that an inconsistency exists, P.D. 1869, as amended, which expressly provides
the tax treatment of petitioner’s income prevails over R.A. No. 9337, which is a general law. It is a canon of
statutory construction that a special law prevails over a general law — regardless of their dates of passage —
and the special is to be considered as remaining an exception to the general.
Allowable Deductions from Gross Income
ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL

REVENUE
G.R. No. L-26911, January 27, 1981, DE CASTRO, J.
Efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses related
thereto are not business expense but capital expenditures.
Facts:
Atlas Consolidated Mining & Development Corporation (Atlas) is a corporation engaged in the mining
industry registered under the laws of the Philippines. In 1957 and 1958 the CIR issued deficiency income tax
assessments where Atlas was assessed P546,295.16 for 1957 and P215,493.96 for 1958 deficiency income
taxes. Atlas protested the assessment asking for its reconsideration and cancellation. Acting on the protest,
the CIR conducted a reinvestigation of the case which resulted to the elimination of the assessment for the
year 1957 and the reduction of the assessment for the year 1958. The deficiency income tax for the year 1958
was the result of CIR’s disallowance of certain items claimed by Atlas as deductible from its gross income. On
appeal the CTA reversed the decision of the CIR and allowed the items claimed by Atlas to be deductible from
its gross income to be deducted therefrom, except however the items denominated as stockholders relation
service fee and suit expenses. Hence, the present petitions wherein both parties questioned the decision of
the CTA.
Atlas argued that the stockholders relation service fee was paid for the services provided by P. K.
Macker & Company, a public relations firm, which services included the giving out of information to the
public regarding the operation of Atlas which was aimed at creating a favorable image and goodwill in order
for Atlas to gain or maintain their patronage.
Issue:
Whether or not the expenses paid for the services rendered by a public relations firm P.K MacKer &
Co. labelled as stockholders relation service fee is an allowable deduction as business expense under Section
30 (a) (1) of the National Internal Revenue Code.
Ruling:
No. The expenditure of P25,523.14 paid to P.K. Macker & Co. as compensation for services carrying
on the selling campaign in an effort to sell Atlas' additional capital stock of P3,325,000 is not an ordinary
expense and not deductible, because expenses relating to recapitalization and reorganization of the
corporation (Missouri-Kansas Pipe Line vs. Commissioner of Internal Revenue, 148 F. (2d), 460; Skenandos
Rayon Corp. vs. Commissioner of Internal Revenue, 122 F. (2d) 268, Cert. denied 314 U.S. 6961), the cost of
obtaining stock subscription (Simons Co., 8 BTA 631), promotion expenses (Beneficial Industrial Loan Corp. vs.
Handy, 92 F. (2d) 74), and commission or fees paid for the sale of stock reorganization (Protective Finance
Corp., 23 BTA 308) are capital expenditures.That the expense in question was incurred to create a favorable
image of the corporation in order to gain or maintain the public's and its stockholders' patronage, does not
make it deductible as business expense. As held in the case of Welch vs. Helvering, efforts to establish
reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are not business
expense but capital expenditures.
As to the deductibility of the suit expenses the Court ruled that there is no question that, as held by
the Court of Tax Appeals, the litigation expenses under consideration were incurred in defense of Atlas title to
its mining properties. In line with the decision of the U.S. Tax Court in the case of Safety Tube Corp. vs.
Commissioner of Internal Revenue, it is well settled that litigation expenses incurred in defense or protection
of title are capital in nature and not deductible. Likewise, it was ruled by the U.S. Tax Court that expenditures
in defense of title of property constitute a part of the cost of the property, and are not deductible as expense.
______________________________________________________________________________________________________________________________
HOSPITAL DE SAN JUAN DE DIOS, INC.v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-31305, May 10, 1990, GRIÑO-AQUINO, J.
For an expense to be deductible from the gross income the same must be incurred in the carrying on of a
trade or business.
Facts:
In 1959 the Commissioner of Internal Revenue (CIR) assessed and demanded from the petitioner,
Hospital De San Juan De Dios, Inc., payment of deficiency income taxes for the years 1952 to 1955 which
deficiency represented the expenses incurred by petitioner from handling or managing the interests and
dividends received by it from certain investments which petitioner deducted from its gross income as
administrative expense. The petitioner protested against the assessment and requested the CIR to cancel and
withdraw it. The CIR however denied the request of petitioner. Consequently, petitioner sought a review of
the assessment before the CTA. The CTA upheld the decision of the CIR and held that the expenses incurred
by the petitioner for handling its funds or income consisting solely of dividends and interests, were not
expenses incurred in "carrying on any trade or business," hence, not deductible as business or administrative
expenses.
Issue:
Whether or not the expenses incurred by petitioner for handling the interests and dividends received
by it constituted administrative expenses which can be deducted from its gross income.
Ruling:
No. The Court of Tax Appeals found that the interests and dividends received by the petitioner "were
merely incidental income to petitioner's main activity, which is the operation of its hospital and nursing
schools [hence] the conclusion is inevitable that petitioner's activities never went beyond that of a passive
investor, which under existing jurisprudence do not come within the purview of carrying on any 'trade or
business'." (pp. 47-48, Rollo) That factual finding is binding on this Court. And, as the principle of allocating
expenses is grounded on the premise that the taxable income was derived from carrying on a trade or
business, as distinguished from mere receipt of interests and dividends from one's investments, the Court of
Tax Appeals correctly ruled that said income should not share in the allocation of administrative expenses (p.
49, Rollo).
Hospital de San Juan De Dios, Inc., according to its Articles of Incorporation, was established for
purposes "Which are benevolent, charitable and religious, and not for financial gain" (p. 12, Petitioner's
Brief). It is not carrying on a trade or business for the word "business" in its ordinary and common use means
"human efforts which have for their end living or reward; it is not commonly used as descriptive of charitable,
religious, educational or social agencies" or "any particular occupation or employment habitually engaged in
especially for livelihood or gain" or "activities where profit is the purpose or livelihood is the motive."
______________________________________________________________________________________________________________________________
ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company) v. THE COMMISSIONER OF
INTERNAL REVENUE
G.R. Nos. L-28508-9, July 7, 1989, CRUZ, J.
A margin fee is not a tax but an exaction designed to curb the excessive demands upon our international
reserve. Also, margin fees are not expenses incurred in connection with the production of a taxpayer’s incomes in
the Philippines.
Facts:
In 1959 and 1960 the CIR issued deficiency income tax assessments against petitioner Esso Standard
Eastern, Inc. (Esso). The deficiency arouse from the disallowance by the CIR of the margin fees Esso had paid
to the Central Bank on its profit remittances to its New York head office, which fees were deducted, as
business expense, by Esso from its gross income. Esso maintains that the margin fees it had paid for its
remittance to the head office in the Unites States constitutes a tax which should be deducted from its gross
income pursuant to Sec. 30 (c) of the NIRC which provides that all taxes paid or accrued during or within the
taxable year and which are related to the taxpayer's trade, business or profession are deductible from gross
income. Alternatively, Esso prays that if margin fees are not taxes, they should nevertheless be considered
necessary and ordinary business expenses and therefore still deductible from its gross income. The fees were
paid for the remittance by Esso as part of the profits to the head office in the Unites States. Such remittance
was an expenditure necessary and proper for the conduct of its corporate affairs.
Issue:
Whether or not the margin fees paid by the petitioner to the Central Bank on its profit remittances to
its New York head office should be deductible from Esso's gross income under Sec. 30 of the National Internal
Revenue Code.
Ruling:
No. A margin fee is not a tax but an exaction designed to curb the excessive demands upon our
international reserve. Considering the foregoing test of what constitutes an ordinary and necessary
deductible expense, it may be asked: Were the margin fees paid by petitioner on its profit remittance to its
Head Office in New York appropriate and helpful in the taxpayer's business in the Philippines? Were the
margin fees incurred for purposes proper to the conduct of the affairs of petitioner's branch in the
Philippines? Or were the margin fees incurred for the purpose of realizing a profit or of minimizing a loss in
the Philippines? Obviously not. The margin fees are not expenses in connection with the production or
earning of petitioner's incomes in the Philippines. They are expenses incurred in the disposition of said
incomes; expenses for the remittance of funds after they have already been earned by petitioner's branch in
the Philippines for the disposal of its Head Office in New York which is already another distinct and separate
income taxpayer.
Since the margin fees in question were incurred for the remittance of funds to petitioner's Head
Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for
its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the
development of petitioner's business in the Philippines exclusively or were incurred for purposes proper to
the conduct of the affairs of petitioner's branch in the Philippines exclusively or for the purpose of realizing a
profit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees were incurred for
purposes proper to the conduct of the corporate affairs of Standard Vacuum Oil Company in New York, but
certainly not in the Philippines.It is clear that ESSO, having assumed an expense properly attributable to its
head office, cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its
own trade or business.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX APPEALS
G.R. No. L-28896 February 17, 1988, CRUZ, J.
In computing the net income, the NIRC allows as deductions the ordinary and necessary expenses
incurred by a taxpayer in carrying on any trade or business, including a reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service. Should payments for
services pass this test such payments shall be considered to be necessary expenses which can then be deducted
from the gross income of a taxpayer.
Facts:
Private respondent Algue Inc. (Algue) was appointed by Philippine Sugar Estate Development
Company (PSEDC) as its agent and was authorized by the latter to sell its properties. Pursuant to this
authority the employees of Algue worked for the formation of the Vegetable Oil Investment Corporation
which corporation bought the properties of PSEDC. As a result of this sale Algue received from PSEDC agent’s
commission some of which were paid to the employees of Algue as promotional fees for the services it
rendered.
Subsequently, petitioner CIR sent a letter to private respondent Algue assessing the latter of
delinquency income taxes for the years 1958 and 1959. The delinquency income tax arouse from the CIR’s
disallowance of the promotional fees claimed by Algue as an allowable deduction from its gross income.
Claiming that the said promotional fees are considered to be ordinary expenses, thus, deductible from its
gross income, Algue filed a letter of protest or request for reconsideration with the CIR. However, the CIR
failed to act on the said letter of protest prompting Algue to file a petition for review with the CTA. The CTA
ruled in favor of Algue and held that the CIR erred in disallowing the deduction claimed by Algue amounting
to 75,000 as the same was an ordinary reasonable or ordinary expenses which under the NIRC is an allowable
deduction. Hence, this petition.
The CIR maintains that the payments of the promotional fees are fictitious because most of the
payees are members of the same family in control of Algue. The CIR suggests that Algue is guilty of tax
dodging or an attempt to evade a legitimate assessment by involving an imaginary deduction.
Issue:
Whether or not the CIR correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.
Ruling:
No. It should be remembered that this was a family corporation where strict business procedures
were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when
the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make
up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.
The Court agrees with the respondent court that the amount of the promotional fees was not
excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. After deducting the said promotional fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission.
This was a reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. ISABELA CULTURAL CORPORATION

G.R. No. 172231, February 12, 2007, Ynares-Santiago, J.
Under the accrual method of accounting, expenses not being claimed as deductions by a taxpayer in the
current year when they are incurred cannot be claimed as deduction from income for the succeeding year.
Facts:
In 1990 respondent Isabela Cultural Corporation (ICC) received an assessment notice from petitioner
CIR for deficiency income tax for the year 1986. The deficiency income tax arouse from CIR's disallowance of
ICC’s claimed expense deductions for professional and security services billed to and paid by ICC in 1986
which included (a) Expenses for the auditing services of SGV & Co., for the year ending December 31, 1985;
(b) Expenses for the legal services [inclusive of retainer fees] of the law firm Bengzon Zarraga Narciso Cudala
Pecson Azcuna & Bengson for the years 1984 and 1985 (c) Expense for security services of El Tigre Security &
Investigation Agency for the months of April and May 1986. ICC sought a reconsideration of the subject
assessment which however was denied by the CIR. This prompted ICC to file a petition for review with the
CTA. The CTA ruled in favor of ICC and cancelled the assessment issued by the CIR against ICC. It held that
that the claimed deductions for professional and security services were properly claimed by ICC in 1986. On
appeal, the CA affirmed the decision of the CTA.The CIR maintains that since ICC is using the accrual method
of accounting, the expenses for the professional services that accrued in 1984 and 1985, should have been
declared as deductions from income during the said years and the failure of ICC to do so bars it from claiming
said expenses as deduction for the taxable year 1986.
Issue:
Whether or notthe CA correctly sustained the deduction of the expenses for professional and security
services from ICC’s gross income.
Ruling:
No.The accounting method used by ICC is the accrual method. Revenue Audit Memorandum Order
No. 1-2000 provides that under the accrual method of accounting, expenses not being claimed as deductions
by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the
succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable
deductions for the current year but failed to do so cannot deduct the same for the next year.For a taxpayer
using the accrual method, the determinative question is, when do the facts present themselves in such a
manner that the taxpayer must recognize income or expense? The accrual of income and expense is permitted
when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to pay; and
(2) the availability of the reasonable accurate determination of such income or liability.The all-events test is
satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a
computation may be unknown, but is not as much as unknowable, within the taxable year.
In the instant case, the expenses for professional fees consist of expenses for legal and auditing
services. The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm
Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of said
firm in connection with ICC’s tax problems for the year 1984. As testified by the Treasurer of ICC, the firm has
been its counsel since the 1960’s. From the nature of the claimed deductions and the span of time during
which the firm was retained, ICC can be expected to have reasonably known the retainer fees charged by the
firm as well as the compensation for its legal services. The failure to determine the exact amount of the
expense during the taxable year when they could have been claimed as deductions cannot thus be attributed
solely to the delayed billing of these liabilities by the firm. For one, ICC, in the exercise of due diligence could
have inquired into the amount of their obligation to the firm, especially so that it is using the accrual method
of accounting. For another, it could have reasonably determined the amount of legal and retainer fees owing
to its familiarity with the rates charged by their long time legal consultant. In the same vein, the professional
fees of SGV & Co. for auditing the financial statements of ICC for the year 1985 cannot be validly claimed as
expense deductions in 1986. This is so because ICC failed to present evidence showing that even with only
"reasonable accuracy," as the standard to ascertain its liability to SGV & Co. in the year 1985, it cannot
determine the professional fees which said company would charge for its services.
ICC thus failed to discharge the burden of proving that the claimed expense deductions for the
professional services were allowable deductions for the taxable year 1986. Hence, per Revenue Audit
Memorandum Order No. 1-2000, they cannot be validly deducted from its gross income for the said year and
were therefore properly disallowed by the BIR.
As to the expenses for security services, the records show that these expenses were incurred by ICC
in 1986 and could therefore be properly claimed as deductions for the said year.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. GENERAL FOODS (PHILS.), INC.

G.R. No. 143672, April 24, 2003, J Corona
To be deductible, an advertising expense should not only be necessary but also ordinary. These two
requirements must be met.
Facts:
General Foods Inc. (GFI), herein respondent, filed its income tax return for the fiscal year ending
February 28, 1985. In said return, GFI claimed as deduction among other business expenses the amount of
P9,461,246 for media advertising for Tang. Thereafter the BIR disallowed 50% or P4,730,623 of the
deduction claimed by GFI. Consequently, GFI was assessed the deficiency income tax amounting to
P2,635,141.42. This prompted GFI to file a case before the CTA questioning the decision of the BIR as regards
the disallowance of the deduction. The CTA dismissed the petition of GFI and upheld the decision of the BIR.
On appeal with the CA, the CA reversed and set aside the decision of the CTA. The BIR assails the decision of
the CA before the SC. The BIR posits that the costs for advertising were not an ordinary expense contemplated
by the NIRC for it to be considered as a deductible in gross income for income tax return, hence this petition.
Issue:
Whether the advertising costs incurred by GFI can be considered as a deductible in the gross income
for purposes of income tax return
Ruling:
No, the advertising cost cannot be considered as a deductible for purposes of payment of income tax.
To be deductible from gross income, the subject advertising expense must comply with the following
requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the
taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and
(d) it must be supported by receipts, records or other pertinent papers. To be deductible, an advertising
expense should not only be necessary but also ordinary. These two requirements must be met.
In the case at bar, the P9,461,246 claimed as media advertising expense for Tang alone was almost
one-half of its total claim for marketing expenses. Aside from that, respondent-corporation also claimed
P2,678,328 as other advertising and promotions expense and another P1,548,614, for consumer
promotion.Furthermore, the subject P9,461,246 media advertising expense for Tang was almost double the
amount of respondent corporations P4,640,636 general and administrative expenses.We find the subject
expense for the advertisement of a single product to be inordinately large. Therefore, even if it is necessary, it
cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or
use of services and (2) advertising designed to stimulate the future sale of merchandise or use of services.
The second type involves expenditures incurred, in whole or in part, to create or maintain some form of
goodwill for the taxpayers trade or business or for the industry or profession of which the taxpayer is a
member. If the expenditures are for the advertising of the first kind, then, except as to the question of the
reasonableness of amount, there is no doubt such expenditures are deductible as business expenses. If,
however, the expenditures are for advertising of the second kind, then normally they should be spread out
over a reasonable period of time.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. CARLOS PALANCA, JR.

G.R. No. L-16626, October 29, 1966, J Regala
Payment of interest arising from estate tax can be considered as deductible.
Facts:
Don Carlos Palanca Sr. prior to his death donated in favour of his son, Carlos Palanca Jr (Palanca),
herein respondent, 12,500 shares of stock in La Tondena Inc. Thereafter the said donation was tagged as a
donation in contemplation of death, and hence therefore was considered liable for estate tax. Because of
failure to file an estate tax return, Palanca was assessed estate tax as well as surcharges and interest which he
thereafter paid to the CIR. Subsequently, Palanca filed his income tax return wherein he indicated as
deduction from his gross income the amount of interest he paid as regards the estate tax aforementioned.
The CIR denied the claim for deduction of Palanca. This prompted Palanca to elevate the matter to the CTA.
The CTA reversed and set aside the decision of the CIR and held that the payment of interest with respect to
the estate tax can be considered as a valid deduction. Now, the CIR assails the decision of the CTA, insofar as it
held that the interest paid can be considered as deductions. The CIR claims that the paid interest which can be
the subject of a valid deduction applies only when the contemplated obligation is a debt, not tax. Hence it was
an error on the part of the CTA to consider interest paid arising from estate tax as a valid deductible in favour
of Palanca, hence this petition.
Issue:
Whether payment of interest arising from estate tax can be considered as deductible.
Ruling:
Yes, such payment for interest is considered as deductible. In our jurisdiction, the rule is settled that
although taxes already due have not, strictly speaking, the same concept as debts, they are, however
obligations that may be considered as such. In a more recent case Commissioner of Internal Revenue vs. Prieto,
G.R. No. L-13912, September 30, 1960, we explicitly announced that while the distinction between "taxes" and
"debts" was recognized in this jurisdiction, the variance in their legal conception does not extend to the
interests paid on them, at least insofar as Section 30 (b) (1) of the National Internal Revenue Code is
concerned. The Court held that tax may be considered an indebtedness. It follows that the interest paid by
herein respondent for the late payment of donor's tax is deductible from the gross income
______________________________________________________________________________________________________________________________
THE COMMISSIONER OF INTERNAL REVENUE v. CONSUELO L. VDA. DE PRIETO

G.R. No. L-13912, September 30, 1960, J Gutierrez David
Under the law, for interest to be deductible, it must be shown that there be an indebtedness, that there
should be interest upon it, and that what is claimed as an interest deduction should have been paid or accrued
within the year.
Facts:
Consuelo L vda. De Prieto (Prieto), herein respondent, conveyed by way of gifts real properties to her
children. Because of failure to file her donors tax return, Prieto was assess for the donor’s tax including
surcharges and penalties. Prieto paid the aforementioned donor’s tax as well as the surcharges and penalties.
Thereafter, in her income tax return, Prieto claimed as deduction the total amount of interest she paid with
respect to the donor’s tax. The CIR denied the claim for deduction. This prompted Prieto to elevate the matter
to the CTA. The CTA reversed and set aside the decision of the CIR and held that the interest may be deducted
from her gross income for the purpose of determining income tax. Now, the CIR assails the decision of the
CTA insofar as it considered as a deductible the interest paid by Prieto, hence this petition.
Issue:
Whether the interest paid which arose from donor’s tax may be considered as a deductible
Ruling:
Yes, the interest paid arising from donor’s tax is considered as a deductible from gross income. Under
the law, for interest to be deductible, it must be shown that there be an indebtedness, that there should be
interest upon it, and that what is claimed as an interest deduction should have been paid or accrued within
the year. It is here conceded that the interest paid by respondent was in consequence of the late payment of
her donor's tax, and the same was paid within the year it is sought to be declared. The Supreme Court
adopted the definition of “indebtedness” (an unconditional and legally enforceable obligation for payment of
money) used in the Tax Code of United States and held that a tax may be considered an indebtedness. As
stated by this Court in the case of Santiago Sambrano vs. Court of Tax Appeals and Collector of Internal
Revenue. Although taxes already due have not, strictly speaking, the same concept as debts, they are,
however, obligations that may be considered as such.The term "debt" is properly used in a comprehensive
sense as embracing not merely money due by contract but whatever one is bound to render to another, either
for contract, or the requirement of the law. Where statute imposes a personal liability for a tax, the tax
becomes, at least in a board sense, a debt.
______________________________________________________________________________________________________________________________
PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP) v. COURT OF APPEALS,

COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
G.R. Nos. 106949-50, December 1, 1995, J Feliciano
We have already noted that our 1977 NIRC does not prohibit the deduction of interest on a loan
incurred for acquiring machinery and equipment. Neither does our 1977 NIRC compel the capitalization of
interest payments on such a loan. The 1977 Tax Code is simply silent on a taxpayer's right to elect one or the
other tax treatment of such interest payments. Accordingly, the general rule that interest payments on a legally
demandable loan are deductible from gross income must be applied.
Facts:
The Paper Industries Corporation of the Philippines (PICOP), herein petitioner, a Philippine
corporation registered with the Board of Investments (BOI) as a preferred pioneer enterprise with respect to
its integrated pulp and paper mill, and as a preferred non-pioneer enterprise with respect to its integrated
plywood and veneer mills. PICOP later on sought to include in its income tax return the following as
deductions; first, the interest payments of PICOP on loans for the purchase of machinery and equipment, and
second the net operating losses of another corporation namely Rustan Pulp and Paper Mills Inc. (RPPMI) The
CIR denied the deductions sought by PICOP and thereafter issued the a warrant of levy and garnishment for
the satisfaction of the tax deficiency as well as the surcharges and penalties against PICOP. This prompted
PICOP to elevate the case to the CIR. The CIR dismissed the petition of PICOP. Now, PICOP comes before the
SC alleging that the two (2) aforementioned items must be considered as deductions from the payment of
PICOP’s income tax. It argued that as regards the interest payments there is a specific provision of law
allowing the same while with respect to the second item, PICOP argued that because of the merger of RPPMI
with PICOP, PICOP effectively acquired the accumulated losses of RPPMI prior to the merger, hence
deductible against its income tax, thus this petition.
Issues:
1. Whether the interest payments for loans for purchase of equipment and machineries of PICOP may
be deducted
2. Whether the losses incurred by RPPMI prior to its merger with PICOP may be considered as a
deductible in favor of PICOP
Ruling:
1. Yes, the 1977 NIRC does not prohibit the deduction of interest on a loan incurred for acquiring
machinery and equipment. Neither does our 1977 NIRC compel the capitalization of interest payments on
such a loan. The 1977 Tax Code is simply silent on a taxpayer's right to elect one or the other tax treatment of
such interest payments. Accordingly, the general rule that interest payments on a legally demandable loan are
deductible from gross income must be applied.
2. No, it cannot be considered a deductible. Thus it is that the carry-over of net operating losses as a
very special incentive to be granted only to registered pioneer enterprises and only with respect to their
registered operations. To allow the deduction claimed by Picop would be to permit one corporation or
enterprise, Picop, to benefit from the operating losses accumulated by another corporation or enterprise,
RPPM. RPPM far from benefiting from the tax incentive granted by the BOI statute, in fact gave up the struggle
and went out of existence and its former stockholders joined the much larger group of Picop's stockholders.
To grant Picop's claimed deduction would be to permit Picop to shelter its otherwise taxable income (an
objective which Picop had from the very beginning) which had not been earned by the registered enterprise
which had suffered the accumulated losses. In effect, to grant Picop's claimed deduction would be to permit
Picop to purchase a tax deduction and RPPM to peddle its accumulated operating losses.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BICOLANDIA DRUG CORPORATION

(Formerly known as ELMAS DRUG CO.)
G.R. No. 148083, July 21, 2006, J Velasco Jr
A credit differs from deduction to the extent that the former is subtracted from the tax while the latter is
subtracted from income before the tax is computed.
Facts:
Pursuant to RA No. 7432 which granted senior citizens 20 percent discount for purchase of medicine
from stores, Bicolandia Drug Corporation doing under the business style Mercury Drug (Mercury) herein
respondent, sought to apply the amount covering the 20 percent discount given by it as tax credit. Thus
Mercury filed its income tax return in 1995 declaring a net loss with nil income tax liability. Thereafter,
Mercury filed a claim for tax refund or credit with the CIR because its net losses for the fiscal year of 1995
prevented it from benefitting from the treatment of sales discounts of 20 percent as a deduction from gross
sales during the said taxable year for the reason that Mercury incurred net losses hence was not liable for
income tax for the aforementioned fiscal year. CIR denied the claim for tax refund or credit on the ground that
pursuant Revenue Regulation No. 2-94 (RR 2-94) the tax credit contemplated in RA No. 7432, is similar to
that of a tax refund provided for in the National Internal Revenue Code, hence before a tax credit or tax
refund may be pursued by the taxpayer, there must be first a prior payment of tax for the same. And since
Mercury did not pay its taxes owing the fact that it suffered from net losses, Mercury cannot claim the tax
credit for the discount given by it pursuant to RA No. 7432. On appeal the CIR set aside the decision of the CIR,
hence this petition.
Issue:
Whether RR No. 2-94 is in contravention with RA No. 7432
Ruling:
Yes it is in contravention with the aforementioned law. Petitioner argues that the tax credit is in the
nature of a tax refund and should be treated as a return for tax payments erroneously or excessively assessed
against a taxpayer, in line with Section 204(c) of Republic Act No. 8424, or the National Internal Revenue
Code of 1997. Petitioner claims that there should first be payment of the tax before the tax credit can be
claimed. However, in the National Internal Revenue Code, we see at least one instance where this is not the
case. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax. It speaks of a tax credit for tax
due, so payment of the tax has not yet been made in that particular example.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. PRISCILA ESTATE, INC., and THE COURT OF APPEALS
G.R. No. L-18282, May 29, 1964, J JBL Reyes
The demolition of a building owned by a corporation-taxpayer which is not compensated for by

insurance or otherwise consists of loss which should be charged off as deduction from gross income.
Facts:
Priscila Estate Inc (Priscila) herein private respondent engaged in the business of leasing real estate
sought to include in its corporate income tax return the loss it incurred by reason of the demolition and
destruction of a building owned by Prescila. The CIR denied the application for deduction by Priscila. This
prompted Priscila to elevate the case to the CTA; the CTA reversed and set aside the decision of the CIR. Now,
the CIR comes before the SC assailing the decision of the CTA. The CIR argues that the value of the
demolished building should not be deducted from gross income but added to the cost of the building
replacing it because its demolition or removal was to make way for the erection of another in its place, hence
this petition.
Issue:
Whether the demolished building should be included as deduction
Ruling:
Yes, it should be included. The foregoing argument is erroneous inasmuch as the tax court found that
the removal of the "barong-barong", instead of being voluntary, was forced upon the corporation by the city
engineer because the structure was a fire hazard; that the rental income of the old building was about
P3,730.00 per month, and that the corporation had no funds but had to borrow, in order to construct a new
building. All these facts, taken together, belie any intention on the part of the corporation to demolish the old
building merely for the purpose of erecting another in its place. Since the demolished building was not
compensated for by insurance or otherwise, its loss should be charged off as deduction from gross income.
______________________________________________________________________________________________________________________________
Philippine Refining Company v. Court of Appeals, Court of Tax Appeals and The Commissioner of
Internal Revenue
G.R. No. 118794, May 8, 1996,REGALADO, J.
For debts to be considered as worthless, and thereby qualify as bad debts making them deductible, the
taxpayer should show that (1) there is a valid and subsisting debt; (2) the debt must be actually ascertained to
be worthless and uncollectible during the taxable year; (3) the debt must be charged off during the taxable year;
and (4) the debt must arise from the business or trade of the taxpayer. Additionally, before a debt can be
considered worthless, the taxpayer must also show that it is indeed uncollectible even in the future.
Facts:
Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal
Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00. The
assessment was timely protested by PRC on April 26, 1989, on the ground that it was based on the erroneous
disallowances of bad debts and interest expense although the same are both allowable and legal deductions.
Respondent Commissioner, however, issued a warrant of garnishment against the deposits of PRC at a branch
of City Trust Bank, in Makati, Metro Manila, which action the latter considered as a denial of its protest.PRC
accordingly filed a petition for review with the Court of Tax Appeals (CTA) on the same assignment of error,
that is, that the bad debts and interest expense are legal and allowable deductions. In its decision of February
3, 1993 in C.T.A. Case No. 4408, the CTA modified the findings ofthe Commissioner by reducing the deficiency
income tax assessment to P237,381.26, with surcharge and interest incident to delinquency. In said decision,
the Tax Court reversed and set aside the Commissioners disallowance of the supposed interest expense of
P2,666,545.19 but maintained the disallowance of the bad debts of thirteen (13) debtors in the total sum of
P395,324.27 which was later on affirmed by the Court of Appeals.
Issue:
Whether or not bad debts in this case are considered as allowable deductions
Ruling:
No, such are not allowable. Mere testimony of the Financial Accountant of the Petitioner PRC
explaining the worthlessness of said debts, without being substantiated by documentary evidence, is nothing
more than a self-serving exercise which lacks probative value. For debts to be considered as worthless, and
thereby qualify as bad debts making them deductible, the taxpayer should show that (1) there is a valid and
subsisting debt; (2) the debt must be actually ascertained to be worthless and uncollectible during the taxable
year; (3) the debt must be charged off during the taxable year; and (4) the debt must arise from the business
or trade of the taxpayer. Additionally, before a debt can be considered worthless, the taxpayer must also show
that it is indeed uncollectible even in the future.Furthermore, there are steps outlined to be undertaken by
the taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of
accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a
collection case in court.
Special Topics in Income Taxation
National Development Company v. Commissioner of Internal Revenue

G.R. No. L-53961, June 30, 1987, CRUZ, J.
The residence of the obligor who pays the interest rather than the physical location of the securities,
bonds or notes or the place of payment, is the determining factor of the source of interest income.
Facts:
National Development Company (NDC) entered into contracts in Tokyo with several Japanese
shipbuilding companies for the construction of twelve ocean-going vessels. The purchase price was to come
from the proceeds of bonds issued by the Central Bank. Initial payments were made in cash and through
irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC and, as
required by the shipbuilders, guaranteed by the Republic of the Philippines. Pursuant thereto, the remaining
payments and the interests thereon were remitted in due time by the NDC to Tokyo. The vessels were
eventually completed and delivered to the NDC in Tokyo. The NDC remitted to the shipbuilders in Tokyo the
total amount of US$4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The
Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed
but failed. The BIR thereupon served on the NDC a warrant of distraint and levy to enforce collection of the
claimed amount. The NDC went to the Court of Tax Appeals. The BIR was sustained by the CTA except for a
slight reduction of the tax deficiency in the sum of P900.00, representing the compromise penalty. The NDC
then came to this Court in a petition for certiorari. The NDC argues that the Japanese shipbuilders were not
subject to tax under the above provision because all the related activities — the signing of the contract, the
construction of the vessels, the payment of the stipulated price, and their delivery to the NDC — were done in
Tokyo.
Issue:
Whether or not Japanese builders are liable to tax on interest remitted to them
Ruling:
Yes, Japanese builders are liable to tax on interest remitted to them.The law, however, does not speak
of activity but of "source," which in this case is the NDC. This is a domestic and resident corporation with
principal offices in Manila. The Government's right to levy and collect income tax on interest received by
foreign corporations not engaged in trade or business within the Philippines is not planted upon the
condition that 'the activity or labor and the sale from which the (interest) income flowed had its situs' in the
Philippines. The law specifies: 'Interest derived from sources within the Philippines, and interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or otherwise.' Nothing there speaks of the
'act or activity' of non-resident corporations in the Philippines, or place where the contract is signed. The
residence of the obligor who pays the interest rather than the physical location of the securities, bonds or
notes or the place of payment, is the determining factor of the source of interest income. Accordingly, if the
obligor is a resident of the Philippines the interest payment paid by him can have no other source than within
the Philippines. The interest is paid not by the bond, note or other interest-bearing obligations, but by the
obligor.
The law is clear. Our plain duty is to apply it as written. The residence of the obligor which paid the
interest under consideration, NDC herein, is Calle Pureza, Sta. Mesa, Manila, Philippines; and as a corporation
duly organized and existing under the laws of the Philippines, it is a domestic corporation, resident of the
Philippines. (Sec. 84(c), National Internal Revenue Code.) The interest paid by NDC, which is admittedly a
resident of the Philippines, is on the promissory notes issued by it. Clearly, therefore, the interest remitted to
the Japanese shipbuilders in Japan in 1960, 1961 and 1962 on the unpaid balance of the purchase price of the
vessels acquired by PRC is interest derived from sources within the Philippines subject to income tax.
______________________________________________________________________________________________________________________________
Tomas Calasanz, et. al v. Commissioner of Internal Revenue and Court of Tax Appeals
G.R. No. L-26284, October 8, 1986, FERNAN, J.
A sale of inherited real property usually gives capital gain or loss even though the property has to be
subdivided or improved or both to make it salable. However, if the inherited property is substantially improved
or very actively sold or both it may be treated as held primarily for sale to customers in the ordinary course of
the heir's business
Facts:
Ursula Calasanz one of the petitioners inherited from her father Mariano de Torres an agricultural
land located in Cainta, Rizal, containing a total area of 1,678,000 square meters. In order to liquidate her
inheritance, Ursula Calasanz had the land surveyed and subdivided into lots. Improvements, such as good
roads, concrete gutters, drainage and lighting system, were introduced to make the lots saleable. Soon after,
the lots were sold to the public at a profit. In their joint income tax return for the year 1957 filed with the
Bureau of Internal Revenue on March 31, 1958, petitioners disclosed a profit of P31,060.06 realized from the
sale of the subdivided lots, and reported fifty per centum thereof or P15,530.03 as taxable capital gains.
Upon an audit and review of the return thus filed, the Revenue Examiner adjudged petitioners
engaged in business as real estate dealers, as defined in Section 194 (1) of the National Internal Revenue
Code, required them to pay the real estate dealer's tax and assessed a deficiency income tax on profits
derived from the sale of the lots based on the rates for ordinary income which was later on upheld by the Tax
Court for the amount of P3,561.24 as deficiency income tax on ordinary gain of P3,018.00 plus interest of P
543.24 and P160.00 representing real estate dealer's fixed tax of P150.00
Issue:
Whether or not petitioners are real estate dealers liable for real estate dealer's fixed tax; and sale of
the lots are taxable in full as ordinary income
Ruling:
Yes. The activities of petitioners are indistinguishable from those invariably employed by one
engaged in the business of selling real estate. While the land was originally devoted to rice and fruit trees, it
was subdivided into small lots and in the process converted into a residential subdivision and given the name
Don Mariano Subdivision. Extensive improvements like the laying out of streets, construction of concrete
gutters and installation of lighting system and drainage facilities, among others, were undertaken to enhance
the value of the lots and make them more attractive to prospective buyers. The audited financial statements
submitted together with the tax return in question disclosed that a considerable amount was expended to
cover the cost of improvements. As a matter of fact, the estimated improvements of the lots sold reached
P170,028.60 whereas the cost of the land is only P 4,742.66. There is authority that a property ceases to be a
capital asset if the amount expended to improve it is double its original cost, for the extensive improvement
indicates that the seller held the property primarily for sale to customers in the ordinary course of his
business. Another distinctive feature of the real estate business discernible from the records is the existence
of contracts receivables, which stood at P395,693.35 as of the year ended December 31, 1957. The sizable
amount of receivables in comparison with the sales volume of P446,407.00 during the same period signifies
that the lots were sold on installment basis and suggests the number, continuity and frequency of the sales.
Also of significance is the circumstance that the lots were advertised 13 for sale to the public and that sales
and collection commissions were paid out during the period in question.
The court observed that the fact that property is sold for purposes of liquidation does not foreclose a
determination that a "trade or business" is being conducted by the seller.
The sole question is-were the taxpayers in the business of subdividing real estate? If they were, then
it seems indisputable that the property sold falls within the exception in the definition of capital assets . . . that
is, that it constituted 'property held by the taxpayer primarily for sale to customers in the ordinary course of
his trade or business
Thus, a sale of inherited real property usually gives capital gain or loss even though the property has
to be subdivided or improved or both to make it salable. However, if the inherited property is substantially
improved or very actively sold or both it may be treated as held primarily for sale to customers in the
ordinary course of the heir's business.
______________________________________________________________________________________________________________________________________________________________
Antonio Tuason Jr. v. Jose Lingad as Commissioner of Internal Revenue

G.R. No. L-24248, July 31, 1974, CASTRO, J.
Capital assets includes all the properties of a taxpayer whether or not connected with his trade or
business, except: (1) stock in trade or other property included in the taxpayer's inventory; (2) property primarily
for sale to customers in the ordinary course of his trade or business; (3) property used in the trade or business of
the taxpayer and subject to depreciation allowance; and (4) real property used in trade or business. If the
taxpayer sells or exchanges any of the properties above-enumerated, any gain or loss relative thereto is an
ordinary gain or an ordinary loss; the gain or loss from the sale or exchange of all other properties of the
taxpayer is a capital gain or a capital loss.
Facts:
In 1948 the Antonio Tuason inherited from his mother several tracts of land, among which were two
contiguous parcels situated on Pureza and Sta. Mesa streets in Manila, with an area of 318 and 67,684 square
meters, respectively.When the Antonio Tuason's mother was yet alive she had these two parcels subdivided
into twenty-nine lots. Twenty-eight were allocated to their then occupants who had lease contracts with the
petitioner's predecessor at various times from 1900 to 1903, which contracts expired on December 31, 1953.
The 29th with an area of 48,000 square meters, more or less, was not leased to any person. However it was
sold together with the 28 lots In 1953 and 1954 the Antonio Tuason reported his income from the sale of the
small lots (P102,050.79 and P103,468.56, respectively) as long-term capital gains. On May 17, 1957 the
Collector of Internal Revenue considered the Antonio's profits from the sales of the mentioned lots as
ordinary gains.
Issue:
Whether or not the properties in question which the petitioner had inherited and subsequently sold
in small lots to other persons should be regarded as capital assets
Ruling:
No, the properties in question are not capital assets. As thus defined by law, the term "capital assets"
includes all the properties of a taxpayer whether or not connected with his trade or business, except: (1)
stock in trade or other property included in the taxpayer's inventory; (2) property primarily for sale to
customers in the ordinary course of his trade or business; (3) property used in the trade or business of the
taxpayer and subject to depreciation allowance; and (4) real property used in trade or business. If the
taxpayer sells or exchanges any of the properties above-enumerated, any gain or loss relative thereto is an
ordinary gain or an ordinary loss; the gain or loss from the sale or exchange of all other properties of the
taxpayer is a capital gain or a capital loss.
When Antonio obtained by inheritance the parcels in question, transferred to him was not merely the
duty to respect the terms of any contract thereon, but as well the correlative right to receive and enjoy the
fruits of the business and property which the decedent had established and maintained. Moreover, the record
discloses that Antonio owned other real properties which he was putting out for rent, from which he
periodically derived a substantial income, and for which he had to pay the real estate dealer's tax (which he
used to deduct from his gross income). In fact, as far back as 1957 he was receiving rental payments from the
mentioned 28 small lots, even if the leases executed by his deceased mother thereon expired in 1953. Under
the circumstances, the Antonio's sales of the several lots forming part of his rental business cannot be
characterized as other than sales of non-capital assets.
______________________________________________________________________________________________________________________________________________________________
SMI-ED Philippines Technology v. Commissioner of Internal Revenue

G.R. No. 175410, November 12, 2014, LEONEN, J.
Corporations under the National Internal Revenue Code of 1997 treats the sale of land and buildings,
and the sale of machineries and equipment, differently. Domestic corporations are imposed a 6% capital gains
tax only on the presumed gain realized from the sale of lands and/or buildings.
Facts:
SMI-Ed Philippines is a PEZA-registered corporation authorized to engage in the business of

manufacturing ultra high-density microprocessor unit package. SMI-Ed Philippines failed to commence
operations which promptedin selling its buildings and some of its installed machineries and equipment to
Ibiden Philippines, Inc., another PEZA-registered enterprise for P893,550,000.00. SMI-Ed Philippines filed an
administrative claim for the refund with the Bureauof Internal Revenue.It alleged that the amountwas
erroneously paid. However, BIR did not act on the claim. It was elevated to the CTA which ruled. SMI-Ed
Philippines that properties were capital assets under the National Internal Revenue Code of 1997, It
subjected the sale of SMIEd Philippines’ assets to 6% capital gains tax amounting to P53,613,000.00.20
SMI argued that the Court of Tax Appeals erroneously subjected its machineries to 6% capital gains
tax.Section 27(D)(5) of the National Internal Revenue Code of 1997 is clear that the 6% capital gains tax on
domestic corporations applies only on the sale of lands and buildings and not tomachineries and equipment.
Issue:
Whether or not the machineries and equipment of SMI are subject to capital gains tax.
Ruling:
No. Under the Tax Code, capital assets include all the properties of a taxpayer whether or not
connected with his trade or business, except: (1) stock in trade or other property included in the taxpayer's
inventory; (2) property primarily for sale to customers in the ordinary course of his trade or business; (3)
property used in the trade or business of the taxpayer and subject to depreciation allowance; and (4) real
property used in trade or business. If the taxpayer sells or exchanges any of the properties above-
enumerated, any gain or loss relative thereto is an ordinary gain or an ordinary loss; the gain or loss from the
sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss.
Corporations under the National Internal Revenue Code of 1997 treats the sale of land and buildings,
and the sale of machineries and equipment, differently. Domestic corporations are imposed a 6% capital gains
tax only on the presumed gain realized from the sale of lands and/or buildings. The National Internal
Revenue Code of 1997 does not impose the 6% capital gains tax on the gains realized from the sale of
machineries and equipment. Therefore, only the presumed gain from the sale of SMI’s land and/or building
may be subjected to the 6% capital gains tax. The income from the sale of SMI’s machineries and equipment is
subject to the provisions on normal corporate income tax.
______________________________________________________________________________________________________________________________
Supreme Transliner Inc., Moises C. Alvarez and Paulita S. Alvarez v. BPI Family Savings
When the mortgagor exercises his right of redemption within one year from the issuance of the
certificate of sale, no capital gains tax shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized.
Facts:
On April 24, 1995, Supreme Transliner, Inc. represented by its Managing Director, Moises C. Alvarez,
and Paulita S. Alvarez, obtained a loan in the amount of P9,853,000.00 from BPI Family Savings Bank with a
714-square meter lot covered by Transfer Certificate of Title No. T-79193 in the name of Moises C. Alvarez
and Paulita S. Alvarez, as collateral. Afterwards the mortgagors redeemed the property by paying the sum of
P15,704,249.12 before the expiration of one year period. Mortgagors filed a complaint against the bank to
recover the allegedly unlawful and excessive charges totaling P5,331,237.77 in the RTC but it dismissed the
complaint held that plaintiffs-mortgagors are bound by the terms of the mortgage loan documents which
clearly provided for the payment. CA ruled that Supreme shall pay capital gains tax albeit it redeemed the
property prior to the expiration of one year period of redemption.
Issue:
Whether or not Capital Gains Tax shall be paid when the mortgagor exercised its right of redemption
before the expiration of the statutory one-year period
Ruling:
No, In case the mortgagor exercises his right of redemption within one year from the issuance of the
certificate of sale, no capital gains tax shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized.
As the Court of Tax Appeals ruled that imposing a capital gains tax even before the expiration of the
redemption period since there is yet no transfer of title and no profit or gain is realized by the mortgagor at
the time of foreclosure sale but only upon expiration of the redemption period. In his commentaries, De Leon
expressed the view that while revenue regulations as a general rule have no retroactive effect, if the
revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have
retroactive operation as to affect past transactions, because a wrong construction of the law cannot give rise
to a vested right that can be invoked by a taxpayer.
Considering that herein petitioners-mortgagors exercised their right of redemption before the
expiration of the statutory one-year period, petitioner bank is not liable to pay the capital gains tax due on the
extrajudicial foreclosure sale. There was no actual transfer of title from the owners-mortgagors to the
foreclosing bank. Hence, the inclusion of the said charge in the total redemption price was unwarranted and
the corresponding amount paid by the petitioners-mortgagors should be returned to them.
______________________________________________________________________________________________________________________________
DELPHER TRADES CORPORATION, and DELPHIN PACHECO vs. INTERMEDIATE APPELLATE COURT and
HYDRO PIPES PHILIPPINES, INC.
G.R. No. L-69259, January 26, 1988, GUTIERREZ, JR., J.
The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether
avoid them, by means which the law permits, cannot be doubted.
Facts:
Siblings Delfin and Pelagia Pacheco were the owners of a parcel of land called Malinta Estate in
Valenzuela. They leased to Construction Components International Inc. the same property and granted the
former the right of first refusal. Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity
and consent of lessors Delfin Pacheco and Pelagia Pacheco. Later on, a deed of exchange was executed
between lessors Delfin and Pelagia Pacheco and Delpher Trades Corporation whereby the former conveyed to
the latter the leased property together with another parcel of land also located in Malinta Estate for 2,500
shares of stock of Delpher Trades. On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, Hydro Pipes Philippines, Inc., filed an amended
complaint for reconveyance of the Malinta Estate in its favour. The CFI ruled in favor of Hydro Pipes
Philippines, Inc. The lower court's decision was affirmed on appeal by the IAC. Delpher Corporation, now the
petitioners, filed a petition for certiorari to review the appellate court's decision.
Issue:
Whether or not the "Deed of Exchange" of the properties executed by the Pachecos and the Delpher
Trades Corporation was meant to be a contract of sale which, in effect, prejudiced the Hydro Pipes Phils. right
of first refusal over the leased property included in the "deed of exchange.
Ruling:
NO. Delpher Trades (a family corporation by the Pachecos) contend that there was actually no
transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property.
Considering that the beneficial ownership and control of Delpher Trades remained in the hands of the
original co-owners, there was no transfer of actual ownership interests over the land when the same was
transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if
anything, was merely in form but not in substance. In reality, Delpher Trades is a mere alter ego or conduit of
the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there
being in substance and in effect an Identity of interest. What they really did was to invest their properties and
change the nature of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on inheritance taxes. The
records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by
the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted." The "Deed of Exchange" of
property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale.
There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family
merely changed their ownership from one form to another. The ownership remained in the same hands.
Hence, Hydro Pipes Phils has no basis for its claim of a light of first refusal under the lease contract.
Withholding Tax (Creditable and Final)
BANCO DE ORO, et al v.REPUBLIC OF THE PHILIPPINES, THE COMMISSIONER OF INTERNAL REVENUE,

BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, THE
NATIONAL TREASURER AND BUREAU OF TREASURY,
G.R. No. 198756, January 13, 2015, LEONEN, J.
The number of lenders is determinative of whether a debt instrument should be considered a deposit
substitute and consequently subject to the 20% final withholding tax.
Facts:
The Caucus of Development NGO Networks (CODE-NGO) with the assistance of its financial advisors,
RCBC, RCBC Capital, CAPEX and SEED requested an approval from the Department of Finance for the
issuance by the Bureau of Treasury of 10-year zero-coupon Treasury Certificates (T-notes). The T-notes
would initially be purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a
premium to investors as the PEACe Bonds. A zero-coupon bond is a bond bought at a price substantially
lower than its face value (or at a deep discount), with the face value repaid at the time of maturity. It does not
make periodic interest payments, or have so-called “coupons,” hence the term zero-coupon bond. The BIR, in
reply to CODE-NGO’s letters issued BIR Ruling No. 020-2001 which confirmed that the PEACe Bonds would not
be classified as deposit substitutes and would not be subject to the corresponding withholding tax. The tax
treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001 was subsequently reiterated in
subsequent BIR rulings the gist of which is that the PEACe Bonds were not to be treated as deposit substitutes
thus not subject to the 20% FWT. At the auction, RCBC which participated on behalf of CODE-NGO was
declared as the winning bidder having tendered the lowest bids. Accordingly, the Bureau of Treasury issued
P35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion resulting
in a discount of approximately P24.83 billion. RCBC Capital sold the Government Bonds in the secondary
market for an issue price of P11,995,513,716.51. Petitioners purchased the PEACe Bonds on different dates.
Subseqently thereafter, the BIR issued the assailed 2011 BIR Ruling imposing a 20% FWT on the
Government Bonds and directing the BIR to withhold said final tax at the maturity thereof. The Php 24.3
billion discount on the issuance of the PEACe Bonds should be subject to 20% Final Tax on interest income
from deposit substitutes. Petitioners filed a petition for certiorari, prohibition, and/or mandamus with
urgent application for a TRO and/or writ of preliminary injunction before this court. The court issued a TRO
enjoining the implementation of BIR Ruling No. 370-2011 against the PEACe Bonds, subject to the condition
that the 20% final withholding tax on interest income therefrom shall be withheld by the petitioner banks
and placed in escrow pending resolution of [the] petition. Nevertheless, public respondents failed to honor
the TRO and still withheld 20% FWT from the peace bonds. Hence, this petition.
Issue:
Whether or the not the PEACe Bonds are “deposit substitutes” and thus subject to 20% final
withholding tax.
Ruling:
IT DEPENDS. Deposit substitutes shall mean an alternative form of obtaining funds from the public
(the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one
time) other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the
borrower’s own account. Hence, the number of lenders is determinative of whether a debt instrument
should be considered a deposit substitute and consequently subject to the 20% final withholding tax. The
phrase “at any one time” for purposes of determining the “20 or more lenders” would mean every transaction
executed in the primary or secondary market in connection with the purchase or sale of securities.
In the case at bar, it may seem that there was only one lender — RCBC on behalf of CODE-NGO — to
whom the PEACe Bonds were issued at the time of origination. In reality however, the entire P10.2 billion
borrowing received by the Bureau of Treasury in exchange for the P35 billion worth of PEACe Bonds was
sourced directly from the undisclosed number of investors to whom RCBC Capital/CODE-NGO distributed the
PEACe Bonds — all at the time of origination or issuance. At this point, however, we do not know as to how
many investors the PEACe Bonds were sold to by RCBC Capital. Thus, should there have been a simultaneous
sale to 20 or more lenders/investors, the PEACe Bonds are deemed deposit substitutes within the meaning of
Section 22(Y) of the 1997 National Internal Revenue Code and RCBC Capital/CODE-NGO would have been
obliged to pay the 20% final withholding tax on the interest or discount from the PEACe Bonds.
______________________________________________________________________________________________________________________________
RIZAL COMMERCIAL BANKING CORPORATION vs COMMISSIONER OF INTERNAL REVENUE

G.R. No. 170257, September 7, 2011, MENDOZA, J.
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 whoearned the income subject to withholding tax.
Facts:
RCBC seasonably filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit
(FCDU) for the years 1994 and 1995. Subsequently thereafter, it received Letter of Authority issued by the
CIRauthorizing a special audit team to examine the books of accounts and other accounting records for all
internal revenue taxes from January 1, 1994 to December 31, 1995.RCBC executed two Waivers of the
Defense of Prescription Under the Statute of Limitations of the NIRC covering the internal revenue taxes due
for the years 1994 and 1995 thus effectively extending the period of the BIR to assess up to December 31,
2000.As a result of such audit, RCBC received a Formal Letter of Demand with Assessment Notices for tax
deficiency.Disagreeing with same, RCBC filed a petition for review before the CTA. RCBC received another
Formal Letter of Demand with Assessment Notices which drastically reduced the original amount of
deficiency taxes to the following which RCBC paid.However, it refused to pay the assessments for deficiency
onshore tax and documentary stamp.The CTA-First Divisionpartially granted the petition for review but
upheld the assessment for deficiency final tax on FCDU onshore income and deficiency documentary stamp
tax for 1994 and 1995. RCBC filed its Motion for Reconsideration but the CTA-First Division substantially
upheld its earlier ruling. RCBC elevated the case to the CTA-En Banc which denied the petition. Hence, this
recourse to the Supreme Court. While awaiting the SC decision, RCBC paid deficiency assessment,
Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995. Thus, the
only remaining issues were those pertaining to RCBCs deficiency tax on FCDU Onshore Income for taxable
years 1994 and 1995.
Issue:
Whether RCBC can be held liable for deficiency onshore tax, which is mandated by law to be collected
at source in the form of a final withholding tax.
Ruling:
YES. 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. 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 whoearned 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.
While the payor-borrower can be held accountable for its negligence in performing its duty to
withhold the amount of tax due on the transaction, RCBC, as the taxpayer and the one which earned income
on the transaction, remains liable for the payment of tax as the taxpayer shares the responsibility of making
certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise
from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as
the withholding agent. As such, it is liable for payment of deficiency onshore tax on interest income derived
from foreign currency loans, pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993.
______________________________________________________________________________________________________________________________
CITIBANK, N.A. vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 107434, October 10, 1997, PANGANIBAN, J.
Income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the
taxpayer on the basis of the taxpayer's final adjusted returns, nor on such periodic or quarterly basis.
Facts:
CITIBANK is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants
withheld and paid to the Bureau of Internal Revenue the following taxes on rents due to Citibank, pursuant to
Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulations No. 13-78, as amended).
However, the annual income tax returns of petitioner-bank for tax years 1979 and 1980 undisputedly
reflected the net losses it suffered. In the light of the foregoing, Citibank filed a petition for review with the
Court of Tax Appeals concerning subject claim for tax refund. The CTA granted Citibank’s petition for refund.
Upon appeal to the CA by the commissioner, the appellate court reversed CTA’s decision. CA denied the
motion for reconsideration of CITIBANK. Hence, this petition.
Issue:
Whether or not CITIBANK as lessor is entitled to a refund of such withheld amount after it is
determined that it was not, in fact, liable for any income tax at all because its annual operation resulted in a
net loss as shown in its income tax return filed at the end of the taxable year.
Ruling:
YES. In the present case, there is no question that the taxes were withheld in accordance with Section
1(c), Rev. Reg. No. 13-78. The same requires a lessee to withhold and remit to the Bureau of Internal Revenue
(BIR) five percent (5%) of the rental due the lessor, by way of advance payment of the latter's income tax
liability. Accordingly, the withheld amounts equivalent to five percent of the gross rental are remitted to the
BIR and are considered creditable withholding taxes.The taxes withheld are in the nature of payment by a
taxpayer in order to extinguish his possible tax obligation. They are installments on the annual tax which may
be due at the end of the taxable year. In that sense, it can be said that they were withheld legally by the
tenants. However, the annual income tax returns of petitioner-bank for tax years 1979 and 1980
undisputedly reflected the net losses it suffered. Thus, the taxes withheld became erroneous at the end of the
taxable year. In this case, CITIBANK’S lessees withheld and remitted to the BIR the amounts now claimed as
tax refunds. That they were withheld and remitted pursuant to Rev. Reg. No. 13-78 does not derogate from
the fact that they were merely partial payments of probable taxes. Like the corporate quarterly income tax,
creditable withholding taxes are subject to adjustment upon determination of the correct income tax liability
after the filing of the corporate income tax return, as at the end of the taxable year. The taxes thus withheld
and remitted are provisional in nature. In this case, the payments of the withholding taxes for 1979 and 1980
were creditable to the income tax liability, if any, of petitioner-bank, determined after the filing of the
corporate income tax returns on April 15, 1980 and April 15, 1981. As CITIBANK posted net losses in its 1979
and 1980 returns, it was not liable for any income taxes. Consequently and clearly, the taxes withheld during
the course of the taxable year, while collected legally under the aforesaid revenue regulation, became
untenable and took on the nature of erroneously collected taxes at the end of the taxable year.
ESTATE TAX
Estate Tax Return
MARCELO INVESTMENT AND MANAGEMENT CORPORATION, AND THE HEIRS OF EDWARD T.

MARCELO, NAMELY, KATHERINE J. MARCELO, ANNA MELINDA J. MARCELO REVILLA, AND JOHN
STEVEN J. MARCELO, JOSE T. MARCELO, JR.vs. JOSE T. MARCELO, JR.,
G.R. No. 209651, November 26, 2014,PEREZ, J.
No distribution shall be allowed until payment of the obligations above mentioned (estate tax among
others) has been made or provided for, unless the distributees, or any of them, give a bond, in a sum to be fixed by
the court, conditioned for the payment of said obligations within such time as the court directs (Sec. 1, Rule 90 of
the Rules of Court).
Facts:
In 1987, Jose Sr. died intestate. He was survived by his four compulsory heirs: (1) Edward, (2)
George, (3) Helen and (4) Jose, Jr. Petitions for the issuance of Letters of Administration were filed separately
by his compulsory heirs each of whom claiming that he or she is more competent against the other.
Ultimately, the RTC appointed Edward as regular administrator of Jose, Sr.’s estate. Jose Jr. filed a motion for
reconsideration which the RTC denied. Said RTC decision was affirmed in totoby the CA. In his capacity as
regular administrator, Edward prepared a Liquidation of the Inventory of the Estate of Jose P. Marcelo, Sr.
which was later on approved by the court as the project of partition of the said estate as the same now bears
the conformity of all the compulsory heirs. Nonetheless, the distribution of the estate was deferred until
Edward has submitted to the Court proof of payment of estate taxes of the subject estate. In the meantime, the
RTC archived the intestate proceedings pending Edward’s submission of proof of payment of estate taxes. In
2009, Edward died without having paid the required estate tax. Wasting no time, Jose, Jr. moved to revive the
intestate proceedings involving his father’s estate and moved for his appointment as new regular
administrator thereof. Petitioners opposed his motion and. The RTC appointed Jose, Jr. as the new regular
administrator of Jose, Sr.’s estate. The RTC decision was affirmed by the Court of Appeals Hence, this petition.
Issue:
Whether or not the estate may be distributed to the compulsory heirs before the payment of estate
tax.
Ruling:
No. Sec. 1, Rule 90 of the Rules of Court provides: No distribution shall be allowed until payment of
the obligations above mentioned has been made or provided for, unless the distributees, or any of them, give
a bond, in a sum to be fixed by the court, conditioned for the payment of said obligations within such time as
the court directs.
______________________________________________________________________________________________________________________________
LUIS W. DISON vs. JUAN POSADAS, JR., Collector of Internal Revenue

G.R. No. L-36770, November 4, 1932, BUTTE, J.
Inheritance tax is imposed upon the gift inter vivos that Don Luis Dizon received from his father as this
was really an advancement upon the inheritance to which he would be entitled upon the death of the latter. Sec.
1540 of the Administrative Code did not tax gifts per se but only those which are made to those who shall prove
to be heirs, devisees, legatees and donees mortis causa of the donor. The term 'heirs' include those given the
status of heirs irrespective of the quantity of property they may receive as such.
Facts:
Prior to his death, Don Felix Dizon made a gift inter vivos in favor of Don Luis Dizon (his legitimate
and only son) of all his property as embodied in a deed of donation which includes all the properties of the
former. As a result, Don Luis Dizon did not receive property of any kind from Don Felix upon the latter’s
death. The collector of internal revenue Juan Posadas assessed an inheritance tax of Php2,808.73 under Sec.
1540 of the Administrative Code which Don Luis paid under protest and later filed an action to recover sum
of money thus paid. He alleged that the inheritance tax is illegal because he received the property, which is
the basis of the tax, from his father before his death by a deed of gift inter vivos which was duly accepted and
registered before the death of his father.
Issue:
Whether or not the gift inter vivos is subject to inheritance tax.
Ruling:
YES. The facts warrant the inference that the transfer was an advancement upon the inheritance
which the donee, as the sole and forced heir of the donor, would be entitled to receive upon the death of the
donor. The argument advanced by the appellant that he is not an heir of his deceased father within the
meaning of section 1540 of the Administrative Code because his father in his lifetime had given him all the
latter’s property and left no property to be inherited, is so fallacious that the urging of it here casts a
suspicion upon Don Luis’ reason for completing the legal formalities of the transfer on the eve of the latter's
death. We do not know whether or not the father in this case left a will; in any event, this Don Luis could not
be deprived of his share of the inheritance because the Civil Code confers upon him the status of a forced heir.
We construe the expression in section 1540 "any of those who, after his death, shall prove to be his
heirs", to include those who, by our law, are given the status and rights of heirs, regardless of the quantity of
property they may receive as such heirs. Don Luis occupies the status of heir to his deceased father cannot be
questioned. Construing the conveyance here in question, under the facts presented, as an advance made by
Felix Dison to his only child, we hold section 1540 to be applicable and the tax to have been properly
assessed.
______________________________________________________________________________________________________________________________
CONCEPCION VIDAL DE ROCES and her husband, MARCOS ROCES, and ELVIRA VIDAL DE
RICHARDS v. JUAN POSADAS, JR., Collector of Internal Revenue,
G.R. No. L-34937 March 13, 1933 IMPERIAL, J.
Donations inter vivos made in contemplation of death are subject to inheritance tax.
Facts:
On March 10 and 12, 1925, Esperanza Tuazon, by means of public documents, donated certain
parcels of land to the plaintiffs, who, with their respective husbands, accepted them in the same public
documents. On January 5, 1926, the donor died without leaving any forced heir and her will which was
admitted to probate, she bequeathed to each of the donees the sum of P5,000. After the estate had been
distributed among the instituted legatees and before delivery of their respective shares, the Collector of
Internal Revenue ruled that the appellants should pay as inheritance tax the sums of P16,673 and P13,951.45,
respectively. They paid under protest. Appellants brought action to recover certain sums of money paid but
the same was dismissed by the trial court.
Issue:
Whether the donation was made in contemplation of death and therefore is subject to inheritance
tax.
Ruling:
Yes. It be may be inferred from the allegations contained in paragraphs 2 and 7 thereof that said
donations inter vivos were made in consideration of the donor's death. We refer to the allegations that such
transmissions were effected in the month of March, 1925, that the donor died in January, 1926, and that the
donees were instituted legatees in the donor's will which was admitted to probate. It is from these
allegations, especially the last that we infer a presumption juris tantum that said donations were made mortis
causa and, as such, are subject to the payment of inheritance tax.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF TAX APPEALS and

JOSEFINA P. PAJONAR, as Administratrix of the Estate of Pedro P. Pajonar
G.R. No. 123206. March 22, 2000 GONZAGA-REYES
To be deductible, the expenses must be essential to the proper settlement of the estate.
Facts:
Pedro Pajonar became insane. His sister Josefina Pajonar became the guardian over his person, while
his property was placed under the guardianship of the Philippine National Bank (PNB) in Special Proceedings
No. 1254.
When Pedro died, Josefina was appointed as regular administratrix. The estate of Pedro Pajonar paid
estate tax in the amount of P1,527,790.98. Josefina filed a protest. Without waiting for her protest to be
resolved by the BIR, Josefina filed a petition for review with the CTA, praying for the refund as erroneously
paid estate tax. CTA ordered the CIR to refund Josefina the amount of P252,585.59, representing erroneously
paid estate tax for the year 1988. Among the deductions from the gross estate allowed by the CTA were the
amounts of P60,753 representing the notarial fee for the Extrajudicial Settlement and the amount of P50,000
as the attorney's fees in Special Proceedings No. 1254 for guardianship. CIR filed MR but CTA upheld the
validity of the deductions. On appeal, CA denied the Commissioner's petition.
Issue:
Whether the notarial fee paid for the extrajudicial settlement in the amount of P60,753 and the
attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from
the gross estate of decedent in order to arrive at the value of the net estate.
Ruling:
Yes. Judicial expenses are expenses of administration. Administration expenses, as an allowable

deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to include all expenses "essential to the
collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. In
other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for
the individual benefit of the heirs, devisees or legatees are not deductible.
The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees
paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
______________________________________________________________________________________________________________________________
FERDINAND R. MARCOS II v. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL

REVENUE and HERMINIA D. DE GUZMAN
G.R. No. 120880. June 5, 1997 TORRES, JR., J.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be
enforced and collected.
Facts:
September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.The
investigation of the Special Tax Audit Team disclosed that the Marcoses failed to file a written notice of the
death of the decedent, an estate tax returns, as well as several income tax returns covering the years 1982 to
1986, -all in violation of the NIRC. The deficiency tax assessments were not protested administratively, by
Mrs. Marcos and the other heirs of the late president, within 30 days from service of said assessments. The
BIR Commissioner issued several notices of levy on real property against certain parcels of land owned by the
Marcoses. Ferdinand Marcos, Jr. contended that the properties cannot be levied, because of the pendency of
probate proceedings of the estate of his father. According to him, the approval of the probate court is needed.
Issue:
Whether or not the apporaval of the probate court is prerequisite to the government’s right to collect
estate tax.
Ruling:
No. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of
the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be
enforced and collected.On the contrary, under Section 87 of the NIRC, it is the probate or settlement court
which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner
of Internal Revenue that the estate taxes have been paid.
______________________________________________________________________________________________________________________________
PHILIPPINE NATIONAL BANK, PETITIONER, v. CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.

SANTOS, NONENG S. DIANCO, ET AL., RESPONDENTS.
G.R. No. 208293, December 10, 2014 LEONEN, J.
This particular tax may also serve as guard against the release of deposits to persons who have no
sufficient and valid claim over the deposits.
Facts:
Respondents are children of Angel C. Santos who died on March 21, 1991. Respondents discovered
that their father maintained a premium savings account and time deposit with PNB, Sta. Elena-Marikina City
Branch. Respondents went to PNB with the required documents to withdraw their father's
deposit. However, Lina B. Aguilar, the Branch Manager, informed them that the deposit had already been
released to a certain Bernardito Manimbo. A special power of attorney was purportedly executed by Reyme
L. Santos, one of the children, in favor of Manimbo and a certain Angel P. Santos for purposes of withdrawing
and receiving the proceeds of the certificate of time deposit.Respondents filed before the RTC of Marikina City
a complaint for sum of money and damages against PNB, Lina B. Aguilar, and a John Doe. PNB and Aguilar
filed a third-party complaint against Manimbo, Angel P. Santos, and Capital Insurance and Surety Co., Inc.The
trial court ruled in favor of the respondents. On appeal, CA sustained the trial court's finding with
modification.
Petitioner Aguilar argued that as a mere officer of the bank, she cannot be made personally liable for
acts that she was authorized to do. These acts were mere directives to her by her superiors. Hence, she should
not be held solidarity liable with PNB. Petitioner PNB argued that it was the presumptuousness and cavalier
attitude of respondents that gave rise to the controversy and not its judgment call. Respondents were lacking
in sufficient documentation.
Issue:
Whether PNB was negligent in releasing the deposit to Bernardito Manimbo.
Ruling:
Yes. Taxes are created primarily to generate revenues for the maintenance of the government.
However, this particular tax may also serve as guard against the release of deposits to persons who have no
sufficient and valid claim over the deposits. Based on the assumption that only those with sufficient and valid
claim to the deposit will pay the taxes for it, requiring the certificate from the BIR increases the chance that
the deposit will be released only to them.
Petitioners PNB and Aguilar released Angel C. Santos' deposit to Manimbo without having been
presented the BIR-issued certificate of payment of, or exception from, estate tax. This is a legal requirement
before the deposit of a decedent is released. P.D No. 1158,the tax code applicable when Angel C. Santos died in
1991. Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a family is
expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of diligence of a
good father of a family. Their actions and inactions constitute gross negligence. Hence, the judgment of CA
was upheld with modifications as to the awarded damages.
______________________________________________________________________________________________________________________________
GONZALO VILLANUEVA, represented by his heirs v.SPOUSES FROILAN and LEONILA

BRANOCO
G.R. No.172804 January 24, 2011 CARPIO, J.
Rodrigo’s acceptance of the transfer underscores its essence as a gift in presenti, not in futuro, as only
donations inter vivos need acceptance by the recipient.
Facts:
Gonzalo Villanueva, here represented by his heirs, sued spouses Froilan and Leonila Branoco, to
recover a 3,492 square-meter parcel of land and collect damages. Villanueva claimed ownership over the
Property through purchase in July 1971 from Casimiro Vere, who, in turn, bought the Property from Alvegia
Rodrigo in August 1970. Spouses Branoco similarly claimed ownership over the Property through purchase
in July 1983 from Eufracia Rodriguez to whom Rodrigo donated the Property in May 1965. The trial court
rejected respondents’ claim of ownership. However, CA upheld the sale between Rodriguez and respondents.
Issue:
Whether petitioner’s title over the Property is superior to respondent's.
Ruling:
No. It is immediately apparent that Rodrigo passed naked title to Rodriguez under a perfected
donation inter vivos. First. Rodrigo stipulated that "if the herein Donee predeceases me, the [Property] will not
be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez," signaling the irrevocability of
the passage of title to Rodriguez’s estate, waiving Rodrigo’s right to reclaim title. This transfer of title was
perfected the moment Rodrigo learned of Rodriguez’s acceptance of the disposition which, being reflected in
the Deed, took place on the day of its execution on 3 May 1965. Rodrigo’s acceptance of the transfer
underscores its essence as a gift in presenti, not in futuro, as only donations inter vivos need acceptance by the
recipient. Indeed, had Rodrigo wished to retain full title over the Property, she could have easily stipulated, as
the testator did in another case, that "the donor, may transfer, sell, or encumber to any person or entity the
properties here donated x x x" or used words to that effect. Instead, Rodrigo expressly waived title over the
Property in case Rodriguez predeceases her.
Accordingly, having irrevocably transferred naked title over the Property to Rodriguez in 1965,
Rodrigo "cannot afterwards revoke the donation nor dispose of the said property in favor of another." Thus,
Rodrigo’s post-donation sale of the Property vested no title to Vere. As Vere’s successor-in-interest, petitioner
acquired no better right than him. On the other hand, respondents bought the Property from Rodriguez, thus
acquiring the latter’s title which they may invoke against all adverse claimants, including petitioner. Hence,
the petition was denied.
______________________________________________________________________________________________________________________________
ROMARICO G. VITUG v. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA

G.R. No. 82027 March 29, 1990 SARMIENTO, J.
The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality,
that contract imposed a mere obligation with a term, the term being death. Such agreements are permitted by
the Civil Code.
Facts:
Dolores Luchangco Vitug executed two wills naming Rowena Faustino-Corona as executrix. Romarico
G. Vitug, husband of Dolores, filed a motion asking for authority from the probate court to sell certain shares
of stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum of
P667,731.66, plus interests, which he claimed were personal funds. Rowena Corona opposed the motion to
sell on the ground that the same funds withdrawn from savings account No. 35342-038 were conjugal
partnership properties and part of the estate, and hence, there was allegedly no ground for
reimbursement. Vitug insists that the said funds are his exclusive property having acquired the same through
a survivorship agreement executed with his late wife and the bank on June 19, 1970. The trial courts upheld
the validity of this agreement and granted the motion to sell some of the estate of Dolores L. Vitug.
However, CA held that the survivorship agreement constitutes a conveyance mortis causa which did not
comply with the formalities of a valid will as prescribed by Article 805 of the Civil Code, and secondly,
assuming that it is a mere donation inter vivos, it is a prohibited donation under the provisions of Article 133
of the Civil Code
Issue:
Whether the savings account form part of the gross estate.
Ruling:
No. The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a
will. Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take
effect after the death of one party. Secondly, it is not a donation between the spouses because it involved no
conveyance of a spouse's own properties to the other.In this case, the monies subject of savings account No.
35342-038 were in the nature of conjugal funds. The validity of the contract seems debatable by reason of its
"survivor-take-all" feature, but in reality, that contract imposed a mere obligation with a term, the term being
death. Such agreements are permitted by the Civil Code.
There is no demonstration here that the survivorship agreement had been executed for such
unlawful purposes, or, as held by the respondent court, in order to frustrate our laws on wills, donations, and
conjugal partnership.
DONOR’S TAX
Tax Basis
REV. FR. CASIMIRO LLADOC vs.The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS
G.R. G.R. No. L-19201 June 16, 1965, J. Paredes
A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of the Constitution.
Facts:
M.B. Estate, Inc. donated P10, 000 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias,
Negros Occidental, and predecessor of Fr. Llladoc, for the construction of a new Catholic Church in the
locality. The total amount was actually spent for the purpose intended. M.B. Estate, Inc., filed the donor's gift
tax return therein. Later, CIRissued an assessment for donee's gift tax against the Catholic Parish of Victorias,
Negros Occidental, of which Fr. Lladoc was the priest. Fr Lladoc thus lodged a protest to the assessment and
requested the withdrawal thereof. CIR denied.In the petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal
entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be
liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman
Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution.
Issue:
Whether or not petitioner should be liable for the assessed donee's gift tax on the P10, 000 donated
for the construction of the Victorias Parish Church.
Ruling:
Yes. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The exemption is only from the payment of taxes
assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the
present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties,
upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627).
Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, does not constitute an impairment of the
Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes.
And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the
exemption herein must be denied.
______________________________________________________________________________________________________________________________
TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY LEE, JULIA LEE
KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER
LEE, for themselves and as heirs Of LI SENG GIAP, deceased vs.THE BOARD OF TAX APPEALS and THE
COLLECTOR OF INTERNAL REVENUE
G.R. No. L-5949 November 19, 1955, J. Reyes, JBL
A donation by the husband alone does not become in law a donation by both spouses merely because it
involves property of the conjugal partnership.
Facts:
Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and their thirteen
children appear to be the stockholder of two close family corporations named Li Seng Giap & Sons, Inc. and Li
Seng Giap & Co. BIR later upon examination of the books of the two corporation found that each of Li Seng
Giap's 13 children had a total investment therein of approximately P63,195.00, in shares issued to them by
their father Li Seng Giap (who was the manager and controlling stockholder of the two corporations) in the
years 1940, 1942, 1948, 1949, and 1950. The Collector of Internal Revenue regarded these transfers as
undeclared gifts made in the respective years, and assessed against Li Seng Giap and his children donor's and
donee's taxes. He partly paid. Li Seng Giap admits that these gifts were not reported; but contend that as the
cash donated came from the conjugal funds, they constituted individual donations by each of the spouses Li
Seng Giap and Tang Ho of one half of the amount received by the donees in each instance each of the thirteen
children from each parent. They further alleged that the children's stockholding in the two family
corporations were purchased by them with savings from the aforesaid cash donations received from their
parents. Claiming the benefit of gift tax exemptions at the rate of P2000 a year for each donation, plus
P10,000 for each gift propter nuptias made by either parent, and Li Seng Giap’s aggregate tax liability, he
requested for the revision of the tax assessment. The collector refused.
Issue:
Whether or not the dates and amounts of the donations taxable against petitioners were as found by
the Collector of Internal Revenue from the books of the corporations Li Seng Giap & Sons, Inc. and Li Seng
Giap & Co.
Ruling:
Yes. The donation is taxable against the petitioners. The law clearly differentiates the donations of
such property "by the husband" from the "donations by both spouses by common consent" ("por el marido . . .
o por ambos conyuges de comun acuerdo," in the Spanish text).Next, the wording of Arts. 1409 and 1415 of
the old Civil Code indicates that the lawful donations by the husband to the common children are valid and
are chargeable to the community property, irrespective of whether the wife agrees or objects thereof.
Obviously, should the wife object to the donation, she cannot be regarded as a donor at all.
It becomes unnecessary to discuss the nature of a conjugal partnership, there being specific rules on
donations of property belonging to it. The consequence of the husband's legal power to donate community
property is that, where made by the husband alone, the donation is taxable as his own exclusive act. Hence,
only one exemption or deduction can be claimed for every such gift, and not two, as claimed by appellants
herein. In thus holding, the Board of Tax Appeals committed no error.
Hence, the rule is that under the old Civil Code, a donation by the husband alone does not become in
law a donation by both spouses merely because it involves property of the conjugal partnership; and that
such a donation of property belonging to the conjugal partnership, made during its existence, by the husband
alone in favor of the common children, is taxable to him exclusively as sole donor.
______________________________________________________________________________________________________________________________
SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs.COURT OF APPEALS and MERCEDES
DANLAG y PILAPIL
G.R. No. 111904 October 5, 2000, J. Quisumbing
Note first that the granting clause shows that Diego donated the properties out of love and affection for
the donee. This is a mark of a donation inter vivos.
Facts:
Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered lands. They
executed three deeds of donation mortis in favor of private respondent Mercedes Danlag-Pilapil (herein
private respondent). All deeds contained the reservation of the rights of the donors (1) to amend, cancel or
revoke the donation during their lifetime, and (2) to sell, mortgage, or encumber the properties donated
during the donors' lifetime, if deemed necessary. Later, Diego Danlag, with the consent of his wife, Catalina
Danlag, executed a deed of donation inter vivos covering the aforementioned parcels of land plus two other
parcels again in favor of private respondent Mercedes. This contained two conditions, that (1) the Danlag
spouses shall continue to enjoy the fruits of the land during their lifetime, and that (2) the donee cannot sell
or dispose of the land during the lifetime of the said spouses, without their prior consent and approval.
Mercedes caused the transfer of the parcels' tax declaration to her name and paid the taxes on them. It
appears later, however, that Diego and Catalina Danlag sold parcels 3 and 4 to herein petitioners, Mr. and Mrs.
Agripino Gestopa. Later, Danlags executed a deed of revocation recovering the six parcels of land subject of
the aforecited deed of donation inter vivos.
Mercedes Pilapil filed with the RTC a petition against the Gestopas and the Danlags, for quieting of
title over the above parcels of land. In their opposition, the Gestopas and the Danlags averred that the deed of
donation was null and void because it was obtained by Mercedes through machinations and undue influence.
Even assuming it was validly executed, the intention was for the donation to take effect upon the death of the
donor. Further, the donation was void for it left the donor, Diego Danlag, without any property at all.
Issue:
Whether or not the donation is inter vivios which cannot be revoked once accepted.
Ruling:
Yes. Note first that the granting clause shows that Diego donated the properties out of love and
affection for the donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties. As correctly posed by
the Court of Appeals, what was the need for such reservation if the donor and his spouse remained the
owners of the properties? Third, the donor reserved sufficient properties for his maintenance in accordance
with his standing in society, indicating that the donor intended to part with the six parcels of land. Lastly, the
donee accepted the donation. In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an
acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter
vivos. Donations mortis causa, being in the form of a will, are not required to be accepted by the donees during
the donors' lifetime.Consequently, the Court of Appeals did not err in concluding that the right to dispose of
the properties belonged to the donee. The donor's right to give consent was merely intended to protect his
usufructuary interests. In Alejandro, we ruled that a limitation on the right to sell during the donors' lifetime
implied that ownership had passed to the donees and donation was already effective during the donors'
lifetime.
______________________________________________________________________________________________________________________________
TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA ALEJANDRO, MARIA ALEJANDRO, SALUD
ALEJANDRO, EMILIA ALEJANDRO, FLORENCIO ALEJANDRO and DIONISIA ALEJANDRO, vs. HON.
AMBROSIO M. GERALDEZ, Presiding Judge, Court of First Instance of Bulacan, Branch V, Sta. Maria,
ANDREA DIAZ and ANGEL DIAZ
G.R. No. L-33849 August 18, 1977
ANDREA DIAZ vs. HON. AMBROSIO M. GERALDEZ, in his capacity as Presiding Judge of the Court of
First Instance of Bulacan, Branch V, TEODORICO ALEJANDRO, IRENEO POLICARPIO, VIRGINIA
ALEJANDRO, MARIA ALEJANDRO, EMILIA ALEJANDRO, FLORENCIO ALEJANDRO and DIONISIA
ALEJANDRO
G.R. No. L-33968 August 18, 1977, J. Aquino
The donation in the instant case is inter vivos because it took effect during the lifetime of the donors. It
was already effective during the donors' lifetime, or immediately after the execution of the deed, as shown by the
granting, habendum and warranty clause of the deed.
Facts:
On January 20, 1949 the spouses Gabino (Gavino) Diaz and Severa Mendoza and their three children,
Olimpia Diaz, Angel Diaz and Andrea Diaz, executed a deed of donation covering eight lots of the Lolomboy
Friar Lands Estate, owned by the Diaz spouses, located at Barrio Parada, Sta. Maria, Bulacan. Gabino Diaz died
thereafter. Later, Severa Mendoza and her two children, Andrea Diaz and Angel Diaz, executed a deed of
donation denominated as "Kasulatan ng Pagbibigay na Magkakabisa Pagkamatay (Donation Mortis causa )"
over one-half of Lot No. 2377-A, which is a portion of Lot No. 2377 of the Lolomboy Friar Lands Estate (which
in turn is item 3 or [c] in the 1949 deed of donation already mentioned). In that deed of donation, Severa
Mendoza donated to Andrea Diaz her one-half share in Lot 2377-A, which one-half share is Identified as Lot
2377-A-1, on condition that Andrea Diaz would bear the funeral expenses to be incurred after the donor's
death. She died in 1964.It should be noted that the other one-half share in Lot 2377-A or Lot No. 2377-A-2
was previously adjudicated to Angel Diaz because he defrayed the funeral expenses on the occasion of the
death of Gabino Diaz.
Subsequently, Andrea Diaz sued her brother, Angel Diaz, for the partition of Lots Nos. 2377-A. Angel
Diaz alleged in his answer that he had been occupying his share of Lot No. 2502 for more than twenty years.
The intervenors claimed that the 1949 donation was a void mortis causa disposition. Andre on the other hand
contended that the 1949 deed was a valid donation mortis causa.
Issue:
Whether or not the donation was one of mortis causa or inter vivos.
Ruling:
The donation in the instant case is inter vivos because it took effect during the lifetime of the donors.
It was already effective during the donors' lifetime, or immediately after the execution of the deed, as shown
by the granting, habendum and warranty clause of the deed. In that clause it is stated that, in consideration of
the affection and esteem of the donors for the donees and the valuable services rendered by the donees to the
donors, the latter, by means of the deed of donation, wholeheartedly transfer and unconditionally give to the
donees the lots mentioned and described in the early part of the deed, free from any kind of liens and
debts.The acceptance clause is another indication that the donation is inter vivos. Donations mortis causa ,
being in the form of a will, are never accepted by the donees during the donors' lifetime. Acceptance is a
requirement for donations inter vivos.In the reddendum or reservation clause of the deed of donation, it is
stipulated that the donees would shoulder the expenses for the illness and the funeral of the donors and that
the donees cannot sell to a third person the donated properties during the donors' lifetime but if the sale is
necessary to defray the expenses and support of the donors, then the sale is valid. The limited right to
dispose of the donated lots, which the deed gives to the donees, implies that ownership had passed to them
by means of' the donation and that, therefore, the donation was already effective during the donors' lifetime.
That is a characteristic of a donation inter vivos.
______________________________________________________________________________________________________________________________
EVELYN DE LUNA, ROSALINA DE LUNA, PRUDENCIO DE LUNA, JR., WILLARD DE LUNA, ANTONIO DE
LUNA, and JOSELITO DE LUNA vs. HON. SOFRONIO F. ABRIGO, Presiding Judge of the Court of First
Instance of Quezon, Branch IX, and LUZONIAN UNIVERSITY FOUNDATION, INC.
G.R. No. L-57455 January 18, 1990, J. Midealdea
Under the old Civil Code, it is a settled rule that donations with an onerous cause are governed not by
the law on donations but by the rules on contracts.
Facts:
Prudencio de Luna donated a portion of 7,500 square meters covered by Transfer Certificate of Title
to the Luzonian Colleges, Inc., (now Luzonian University Foundation, Inc., herein referred to as the
foundation). The donation, embodied in a Deed of Donation Intervivos was subject to certain terms and
conditions and provided for the automatic reversion to the donor of the donated property in case of violation
or non-compliance. As in the original deed of donation, the "Revival of Donation Inter Vivos" also provided for
the automatic reversion to the donor of the donated area in case of violation of the conditions thereof. The
foundation, through its president, accepted the donation in the same document, subject to all the terms and
conditions stated in the donation. As a result, transfer certificate of was issued in the name of the foundation.
The foundation failed to comply with the conditions of the donation. The children and only heirs of the late
Prudencio de Luna, who later, died filed a complaint alleging that the terms and conditions of the donation
were not complied with by the foundation. Among others, it prayed for the cancellation of the donation and
the reversion of the donated land to the heirs.The foundation interposed the defence of prescription. It
argued that actions for the revocation of a donation must be brought within four (4) years from the non-
compliance of the conditions of the donation.
Issue:
Whether or not the prescription sets-in thus action to revoke can no longer be made.
Ruling:
No. The action to revoke has not yet prescribed.It is true that under Article 764 of the New Civil Code,
actions for the revocation of a donation must be brought within four (4) years from the non-compliance of the
conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in
view of the specific provision of Article 733 providing that onerous donations are governed by the rules on
contracts. From the viewpoint of motive, purpose or cause, donations may be 1) simple, 2) remuneratory or
3) onerous. A simple donation is one the cause of which is pure liberality (no strings attached). A
remuneratory donation is one where the donee gives something to reward past or future services or because
of future charges or burdens, when the value of said services, burdens or charges is less than the value of the
donation. An onerous donation is one which is subject to burdens, charges or future services equal (or more)
in value than that of the thing donated.
The donation subject of this case is one with an onerous cause. It was made subject to the burden
requiring the donee to construct a chapel, a nursery and a kindergarten school in the donated property within
five years from execution of the deed of donation. Under the old Civil Code, it is a settled rule that donations
with an onerous cause are governed not by the law on donations but by the rules on contracts. On the matter
of prescription of actions for the revocation of onerous donation, it was held that the general rules on
prescription apply.
VALUE-ADDED TAX
Characteristics/Elements of a VAT-Taxable Transaction
MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 193301 March 11, 2013
MINDANAO I GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 194637, March 11, 2013 J. Carpio
It does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT
liability.
Facts:
Both Mindanao I and II are partnerships registered with the Securities and Exchange Commission,
value added taxpayers registered with the Bureau of Internal Revenue (BIR), and Block Power Production
Facilities accredited by the Department of Energy. Republic Act No. 9136, or the Electric Power Industry
Reform Act of 2000 (EPIRA), effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997 (1997
Tax Code),when it decreed that sales of power by generation companies shall be subjected to a zero rate of
VAT. In the course of its operation, Mindanao II makes domestic purchases of goods and services and
accumulates therefrom creditable input taxes. It appears also that Mindanao II sold its fully depreciated
P200,000.00 Nissan Patrol.Pursuant to the provisions of the National Internal Revenue Code (NIRC),
Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability . Mindanao
II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its
business; hence, it is an isolated transaction that should not have been subject to 10% VAT.
Issue:
Whether or not the sale of Nissan Patrol under circumstances is deemed a vatable sale transaction.
Ruling:
Yes. Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.However, it does not
follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a
reading of Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or
business" includes "transactions incidental thereto.”The phrase "in the course of trade or business" means the
regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto,
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.
Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to
deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan
Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and equipment.
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II’s
business which should be liable for VAT.
Incidence of Tax
COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE LONG DISTANCE TELEPHONE CO.

G.R. No. 140230, December 15, 2005, Garcia , J.
Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of
taxation, taxes may be classified into either direct tax or indirect tax.
Facts:
PLDT paid the BIR for compensating tax, advance sales tax, VAT and other internal revenue taxes for
equipment, machineries and spare parts it imported for its business. PLDT addressed a letter to the BIR
seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082. The BIR issued a
ruling that PLDT shall be subject only to the 3% franchise tax on gross receipts which shall be in lieu of all
taxes on its franchise or earnings thereof. The "in lieu of all taxes" provision under Section 12 of RA 7082
clearly exempts PLDT from all taxes including the 10% VAT. PLDT is exempt from VAT on its importation of
equipment, machineries and spare parts needed in its franchise operations. Hence, PLDT filed a claim for tax
credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes. BIR did not act on the
claim, and to forestall the running of the prescriptive period, PLDT filed with the CTA a petition for review.
The CTA granted PLDT's petition. The CIR moved for a reconsideration but the CTA denied the motion. The
CA affirmed the CTA's judgment stating that the Court has already spoken on the issue of what taxes are
referred to in the phrase "in lieu of all taxes" found in Section 12 of R.A. 7082.
Issue:
Whether or not PLDT is claiming exemption from indirect taxes?
Ruling:
Yes. Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden
of taxation, taxes may be classified into either direct tax or indirect tax. In context, direct taxes are those that
are exacted from the very person who, it is intended or desired, should pay them; they are impositions for
which a taxpayer is directly liable on the transaction or business he is engaged in. On the other hand, indirect
taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation
and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes wherein
the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on
to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately
pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to
pay it, to the purchaser as part of the price of goods sold or services rendered.
To put the situation in graphic terms, by tacking the VAT due to the selling price, the seller remains
the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate
buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly
and legally liable for payment of an indirect tax, such as the VAT on goods or services, is not necessarily the
person who ultimately bears the burden of the same tax. It is the final purchaser or end-user of such goods or
services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of
the tax. There can be no serious argument that PLDT, vis-a-vis its payment of internal revenue taxes on its
importations in question, is effectively claiming exemption from taxes not falling under the category of direct
taxes. The claim covers VAT, advance sales tax and compensating tax.
Destination Principle
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE
G.R. No. 141104 & 148763, June 8, 2007, Chico-Nazario , J.
According to the Destination Principle, goods and services are taxed only in the country where these are
consumed.
Facts:
Atlas filed its VAT Return for the first quarter of 1992 and alleged that it filed its application for the
refund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales. Asserting that it
was a "zero-rated VAT person," it prayed that the CTA order CIR to refund/credit Atlas, representing the
input VAT it had paid. The CTA denied the petition as well as the motion for reconsideration Atlas made
which the CA affirmed. In another case, it involves almost the same set of facts as presented above, except that
it relates to the claims for refund/credit of input VAT on its purchases of capital goods and on its zero-rated
sales made in the last three taxable quarters of 1990. Atlas filed its VAT Returns and submitted applications
for the refund/credit of the input VAT paid on its purchases of capital goods and on its zero-rated sales. The
CTA ruled in favor of the CIR and dismissed the petitions on the ground that the prescriptive periods for filing
the same had expired. Atlas appealed to the CA which denied the petition finding that Atlas failed to
substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. Atlas assails
the validity of Revenue Regulations No. 2-88 that imposed additional requirements, not found in the law
itself, for the zero-rating of its sales to Philippine Smelting and Refining Corporation and Philippine
Phosphate, Inc. both of which are registered not only with the BOI, but also with the then Export Processing
Zone Authority.
Issue:
Whether or not Section 2 of Revenue Regulations No. 2-88 should be applied to the application for
refund/credit of input VAT by Atlas?
Ruling:
No. Such tax treatment of goods brought into the export processing zones are only consistent with
the Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According
to the Destination Principle, goods and services are taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form
part of the cost of the goods destined for consumption outside the territorial border of the taxing authority.
Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines shall be imposed with 10% VAT. Export
processing zones are to be managed as a separate customs territory from the rest of the Philippines and, thus,
for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the
Philippine customs territory to those inside the export processing zones are already taxed as exports. This
Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied to zero-
rated export sales to export-oriented BOI-registered enterprises, should not be applied to the applications for
refund/credit of input VAT filed by petitioner corporation since it based its applications on the zero-rating of
export sales to enterprises registered with the EPZA and located within export processing zones.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESS INTERNATIONAL, INC.

G.R. No. 152609, June 29, 2005, Panganiban, J.
The VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. An
exception to that is for a 0% VAT rate for services that are performed in the Philippines "paid for in acceptable
foreign currency and accounted for pursuant to the rules and regulations of the BSP."
Facts:
Amex Philippines is a VAT-registered taxpayer. Amex filed with the BIR its quarterly VAT returns.
Later, Amex requested for the refund of its 1997 excess input taxes and cites as basis Section 110 (B) of the
1997 Tax Code. It raised in its petition for review that export sales by a VAT-registered person, the
consideration for which is paid for in acceptable foreign currency inwardly remitted to the Philippines and
accounted for in accordance with existing regulations of the BSP are subject to VAT at 0%. According to Amex,
being a VAT-registered entity, it is subject to the VAT imposed under Title IV of the Tax Code. Also, it alleged
that input taxes on domestic purchases of taxable goods and services related to zero-rated revenues are
available as tax refund in accordance with Section 106 of the Tax Code and Section 8(a) of RR No. 5-87. The
CTA ruled in favor of Amex ordering the CIR for refund. On appeal, the CA held that Amex's services were
"services other than the processing, manufacturing or repacking of goods for persons doing business outside
the Philippines." The consideration was paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP. The CA reasoned that reliance on VAT Ruling No. 040-
98 was unwarranted. By requiring that Amex’s services be consumed abroad in order to be zero-rated, the
CIR went beyond the sphere of interpretation and into that of legislation.
Issue:
Whether or not Amex services is covered by the destination principle?
Ruling:
No. As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are
zero-rated, while imports are taxed. Unlike goods, services cannot be physically used in or bound for a
specific place when their destination is determined. Instead, there can only be a "predetermined end of a
course" when determining the service "location or position for legal purposes." Amex's facilitation service has
no physical existence, yet takes place upon rendition, and therefore upon consumption, in the Philippines.
Under the destination principle, such service is subject to VAT at the rate of 10%.
However, the law provides for an exception to the destination principle; that is, for a zero percent
VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP." Thus, for the supply of service to be
zero-rated as an exception, the law merely requires that first, the service be performed in the Philippines;
second, the service fall under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in
acceptable foreign currency accounted for in accordance with BSP rules and regulations. Indeed, these
requirements for exemption from the destination principle are met by Amex. Thus, it should be zero-rated.
VAT on sale of service and use or lease of properties
RENATO DIAZ AND AURORA TIMBOL vs. THE SECRETARY OF FINANCE AND THE CIR
G.R. No. 193007, July 19, 2011, Abad, J.
The enumeration of affected services in Section 108 of the NIRC is not exclusive. Thus, every activity that
can be imagined as a form of "service" rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Facts:
Diaz and Timbol filed a petition for declaratory relief assailing the validity of the imposition of VAT
on the collections of tollway operators. Diaz and Timbol allege that the BIR attempted during the
administration of Pres. Arroyo to impose VAT on toll fees but the imposition was deferred. But, upon
Pres.Aquino III's assumption of office, the BIR revived the idea and would impose the challenged tax on toll
fees unless judicially enjoined. Diaz and Timbol hold the view that Congress did not intend to include toll fees
within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of
services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was
never factored into the formula for computing toll fees, its imposition would violate the non-impairment
clause of the constitution. The Court issued a TRO, enjoining the implementation of the VAT. The government
avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations,
except where the law provides otherwise; that the Court should seek the meaning and intent of the law from
the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as
early as 2003 of several BIR rulings and circulars.
Issue:
Whether or not toll fees collected by tollway operators are subject to VAT?
Ruling:
Yes. It is plain from Section 108 of the NIRCthat the law imposes VAT on "all kinds of services"
rendered in the Philippines for a fee, including those specified in the list. The enumeration of affected services
is not exclusive. By qualifying "services" with the words "all kinds," Congress has given the term "services" an
all-encompassing meaning. The listing of specific services are intended to illustrate how pervasive and broad
is the VAT's reach rather than establish concrete limits to its application. Thus, every activity that can be
imagined as a form of "service" rendered for a fee should be deemed included unless some provision of law
especially excludes it. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract
and the law recognize. In this sense, the tollway operator is no different from the following service providers
under Section 108 who allow others to use their properties or facilities for a fee. Petitioners contend that the
public nature of the services rendered by tollway operators excludes such services from the term "sale of
services" under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The
reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the
collection of tolls or charges for its use or service is a franchise. Nor can petitioners cite as binding on the
Court statements made by certain lawmakers in the course of congressional deliberations of the would-be
law.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME HOLDINGS, INC. AND ASIA REALTY
DEVELOPMENT CORPORATION
G.R. No. 183505, February 26, 2010, Del Castillo, J.
The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive. The "lease
of motion picture films, films, tapes and discs" is not the same as the showing or exhibition of motion pictures or
films.
Facts:
The BIR sent SM Prime a Preliminary Assessment Notice (PAN) for VAT deficiency on cinema ticket
sales for taxable year 2000. SM Prime filed a letter-protest. The BIR sent a Formal Letter of Demand for the
alleged VAT deficiency, which the latter protested. The BIR denied the protest and ordered it to pay the VAT
deficiency. SM Prime filed a petition for review before the CTA. With the similar facts from the above case,
First Asia filed a petition for review before the CTA as to its protest from the VAT deficiencies on cinema
ticket sales for taxable year 1999, 2000, 2002 and 2003 claimed by the BIR.The cases were consolidated upon
the motion of SM Prime being a majority shareholder of First Asia. The CTA ruled that the activity of showing
cinematographic films is not a service covered by VAT but an activity subject to amusement tax under the
LGC. On appeal, the CTA En Banc held that the showing or exhibition of motion pictures, films or movies by
cinema operators or proprietors is not among the enumerated activities contemplated in the phrase "sale or
exchange of services," then gross receipts derived from admission tickets are not subject to VAT.
Issue:
Whether or not the gross receipts derived by operators or proprietors of cinema/theater houses
from admission tickets are subject to VAT?
Ruling:
No. The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive. The
words, "including," "similar services," and "shall likewise include," indicate that the enumeration is by way of
example only. Among those included in the enumeration is the "lease of motion picture films, films, tapes and
discs." This is not the same as the showing or exhibition of motion pictures or films. The legislature never
intended operators or proprietors of cinema/theater houses to be covered by VAT. These reveal the
legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true even
in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services. The mere fact that they are taxed by the LGU and
not by the national government is immaterial. The Local Tax Code, in transferring the power to tax gross
receipts derived by cinema/theater operators or proprietor from admission tickets to the local government,
did not intend to treat cinema/theater houses as a separate class. No distinction must, therefore, be made
between the places of amusement taxed by the national government and those taxed by the local
government.To hold otherwise would impose an unreasonable burden on cinema/theater houses operators
or proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC, or a total of 40% tax. Such imposition would result in injustice, as persons taxed
under the NIRC of 1997 would be in a better position than those taxed under the LGC of 1991.
VAT exempt transactions
PHILIPPINE AMUSEMENT AND GAMING CORPORATION vs. BUREAU OF INTERNAL REVENUE

G.R. No. 172087, March 15, 2011, Peralta, J.
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and
provisions of the basic law.RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337 which
exempts PAGCOR from VAT.
Facts:
PAGCOR was created pursuant to P.D. 1067-A. Simultaneous to its creation, P.D. No. 1067-B was
issued exempting PAGCOR from the payment of any type of tax, except a franchise tax of 5% of the gross
revenue. Thereafter, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption. PAGCOR's tax
exemption was removed in June 1984 through P.D. No. 1931, but was later restored by LOI 1430, which was
issued in September 1984. On January 1988, the NIRC took effect which provides in Section 27 (c) that GOCCs
shall pay corporate income tax, except petitioner PAGCOR, GSIS, SSS, PhilHealth and PCSO. With the
enactment of R.A. 9337, it amended Section 27 (c) by excluding PAGCOR from the enumeration of GOCCs that
are exempt from payment of corporate income tax. Different groups came to this Court via petitions
for certiorari and prohibition assailing the validity and constitutionality of R.A. 9337 which were dismissed
and the Court upheld the constitutionality of R.A. No. 9337. The BIR issued RR 16-2005, specifically
identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the NIRC, as
amended by R.A. No. 9337.
Issue:
Whether or not PAGCOR is exempt from VAT?
Ruling:
Yes. Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to
10% VAT is invalid for being contrary to R.A. 9337. Nowhere in R.A. 9337 is it provided that petitioner can be
subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of
corporate income tax, which was already addressed by this Court. Petitioner is exempt from the payment of
VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. 9337, which retained Section
108 (B) (3) of R.A. 8424. As pointed out by petitioner, although R.A. No. 9337 introduced amendments to
Section 108 of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the
portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered
persons to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to 0% rate.
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms
and provisions of the basic law.RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No.
9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting
PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby nullified.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. ACESITE (PHILIPPINES) HOTEL CORPORATION

G.R. No. 147295, February 16, 2007, Velasco, Jr. J.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. x x x [W]hile it was proper for PAGCOR not to pay the 10%
VAT charged by Acesite, the latter is not liable for the payment of it as it is exempt in this particular transaction
by operation of law to pay the indirect tax.
Facts:
Acesite, owner and operator of Holiday Inn Manila Pavilion Hotel, leases its hotel premises to
PAGCOR. It incurred VAT amounting to P30, 152, 892.02 from its rental income and sale of foods and
beverages to PAGCOR’s casino patrons. Acesite tried to shift the said taxes to PAGCOR by incorporating it in
the amount assessed to PAGCOR but the latter refused to pay in view of its tax exempt status. Fearing legal
consequences, Acesite paid the VAT but belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered a tax-exempt entity. Acesite thus filed a claim for refund with the
CIR.
Issue:
Whether or not PAGCOR’s tax exemption privilege includes indirect tax of VAT to entitle Acesite to
zero percent VAT rate.
Ruling:
YES, petitioner’s contention that PAGCOR’s exemption refers only to direct tax liability and not to
indirect tax like the VAT is devoid of merit. A close scrutiny of the above provisos clearly gives PAGCOR a
blanket exemption to taxes with no distinction on whether the taxes are direct or indirect.It is true that VAT
can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is
computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has
the option to follow either way in charging its clients and customer. In the instant case, Acesite followed the
latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of
either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt from an
indirect tax, like VAT.Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the
latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay
the indirect tax.
Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it
was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments.
Transitional inputtax/Presumptive Input Tax
FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE,

REGIONAL DIRECTOR, REVENUE REGION NO. 8 and CHIEF, ASSESSMENT DIVISION, REVENUE REGION
NO. 8; FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG AND PATEROS, BUREAU OF
INTERNAL REVENUE
G.R. No. 158885 and G.R. No. 170680 (583 SCRA 168), April 2, 2009, Tinga, J.
There is no logic to support the restriction imposed on real estate brokers and their ability to claim the
transitional input tax credit based on the value of their real properties.
Facts:
Petitioner FBDC acquired by way of sale from the national government, a vast tract of land that
formerly formed part of the Fort Bonifacio military reservation. Since the sale was consummated prior to the
enactment of R.A. No. 7716 (EVAT Law), no VAT was paid thereon. FBDC then proceeded to develop the tract
of land, and began selling lots located in the Global City to interested buyers. Following the effectivity of R.A.
No. 7716, real estate transactions such as those regularly engaged in by FBDC have since been made subject
to VAT. As the vendor, FBDC from thereon has become obliged to remit to the BIR output VAT payments it
received from the sale of its properties. FBDC likewise invoked its right to avail of the transitional input tax
credit. The second petition, which is docketed as G.R. No. 170680, involves the same parties and legal issues,
but concerns the claim of FBDC that it is entitled to claim a similar transitional/presumptive input tax credit,
this time for the third quarter of 1997. The CTA denied the claim for refund.
Issue:
Whether or not petitioner is entitled to claim the transitional input tax credit on its sale of real
properties given its nature as a real estate dealer and if so (i) is the transitional input tax credit applied only
to the improvements on the real property or is it applied on the value of the entire real property and (ii)
should there have been a previous tax payment for the transitional input VAT to be creditable?
Ruling:
YES petitioner is entitled to claim the transitional input tax credit not only to the improvements in
the real property but on the value of the entire real property.
There is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports the
restriction imposed on real estate brokers and their ability to claim the transitional input tax credit based on
the value of their real properties. In addition, the very idea of excluding the real properties itself from the
beginning inventory simply runs counter to what the transitional input tax credit seeks to accomplish for
persons engaged in the sale of goods, whether or not such goods take the form of real properties or more
mundane commodities.Under Section 105, the beginning inventory of goods forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product
which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real
properties themselves which constitute their goods. Such real properties are the operating assets of the real
estate dealer.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials
and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit
serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer
is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional
input tax credit mitigates this initial diminution of the taxpayers income by affording the opportunity to offset
the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to
credit input VAT payments.
______________________________________________________________________________________________________________________________
FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE and

REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF
INTERNAL REVENUE
G.R. No. 173425 (689 SCRA 76), September 4, 2012, Del Castillo, J.
Prior payment of taxes is not required for a taxpayer to avail of the 8%transitional input tax credit.
Facts:
FBDC is engaged in the development and sale of real property. When the R.A. No. 7716 took effect,
restructuring the VAT system by amending certain provisions of the NIRC, VAT coverage was extended to real
properties held primarily for sale to customers or held for lease in the ordinary course of trade or business.
FBDC thus submitted with the BIR RDO No. 44, Taguig and Pateros an inventory of all its real properties, the
book value of which, according to petitioner, entitles them to to a transitional input tax credit pursuant to
Section 105 of the old NIRC. For the first quarter of 1997, petitioner paid the output VAT by making cash
payments to the BIR and crediting its unutilized input tax credit on purchases of goods and services.Realizing
that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997,
petitioner filed with the BIR a claim for refund of the amount of P 359,652,009.47 erroneously paid as output
VAT for the said period. CA in affirming the CTA stated that petitioner is not entitled to the 8% transitional
input tax since it did not pay any VAT when it purchased the Global City property.
Issue:
Whether or notthere must have been previous payment of business tax by petitioner on its land
before it may claim the input tax credit granted by Section 105 of the National Internal Revenue Code.
Ruling:
NO. Contrary to the view of the CTA and the CA, there is nothing in the Section 105 of the old NIRC to
indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax credit.
Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR.To require prior
payment of taxes, as proposed in the Dissent is not only tantamount to judicial legislation but would also
render nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be
"8% of the value of [the beginning] inventory or the actual [VAT] paid on such goods, materials and supplies,
whichever is higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would
always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice
Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting
the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was
not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes
goods, materials, and supplies where no taxes were paid.
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because
it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined
as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other
hand, is an amount subtracted directly from one’s total tax liability.
Refund or tax credit of excess input tax

G.R. No. 184823, October 6, 2010, Del Castillo, J.
Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the
sales were made.
Facts:
On September 30, 2004, Aichi, a VAT registered entity, filed a claim for refund/credit of input VAT for
the period July 1, 2002 to September 30, 2002 with the CIR through the Department Of Finance (DOF) One-
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center. On even date, it filed a petition for review
with the CTA for the refund of the same input VAT. In response, petitioner CIR raised, among others, the
defense that Aichi must first prove that the claim was filed within the two-year period prescribed under
Section 229 of the NIRC. The CTA partially granted Aichi’s petition but as CIR was dissatisfied with the
Decision, it filed a Motion for Reconsideration insisting that the administrative and the judicial claims were
filed beyond the two-year period to claim a tax refund/credit provided for under the NIRC. He reasoned that
since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was
beyond the two-year period, which expired on September 29, 2004.
Issue:
Whether or not respondent’s judicial and administrative claims for tax refund/credit were filed
within the two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.
Ruling:
YES. In CIR v. Mirant Pagbilao Corporation the Court ruled that Section 112(A) of the NIRC is the
applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized
input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as both provisions apply only to
instances of erroneous payment or illegal collection of internal revenue taxes. The Court thus finds that the
CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year
prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is
the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned
from the close of the taxable quarter when the sales were made.
[A]s between the Civil Code, which provides that a year is equivalent to 365 days, and
theAdministrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter
that must prevail following the legal maxim, Lex posteriori derogat priori. [T]he two-year period to file a claim
for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30,
2004. Hence, respondents’ administrative claim was timely filed.
However, notwithstanding the timely filing of the administrative claim, weare constrained to deny
respondents claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC.
Respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we
find the filing of the judicial claim with the CTA premature.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION

G.R. No. 187485, February 12, 2013, Carpio, J.
TAGANITO MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 196113
PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 197156
The 120-day period may extend beyond the two-year prescriptive period, as long as the administrative
claim is filed within the two-year prescriptive period.
Facts:
The primary issue in these three consolidated cases pertains to the proper period for filing the
judicial claim for refund of creditable input tax. In these cases, all taxpayers involved timely filed their
administrative claims with the CIR. But San Roque and Taganito both prematurely filed their judicial claims
without waiting for the lapse of 120-day period within which the Commissioner must act on the said claims.
Philex, on the other hand, filed belatedly since it filed its judicial claim only after 426 days which is way
beyond the 120+30-day period.
Issue:
Whether or not the judicial claims for refunds were filed within the proper period.
Ruling:
In CIR v. San Roque - San Roque filed its petition for review with the CTA only after 13 days from
filing its amended administrative claim with the CIR. Clearly, San Roque failed to comply with the 120-day
waiting period. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly
illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax
refund or credit. xx x The 120-day period may extend beyond the two-year prescriptive period, as long as the
administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal mistake is
that it did not wait for the Commissioner to decide within the 120-day period, a mandatory period.
In Taganito v. CIR - Like San Roque, Taganito also filed its petition for review with the CTA without
waiting for the 120-day period to lapse. However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10
December 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine.
Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on time.
In Philex Mining v. CIR - Unlike San Roque and Taganito, Philex’s case is not one of premature filing
but of late filing. Philex did not file any petition with the CTA within the 120-day period. Philex did not also
file any petition with the CTA within 30 days after the expiration of the 120-day period. x x xIn any event,
whether governed by jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to
be rejected because of late filing. Whether the two-year prescriptive period is counted from the date of
payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter when the
sales attributable to the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim
was indisputably filed late.The theory that the 30-day period must fall within the two-year prescriptive
period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that
the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot
interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his
claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical
interpretation of Section 112(A) and (C).
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. DASH ENGINEERING PHILIPPINES, INC.

G.R. No. 184145, December 11, 2013, Mendoza, J.
For as long as the administrative claim is filed with the CIR within the two-year prescriptive period, the
30-day period given to the taxpayer to file a judicial claim with the CTA need not fall in the same two-year
period.
Facts:
Dash Engineering Philippines, Inc. (DEPI) filed its monthly and quarterly VAT returns for the period
from January 1, 2003 to June 30, 2003. On August 9, 2004, it filed a claim for tax credit/refund representing
unutilized input VAT attributable to its zero-rated sales. Because petitioner CIR failed to act upon the said
claim, DEPI was compelled to file a petition for review with the CTA on May 5, 2005. The CTA rendered a
decision partially granting the claim for refund and found that the judicial claim was timely filed because its
amended quarterly VAT returns for the first and second quarters of 2003 on July 24, 2004, it had until July 24,
2006 to file its judicial claim. As such, its filing of a petition for review with the CTA was within the
prescriptive period.
Issue:
Whether or not the CTA En Banc erred in holding that respondent’s judicial claim for refund was filed
within the prescriptive period under the Tax Code.
Ruling:
YES. This Court has previously made a pronouncement as to the inapplicability of Section 229 of the
NIRC to claims for excess input VAT. In the recently decided case of CIR v. San Roque Power Corporation, the
Court made a lengthy disquisition on the nature of excess input VAT, clarifying that "input VAT is not
‘excessively’ collected as understood under Section 229 because at the time the input VAT is collected the
amount paid is correct and proper." Hence, respondent cannot advance its position by referring to Section
229 because Section 112 is the more specific and appropriate provision of law for claims for excess input
VAT.As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)
applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims with the
CTA. In other words, for as long as the administrative claim is filed with the CIR within the two-year
prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the CTA need not fall
in the same two-year period.
The 120+30-day period provided under Section 112(C) of the NIRC is mandatory and jurisdictional.
Respondent's judicial claim for refund must be denied for having been filed late. Although respondent filed its
administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in Section
112(A), it undoubtedly failed to comply with the 120+ 30-day period in Section l l 2(D) (now subparagraph C)
which requires that upon the inaction of the CIR for 120 days after the submission of the documents in
support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of the said period.
The 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought
judicial relief on May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to
file the same, almost four months after the period allowed by law. As a consequence of DEPI's late filing, the
CTA did not properly acquire jurisdiction over the claim.
______________________________________________________________________________________________________________________________

G.R. No. 197591, June 18, 2014, PERLAS-BERNABE, J.
The rule must therefore be that during the period December 10, 2003, when BIR Ruling No. DA-489-03
was issued, to October 6, 2010, when the Aichi case was promulgated, taxpayers-claimants need not observe the
120-day period before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after
the aforementioned period i.e., December 10, 2003 to October 6, 2010, the observance of the 120-day period is
mandatory and jurisdictional to the filing of such claim.
Facts:
Taganito is a duly-registered Philippine corporation and a VAT registered entity. It filed before the
Bureau of Internal Revenue an administrative claim for the refund of input VAT paid on its domestic
purchases of taxable goods and services and importation of goods in the amount of 1,885,140.22 covering the
period January 1, 2004 to December 31, 2004, in accordance with Section 112, subsections (A) and (B) of the
NIRC. Thereafter, fearing that the period for filing a judicial claim for refund was about to expire, Taganito
proceeded to file a petition for review before the CTA Division. The CTA Division partially granted Taganito’s
claim for refund, ordering respondent, the CIR, to refund to Taganito the amount of 537,645.43 representing
its unutilized input VAT for the period January 1, 2004 to March 9, 2004. Dissatisfied, it appealed to the CTA
En Banc to which the latter reversed the CTA Division, and ordered that Taganito’s claim of refund be denied
in its entire amount on the ground that judicial claim was premature. Explaining that the observance of the
120-day period provided under Section 112(D) of the NIRC is mandatory and jurisdictional to the filing of a
judicial claim for refund. Hence, this petition.
Issue:
Whether or not the CTA En Banc correctly dismissed Taganito’s judicial claim for refund of excess
input VAT.
Ruling:
No, Taganito filed its administrative and judicial claims for refund on December 28, 2005 and March
31, 2006, respectively – or during the period when BIR Ruling No. DA-489-03 was in place. As such, it need
not have waited for the expiration of the 120-day period before filing its judicial claim for refund before the
CTA. The rule must therefore be that during the period December 10, 2003, when BIR Ruling No. DA-489-03
was issued, to October 6, 2010, when the Aichi case was promulgated, taxpayers-claimants need not observe
the 120-day period before it could file a judicial claim for refund of excess input VAT before the CTA. Before
and after the aforementioned period i.e., December 10, 2003 to October 6, 2010, the observance of the 120-
day period is mandatory and jurisdictional to the filing of such claim.
However, Taganito did not appeal the CTA Division's partial denial of its claim for refund. It is well-
settled that a party who does not appeal from a judgment can no longer seek modification or reversal of the
same. For this reason, Taganito may no longer question the propriety and correctness of the said partial
disallowance as it had lapsed into finality and may no longer be modified. Hence, Taganito is only entitled to
the partial refund of its unutilized input VAT in the amount of P537,645.43, as was originally granted to it by
the CTA Division.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MINDANAO II GEOTHERMAL PARTNERSHIP

G.R. No. 191498, January 15, 2014, SERENO, CJ.
Section 112(D) of the 1997 Tax Code provides that the taxpayer can file the appeal in one of two ways:
(1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period,
or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner
does not act within the 120-day period.
Facts:
Mindanao II filed with the BIR an application for the refund or credit of accumulated unutilized
creditable input taxes on October 6, 2005. The administrative claim, however, remained unresolved for 120
days or the period within which CIR can act on the application, as stated in Section 112(D) of the Tax Code.
Mindanao II claiming inaction on the part of the CIR and that the two-year prescriptive period was about to
expire, filed a Petition for Review with the CTA on July 21, 2006.
The CTA Second Division rendered a Decision ordering the CIR to grant a refund or a tax credit
certificate, but only in the reduced amount of P6,791,845.24, representing unutilized input VAT incurred for
the second, third and fourth quarters of taxable year 2004. However, the CIR filed a Motion for Partial
Reconsideration, pointing out that the judicial claim of Mindanao II was filed beyond the 30-day period fixed
by Section 112(D) of the 1997 Tax Code. The CTA Second Division denied the said Motion. On appeal to the
CTA En Banc, the court denied the appeal of CIR and ruled that the 30-day period is not a mandatory
requirement, the judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting
period but within two years from the date of filing of the return. Hence, this petition.
Issue:
Whether or not the CTA En Banc is correct in ruling that judicial claims of Mindanao II was timely
filed on the ground that it was filed within two years from the date of filing of the return.
Ruling:
No, Mindanao II’s judicial claims for refund or credit of unutilized input VAT were filed out of time.
Section 112(D) of the 1997 Tax Code provides the time requirements for filing a judicial claim for refund or
tax credit of input VAT and it mandates that the taxpayer can file the appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not
act within the 120-day period.
In this case, Mindanao II filed its administrative claim for refund or credit for the second, third, and
fourth quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until 3 February
2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then could treat the inaction as a
denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006. However,
Mindanao II, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period on
5 March 2006. The judicial claim was therefore filed late.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. TEAM SUAL CORPORATION (formerly MIRANT SUAL

CORPORATION)
G.R. No. 194105, February 5, 2014, REYES, J.
The 120-day period that is given to the CIR within which to decide claims for refund/tax credit of
unutilized input VAT is mandatory and jurisdictional. Failure to comply with the 120-day waiting period violates
a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction
over the taxpayer's petition.
Facts:
TSC filed with the BIR an administrative claim for refund, claiming that it is entitled to the unutilized
input VAT in the amount of P179,314,926.56 arising from its zero-rated sales to NPC for the taxable year
2000. However, without waiting for the CIR's resolution of its administrative claim for refund/tax credit, TSC
filed a petition for review with the CTA seeking the refund or the issuance of a tax credit certificate. The CIR
ruled that TSC's claim for refund/tax credit should be denied. However, the CTA First Division rendered a
Decision, which granted TSC's claim for refund/tax credit of input VAT. The CIR sought a reconsideration of
the CTA Decision maintaining that TSC is not entitled to a refund/tax credit and that the petition for review
was prematurely filed, alleging that under Section 112( C) of the NIRC, the CIR is given 120 days from the
submission of complete documents within which to either grant or deny TSC's application for refund/tax
credit of its unutilized input VAT. But the CTA denied such motion of CIR. Hence, this petition.
Issue:
Whether or not the TSC's petition for review with the Court of Tax Appeals was prematurely filed.
Ruling:
Yes, the filing of the judicial claim with the CTA premature. The administrative and the judicial claims
were simultaneously filed. Obviously, TSC did not wait for the decision of the CIR or the lapse of the 120-day
period. Section 112([C]) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application for tax refund/credit," within which to
grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal
before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the
CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of
the CIR to CTA within 30 days.The 120-day period that is given to the CIR within which to decide claims for
refund/tax credit of unutilized input VAT is mandatory and jurisdictional. Failure to comply with the 120-day
waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA
does not acquire jurisdiction over the taxpayer's petition.
Even if TSC was able to substantiate, through the documents it submitted, that it is indeed entitled to
a refund/tax credit of its unutilized input VAT for the taxable year 2000, its claim would still have to be
denied. Tax refunds are in the nature of tax exemptions, and are to be construed strictissimi Juris against the
entity claiming the same. The taxpayer is charged with the heavy burden of proving that he has complied with
and satisfied all the statutory and administrative requirements to be entitled to the tax refund.
______________________________________________________________________________________________________________________________
ROHM APOLLO SEMICONDUCTOR PHILIPPINES v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 168950, January 14, 2015, SERENO, C.J.
When the 120-day period lapses and there is inaction on the part of the CIR, the taxpayer must no
longer wait for it to come up with a decision thereafter. The CIR’s inaction is the decision itself. It is already a
denial of the refund claim. Thus, the taxpayer must file an appeal within 30 days from the lapse of the 120-day
waiting period.
Facts:
Rohm Apollo, a domestic corporation registered with the Securities and Exchange and with the
Philippine Economic Zone Authority, is in the business of manufacturing semiconductor products. Prior to the
commencement of its operations, it engaged the services of Shimizu Philippine Contractors, Inc. for the
construction of a factory and for such services it made initial payments of P198,551,884.28 and
P132,367,923.58. Rohm Apollo treated the payments as capital goods purchases and thus filed with the BIR
an administrative claim for the refund or credit of accumulated unutilized creditable input taxes on 11
December 2000. Pursuant to Section 112(D)15 of the 1997 Tax Code, the CIR had a period of 120 days from
the filing of the application for a refund or credit to act on the claim, which in this case is until 10 April 2001.
The waiting period, however, lapsed without any action by the CIR on the claim. Instead of filing a judicial
claim within 30 days from the lapse of the 120-day period, Rohm Apollo filed a Petition for Review with the
CTA on 11 September 2002. The CTA First Division rendered a Decision denying the judicial claim for a
refund or tax credit, which was affirmed by the CTA En Banc. Hence, this petition.
Issue:
Whether the CTA acquired jurisdiction over the claim for the refund or tax credit of unutilized input
VAT.
Ruling:
No, Rohm Apollo’s judicial claim for a refund or tax credit was filed beyond the prescriptive period
and hence, the CTA lost jurisdiction over Rohm Apollo’s claim for a refund or credit.Section 112(D) of the
1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax credit of input VAT.
The legal provision speaks of two periods: the period of 120 days, which serves as a waiting period to give
time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days, which
refers to the period for filing a judicial claim with the CTA. It is the 30-day period that is at issue in this case.
In this case, on 11 December 2000, Rohm Apollo filed with the BIR an application for the refund or
credit of accumulated unutilized creditable input taxes. Thus, the CIR had a period of 120 days from 11
December 2000, or until 10 April 2001, to act on the claim. It failed to do so, however. Rohm Apollo should
then have treated the CIR’s inaction as a denial of its claim. Petitioner would then have had 30 days, or until
10 May 2001, to file a judicial claim with the CTA. But Rohm Apollo filed a Petition for Review with the CTA
only on 11 September 2002. The judicial claim was thus filed late. A final note, the taxpayers are reminded
that that when the 120-day period lapses and there is inaction on the part of the CIR, they must no longer
wait for it to come up with a decision thereafter. The CIR’s inaction is the decision itself. It is already a denial
of the refund claim. Thus, the taxpayer must file an appeal within 30 days from the lapse of the 120-day
waiting period.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN

ENERGY QUEZON, INC.)
G.R. No. 172129, September 12, 2008, VELASCO, JR., J.
The prescriptive period for the claim of refund or tax credit commences from the close of the taxable
quarter when the sales were made and not from the time the input VAT was paid nor from the time the official
receipt was issued.
Facts:
MPC is a domestic firm engaged in the generation of power which it sells to the NPC. For the
construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, MPC secured
the services of Mitsubishi Corporation of Japan. MPC paid Mitsubishi the VAT component for the progress
billings and for which Mitsubishi issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP
135,993,570. MPC then filed on December 20, 1999 an administrative claim for refund of unutilized input
VAT in the amount of PhP 148,003,047.62. Since the BIR Commissioner failed to act on its claim for refund,
MPC went to the CTA via a petition for review.The CTA granted MPC’s claim for input VAT refund or credit in
the reduced amount of P10,766,939.48, denying its claim for refund with regard to its payment to Mitsubishi.
Aggrieved, MPC appealed the CTA’s Decision to the CA, to which the latter rendered its decision modifying
that of the CTA decision by granting most of MPC’s claims for tax refund or credit. The BIR Commissioner filed
a motion for reconsideration of the decision of CA, but it was denied. Hence, this petition of BIR
Commissioner which mainly questions the entitlement of MPC to a refund for PhP 135,993,570 it allegedly
paid as creditable input VAT for services and goods purchased from Mitsubishi.
Issue:
Whether MPC is entitled to the refund of PhP 135,993,570 as creditable input VAT for services and
goods purchased from Mitsubishi.
Ruling:
No, the claim for refund or tax credit for the creditable input VAT payment made by MPC to
Mitsubishi was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently
clearly provides that unutilized input VAT payments not otherwise used for any internal revenue tax due the
taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant
sales were made pertaining to the input VAT regardless of whether said tax was paid or not.
Prescriptive period commences from the close of the taxable quarter when the sales were made and
not from the time the input VAT was paid nor from the time the official receipt was issued. Thus, when a
zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a
year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would
always be the end of the quarter when the pertinent sales or transaction was made, regardless when the
input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering
the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any
claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax
credit filed on December 10, 1999 had already prescribed.
TAX REMEDIES UNDER THE NIRC
Taxpayer’s Remedies
Protest against assessment
COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE GLOBAL COMMUNICATION, INC.

G.R. No. 167146, October 31, 2006, CHICO-NAZARIO, J.
The law strictly limits the suspension of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a reinvestigation.
Facts:
Philippine Global Communication, Inc. is a corporation engaged in telecommunications. It received a

Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency
income tax in the total amount of P118,271,672.00. Respondent, filed a formal two letters of protest against
Assessment Notice No. 000688-80-7333 and requested for the cancellation of the tax assessment.More than
eight years after the assessment was presumably issued, the CIR rendered its final Decision denying the
respondent’s protest and affirming the said assessment. Consequently, respondent filed a Petition for Review
with the CTA, to which it rendered in favor of the respondent. It ruled that since more than three years had
lapsed from the time Assessment Notice No. 000688-80-7333 was issued in 1994, the CIR’s right to collect the
same has prescribed in conformity with Section 269 of the NIRC. The said decision was affirmed by the CTA
En Banc. Hence, this petition.
Issue:
Whether or not the right of the government to collect the deficiency income tax from Philippine
Global has prescribed.
Ruling:
Yes, Section 269(c) of the Tax Code of 1977 prescribes a period of three years from the date the
return was actually filed or from the last date prescribed by law for the filing of such return, whichever came
later, within which the BIR may assess a national internal revenue tax. If the BIR issued this assessment
within the three-year period, the law provided another three years after the assessment for the collection of
the tax due thereon through the administrative process of distraint and/or levy or through judicial
proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment
notice had been released, mailed or sent by the BIR.
The assessment, in this case, was presumably issued on 14 April 1994, therefore, the BIR had until 13
April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any
judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer in CTA on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.
The law strictly limits the suspension of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a reinvestigation. In this case, where the taxpayer
merely filed two protest letters requesting for a reconsideration, and where the BIR could not have conducted
a reinvestigation because no new or additional evidence was submitted, the running of statute of limitations
cannot be interrupted.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v LEONARDO S. VILLA and THE COURT OF APPEALS

GR No. L-23988, January 2, 1968, J. Bengzon
What may be the subject of a judicial review is the decision of the Commissioner on the protest against
assessment, not the assessment itself.
Facts:
The spouses Villa filed joint income tax returns for the years 1951 to 1956. The BIR issued
assessments for deficiency of income tax for the said years. Without contesting the said assessments with the
CIR, they filed a petition for review with the CTA. The CTA took cognizance of the of the appeal and rendered
favorable judgment to the spouses. The CIR appealed to the SC questioning the jurisdiction of the CTA.
Issue:
Whether or not the assessment is a disputed assessment which is properly under the Collector.
Ruling:
YES. The rule is that 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 Court of Tax
Appeals only upon receipt of the decision of the Collector on the disputed assessment. Since in the instant
case the taxpayer appealed the assessment of the Commissioner of Internal Revenue without previously
contesting the same, the appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain
said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal
Revenue on disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take
cognizance only of such matters as are clearly within its jurisdiction.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC.

G.R. No. 185371, December 8, 2010, J. Mendoza
The presumption that an assessment is duly issued is disregarded if the taxpayer denies ever having
received a tax assessment from the BIR. In such cases, it is incumbent upon the BIR to prove by competent
evidence that such notice was received by the addressee-taxpayer.
Facts:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star
Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment
notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro Star
assailed the issuance of the formal assessment notice as it averred that due process was not observed when it
was not issued a pre-assessment notice. Nevertheless, the CIR authorized the issuance of a Warrant of
Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals. The CTA ruled in favor of Metro Star.
Issue:
Whether or not the protest against assessment should be granted on the ground of lack of due process.
Ruling:
YES. The presumption that an assessment is duly issued is disregarded if the taxpayer denies ever
having received a tax assessment from the BIR. In such cases, it is incumbent upon the BIR to prove by
competent evidence that such notice was received by the addressee-taxpayer. The onus probandi was shifted
to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of
mail.
In the case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in
January 2002. The CIR could have simply presented the registry receipt or the certification from the
postmaster that it mailed the pre-assessment notice, but failed. Neither did it offer any explanation on why it
failed to comply with the requirement of service of the pre-assessment notice. The Supreme Court
emphasized that the sending of a pre-assessment notice is part of the due process requirement in the
issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the
tax authorities.
But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v AZUCENA T. REYES

G.R. No. 159694, January, 27, 2006, C.J. Panganiban
Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which
the assessment is made: otherwise, the assessment shall be void.
Facts:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was
conducted on the estate. Meanwhile, the NIRC of 1997 was passed. In 1998, the estate was issued a final
assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and
interest which liability was based on Section 229 of the old Tax Code.
Azucena Reyes, one of the heirs, protested the FAN. The CIR nevertheless issued a warrant of
distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and
was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise
but was eventually denied. CTA ruled in favour of CIR but was reversed by CA. Hence, this appeal.
Issue:
Whether or not the formal assessment notice is valid.
Ruling:
No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC,
taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise,
the assessment shall be void.
In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and
the law upon which such liability is based. However, the estate was not informed in writing of the facts on
which the assessment of estate taxes had been made. The estate was merely informed of the findings of the
CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax
investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a
compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of
distraint and/or levy.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. BANK OF THE PHILIPPINE ISLANDS

G.R. No. 134062 , April 17, 2007. J. Corona
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the
same within 30 days from receipt thereof. The reply it sent to the CIR did not qualify as a protest since it stated
that “we shall inform you of the taxpayer’s decision on whether to pay or protest the assessment."
Facts:
In October 28, 1988, CIR assessed BPI of deficiency percentage and documentary stamp tax for the
year 1986, in the total amount of P129,488,056.63.
A letter reply by respondent was sent on December 10, 1988 stating among others: “we shall inform
you the taxpayer’s decision on whether to pay of protest the assessmen”. CTA ruled that BPI failed to protest
on time under Sec 270 of NIRC of 1986.
Issue:
Whether or not BPI failed to protest the assessments within the allowed period.
Ruling:
YES. Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse decision
on the protest was not appealed to the CTA within 30 days from receipt of the final decision.
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the
same within 30 days from receipt thereof. The reply it sent to the CIR did not qualify as a protest since it
stated that “we shall inform you of the taxpayer’s decision on whether to pay or protest the assessment."
Hence, BPI did not regard this letter as a protest against the assessments. As a matter of fact, BPI never
deemed this a protest since it did not even consider the notices as valid or proper assessments.
BPI’s failure to protest the assessments within the 30-day period provided in the former Section 270
meant that they became final and unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of
jurisdiction. BPI was, from then on, barred from disputing the correctness of the assessments or invoking any
defense that would reopen the question of its liability on the merits. Not only that. There arose a presumption
of correctness when BPI failed to protest the assessments: Tax assessments by tax examiners are presumed
correct and made in good faith. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed.
Claim for Refund
SANTIAGO M. BERMEJO v. THE COLLECTOR OF INTERNAL REVENUE

G.R. No. L-3029. July 25, 1950, J. Bengzon
Facts:
The Collector of Internal Revenue informed Bermejo that for sales of nipa shingles and charcoal the
latter owed the Government the sum of P1,083.75. He objected to the assessment, contending that the
products were agricultural, and as such, free from taxation. But he eventually paid in installments without
prejudice to whatever action he may take on the matter. After paying the first installment, he sued for
recovery.
The Collector submitted a motion for dismissal of the complaint on the ground that the Bermejo had
not complied with the provisions of Section 306 of the Internal Revenue Law, inasmuch as Bermejo had not,
before suing, filed a claim with the collector for the refund of the amount he had delivered.
Issue:
Whether or not Bermejo’s failure to submit a claim before filing a case in court warrants the
dismissal of the recovery case he filed against the Collector.
Ruling:
Yes. Section 306 of the Internal Revenue Code clearly stipulates that after paying the tax, the citizen
must submit a claim for refund before resorting to the courts.
The idea probably is, first, to afford the collector an opportunity to correct the action of subordinate
officers; and second, to notify the Government that such taxes have been questioned, and the notice should
then be borne in mind in estimating the revenue available for expenditure. Previous objections to the tax may
not take the place of that claim for refund, because there may be some reason to believe that, in paying, the
taxpayer has finally come to realize the validity of the assessment. Anyway, strict compliance with the
conditions imposed for the return of revenue corrected is a doctrine consistently applied here and in the
United States.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION

G.R. Nos. 167274-75, July 21, 2008, J. Tinga
Tax refunds are not founded principally on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at the expense of another.
Facts:
Prior to January 1, 1997, the excises taxes on cigarettes were in the form of ad valorem taxes,
pursuant to Section 142 of the 1977 NIRC. Beginning January 1, 1997, RA 8240took effect and a shift from ad
valorem to specific taxes was made. The rates of specific tax on cigars and cigarettes were increased by 12%
on January 1, 2000.CIR then issued RR 17-99, provided that that the new specific tax rate for any existing
brand of cigars and cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be
lower than the excise tax that is actually being paid prior to January 1, 2000.
Pursuant to these laws, Fortune Tobacco Corporation paid in advance excise taxes and filed an
administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the amount
of P491 million. CTA granted the claim for refund of Fortune Tobacco.
The Commissioner appealed the aforesaid decision of the CTA. OSG asserts among others that a tax
refund is in the nature of a tax exemption and must, therefore, be construed strictly against the taxpayer, such
as Fortune Tobacco.
Issue:
Whether or not a claim for tax refund is in the nature of a tax exemption.
Ruling:
NO. The OSG’s contention that a tax refund partakes the nature of a tax exemption does not apply to
the tax refund to which Fortune Tobacco is entitled. There is parity between tax refund and tax exemption
only when the former is based either on a tax exemption statute or a tax refund statute. that is not the
situation here. Quite the contrary, Fortune Tobaccos claim for refund is premised on its erroneous payment of
the tax, or better still the government’s exaction in the absence of a law.
A claim for tax refund may be based on statutes granting tax exemption or tax refund. In such case,
the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the
nature of an exemption, a legislative grace, which cannot be allowed unless granted. Tax refunds, on the other
hand, are not founded principally on legislative grace but on the legal principle which underlies all quasi-
contracts abhorring a persons unjust enrichment at the expense of another. A claim for tax refund may be
based on the following: (a) erroneously or illegally assessed or collected internal revenue taxes; (b) penalties
imposed without authority; and (c) any sum alleged to have been excessive or in any manner wrongfully
collected.
______________________________________________________________________________________________________________________________
FINLEY J. GIBBS and DIANE P. GIBBS, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS, respondents.
G.R. No. L-17406, November 29, 1965, REGALA, J.
A taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the
same falls due at the end of the tax year.
Facts:
A deficiency tax assessment was issued against Gibbs. Gibbs paid the said deficiency but at the same
time demanded refund of the payment. Gibbs asserts that income tax assessments against which claims for
refund have been lodged and which are covered by taxes withheld at the source shall be considered paid, not
at the time such tax obligations fall due, but, only when the claims for refund against the assessments are
finally resolved by the authorities.
Issue:
If income is withheld at source, when does the taxpayer deem to have paid his tax liability?
Ruling:
When the same falls due at the end of the tax year.A taxpayer, resident or non-resident, who
contributes to the withholding tax system, does so not really to deposit an amount to the Commissioner of
Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other
words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the
source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is
from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under
Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax
system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the
source may have been presented and may have remained unresolved since Section 306 of the National
Internal Revenue Code should be construed together with Section 11 of Republic Act No. 1125. In fine, a
taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must
comply with the requirement of both sections, that is, he must file a claim for refund with the Collector of
Internal Revenue within 2 years from the date of his payment of the tax, as required by Section 306 of the
National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the
Collector's decision or ruling denying his claim for refund, as required by Section 11 of Republic Act No. 1125.
If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without
awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the
doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the
statute.
______________________________________________________________________________________________________________________________
ACCRA INVESTMENTS CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS,

COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
G.R. No. 96322 December 20, 1991, GUTIERREZ, JR., J.
The rationale in computing the two-year prescriptive period with respect to the petitioner corporation's
claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN
could ascertain whether it made profits or incurred losses in its business operations.
Facts:
ACCRAIN filed its annual corporate income tax return reporting a net loss. ACCRAIN filed a claim for
refund as it had no tax liability against which to credit the amounts withheld. Pending action of the
Commissioner on its claim for refund, ACCRAIN, on April 13, 1984, filed a petition for review with the CTA,
asking for the refund of the amounts withheld as overpaid income taxes.CTA dismissed the petition for
review after a finding that the two-year period within which the petitioner corporation's claim for refund
should have been filed had already prescribed. CTA ruled that the reckoning date for purposes of counting the
two-year prescriptive period within which to claim a refund was December 31, 1981, when the taxes
withheld at source were paid and remitted to BIR by its withholding agents and not on April 15, 1982, the
date when ACCRAIN filed its final adjustment return.
Issue:
When is the reckoning date for purposes of counting the two-year prescriptive period within which
to claim a refund?
Ruling:
It is reckoned from the date when ACCRAIN filed its final adjustment return.
The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15,
1982. The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on
the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984
within which to file its claim for refund. Considering that ACCRAIN filed its claim for refund as early as
December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering
further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to
reiterate its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the
respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court
that ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the
fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell
due upon its filing of its final adjustment return on April 15, 1982.
______________________________________________________________________________________________________________________________
CITIBANK, N. A., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE,
respondents.
G.R. No. 107434, October 10, 1997, PANGANIBAN, J.
The taxes withheld during the course of the taxable year, while collected legally under the aforesaid
revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the
taxable year.
Facts:
The law requires a lessee to withhold and remit to the Bureau of Internal Revenue five percent of the
rental due the lessor, by way of advance payment of the latter’s income tax liability. The tenants of Citibank
withheld and paid to the BIR taxes on rents due to Citibank. Citibank filed its corporate income tax returns
showing a net loss. Citibank asks for a refund. The CTA held that it was not enough for CTA to show its lack of
income tax liability against which the five percent withholding tax could be credited. Citibank should have
also shown that the withholding tax was illegally or erroneously collected and remitted by the tenants.
Issue:
Is the lessor entitled to a refund of such withheld amount after it is determined that the lessor was
not, in fact, liable for any income tax at all because its annual operation resulted in a net loss as shown in its
income tax return filed at the end of the taxable year?
Ruling:
Yes. Income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the
taxpayer on the basis of the taxpayers final adjusted returns, not on such periodic or quarterly basis. In this
case, petitioner’s lessees withheld and remitted to the BIR the amounts now claimed as tax refunds. That they
were withheld and remitted pursuant to Rev. Reg. No. 13-78 does not derogate from the fact that they were
merely partial payments of probable taxes. Like the corporate quarterly income tax, creditable withholding
taxes are subject to adjustment upon determination of the correct income tax liability after the filing of the
corporate income tax return, as at the end of the taxable year. This final determination of the corporate
income tax liability is provided in Section 69, NIRC.
SEC. 69.Final Adjustment Return. - Every corporation liable to tax under Section 24 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 net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable year.
The taxes thus withheld and remitted are provisional in nature. We repeat: five per cent of the rental income
withheld and remitted to the BIR pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final taxes on
passive incomes, a creditable withholding tax; that is, creditable against income tax liability if any, for that
taxable year. In this case, the payments of the withholding taxes for 1979 and 1980 were creditable to the
income tax liability, if any, of petitioner-bank, determined after the filing of the corporate income tax returns
on April 15, 1980 and April 15, 1981. As petitioner posted net losses in its 1979 and 1980 returns, it was not
liable for any income taxes. Consequently and clearly, the taxes withheld during the course of the taxable
year, while collected legally under the aforesaid revenue regulation, became untenable and took on the
nature of erroneously collected taxes at the end of the taxable year.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, COURT OF TAX APPEALS, and BANK
OF THE PHILIPPINE ISLANDS as LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORPORATION
G.R. No. 117254, January 21, 1999, MENDOZA, J.:
The two-year period should be computed from the time of actual filing of the Adjustment Return or
Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been
an overpayment by the taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time the return is
filed.
Facts:
BPI acts as a liquidator of Paramount after its dissolution. Paramount filed its Corporate Annual
Income Tax Return showing a refundable amount of 65, 259. BPI claims for refund and on April 15, 1988, BPI
filed a petition before the CTA to toll the running of the prescriptive period for filing a claim for refund. The
question is whether the two-year period of prescription for filing a claim for refund, as provided in 230 of the
National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return
was actually filed or from April 15, 1986 when, according to 70(b) of the NIRC, the final adjustment return
could still be filed without incurring any penalty. The aforesaid 230 of the NIRC provides that such period
must be counted from the date of payment of the tax.
Issue:
Whether the two-year period of prescription for filing a claim for refund is to be counted from April
2, 1986 (when the corporate income tax return was actually filed) or from April 15, 1986 (when the final
adjustment return could still be filed) without incurring any penalty.
Ruling:
The two-year period should be computed from the time of actual filing of the Adjustment Return or
Annual Income Tax Return. This is so because at that point, it can already be determined whether there has
been an overpayment by the taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time the
return is filed.
In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However,
private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988
and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by
prescription.
______________________________________________________________________________________________________________________________
BANK OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 144653, August 28, 2001, MENDOZA, J.
It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC
of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April,
or almost 10 months after it ceased its operations, before filing its income tax return.
Facts:
Upon its dissolution and prior to its merger with BPI, FBTC had a refundable amount of
P2,320,138.34. As FBTC’s successor-in-interest, BPI, claimed this amount as tax refund, but respondent
Commissioner of Internal Revenue refunded only the amount of P2,146,072.57, leaving a balance of
P174,065.77.
Accordingly, petitioner filed a petition for review in the Court of Tax Appeals on December 29, 1987,
seeking the refund of the aforesaid amount. However, in its decision rendered on July 19, 1994, the Court of
Tax Appeals dismissed petitioners petition for review and denied its claim for refund on the ground that the
claim had already prescribed
Issue:
Whether BPI’s claim is barred by prescription.
Ruling:
Yes. After due consideration of the parties arguments, we are of the opinion that, in case of the
dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the
return required by 78 of the Tax Code. Accordingly, we hold that petitioners claim for refund is barred by
prescription.
FBTC, after the end of its corporate life on June 30, 1985, should have filed its income tax return
within thirty days after the cessation of its business or thirty days after the approval of the Articles of Merger.
This is bolstered by Sec. 78 of the Tax Code.
As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to
file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations
on June 30, 1985, its taxable year was shortened to six months, from January 1, 1985 to June 30, 1985. The
situation of FBTC is precisely what was contemplated under 78 of the Tax Code. It thus became necessary for
FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of
dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months
after it ceased its operations, before filing its income tax return.
Thus, 46(a) of the Tax Code applies only to instances in which the corporation remains subsisting
and its business operations are continuing. In instances in which the corporation is contemplating
dissolution, 78 of the Tax Code applies.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs.TMX SALES, INC. and THE COURT OF TAX APPEALS
G.R. No. 83736 January 15, 1992, GUTIERREZ, JR., J.
The two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be
computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of
income tax.
Facts:
TMX Sales filed on April 15, 1982 its Annual ITR declaring a net loss of 6 million. On June 9, 1982, it
filed a claim for refund for overpaid tax.This claim was denied by CIR due to prescription. The CTA granted
the refund stating that the quarterly income tax paid are a portion or installment of the total annual income
tax due. CIR contends that the basis in computing the two-year period of prescription provided for in Section
292 (now Section 230) of the Tax Code, should be May 15, 1981, the date when the quarterly income tax was
paid and not April 15, 1982, when the Final Adjustment Return for the year ended December 31, 1981 was
filed.
Issue:
When should the two-year prescriptive period for refund be reckoned?
Ruling:
It should be computed from the time of filing of the Adjustment Return or Annual Income Tax Return
and final payment of income tax. Therefore, the filing of quarterly income tax returns required in Section 85
(now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only
be considered mere installments of the annual tax due. These quarterly tax payments which are computed
based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income,
should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of
adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period
provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return and final payment of income tax.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales,
Inc. is not yet barred by prescription.
______________________________________________________________________________________________________________________________
Banco Filipino Savings and Mortgage Bank v Court of Appeals, Court of Tax Appeals, Commissioner of
Internal Revenue
G.R. No. 155682, March 27, 2007, AUSTRIA-MARTINEZ, J.
The document which may be accepted as evidence of the third condition, that is, the fact of withholding,
must emanate from the payor itself, and not merely from the payee, and must indicate the name of the payor, the
income payment basis of the tax withheld, the amount of the tax withheld and the nature of the tax paid.
Facts:
Banco Filipino filed with CIR an administrative claim for refund of creditable taxes withheld for the
year 1995. As the CIR failed to act on its claim, petitioner filed a Petition for Review with the CTA on April 13,
1998. It attached to its Petition several documents, including: Certificate of Income Tax Withheld on
Compensation , Monthly Remittance Return of Income Taxes Withheld issued by petitioner, indicating various
amounts it withheld and remitted to the BIR. CIR interposed special and affirmative defenses, specifically that
petitioners claim is not properly documented. Banco Filipino argues that its Exhibit II and Exhibits C through
Z should be accorded the same probative value as a BIR Form No. 1743.1, for said documents are also official
BIR forms and they reflect the fact that taxes were actually withheld and remitted. It appeals for liberality
considering that its annual return clearly shows that it is entitled to creditable withholding tax.
Issue:
Is the disallowance of P1,603,691.60 of Banco Filipino’s claim for tax refund on the ground that the
latter’s Exhibit II and Exhibits C through Z lack probative value valid?
Ruling:
Yes. There are three conditions for the grant of a claim for refund of creditable withholding tax: 1)
the claim is filed with the CIR within the two-year period from the date of payment of the tax; 2) it is shown
on the return of the recipient that the income payment received was declared as part of the gross income;
and, 3) 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 the tax withheld therefrom.
In fine, the document which may be accepted as evidence of the third condition, that is, the fact of
withholding, must emanate from the payor itself, and not merely from the payee, and must indicate the name
of the payor, the income payment basis of the tax withheld, the amount of the tax withheld and the nature of
the tax paid.
In the present case, the disputed portions of petitioners claim for refund is supported merely by
Exhibits C through Z and Exhibit II.Exhibits C through Z were issued by petitioner as payee purportedly acting
as withholding agent, and not by the alleged payors in the transactions covered by the documents. Moreover,
the documents do not identify the payors involved or the nature of their transaction. They do not indicate the
amount and nature of the income payments upon which the tax was computed or the nature of the
transactions from which the income payments were derived, specifically whether it resulted from the sale of
petitioners acquired assets.
For all its deficiencies, therefore, petitioners Exhibits C through Z cannot take the place of BIR Form
No. 1743.1 and its Exhibit II, of BIR Form No. 1743-750. Petitioner cannot fault the CA and CTA for finding
said evidence insufficient to support its claim for tax refund. Such finding of both courts, obviously grounded
on evidence, will not be so lightly discarded by this Court, not even on a plea for liberality of which petitioner,
by its own negligence, is undeserving.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO in his official capacity as Revenue
District Officer of Revenue District No. 049 (Makati), Petitioners, versus,PRIMETOWN PROPERTY
GROUP, INC., Respondent.
G.R. No. 162155, August 28, 2007, CORONA, J.:
The two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on
April 14, 1998) consisted of 24 calendar months.
Facts:
Primetown applied for refund or credit of income tax it paid. On April 14, 2000, it filed a petition for
review in the Court of Tax Appeals. The CTA dismissed the petition as it was filed beyond the two-year
prescriptive period for filing a judicial claim for tax refund or tax credit. The CTA invoked Article 13 of the
Civil Code claiming that the two-year prescriptive period under Section 229 of the NIRC for the filing of
judicial claims was equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition,
which was filed 731 days after respondent filed its final adjusted return, was filed beyond the reglementary
period. Hence, the claim should have been filed on or before April 13, 2000 or within 730 days, reckoned from
the time respondent filed its final adjusted return.
Issue:
How should the two-year prescriptive period be computed?
Ruling:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of
1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987,
however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold
that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs
the computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-
year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998)
consisted of 24 calendar months.
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the
24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. MIRANT PAGBILAO CORPORATION (FORMERLY SOUTHERN

ENERGY QUEZON, INC.)
G.R. No. 172129, September 12, 2008, J. Velasco
When a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer
only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the
input VAT was paid.
Facts:
Mirant Pagbilao Corporation (MPC) is a domestic firm engaged in the generation of power which it
sells to the National Power Corporation (NPC). For the construction of the electrical and mechanical
equipment portion of its Pagbilao, Quezon Plant, which appears to have been undertaken from 1993 to 1996,
MPC secured the services of Mitsubishi Corporation of Japan. It was only on April 14, 1998 that MPC paid
Mitsubishi the VAT component for the progress billings from April 1993 to September 1996, and for which
Mitsubishi issued Official Receipt No. 0189. In accordance with a VAT Ruling No. 052-99 issued on May 13,
1999, the supply of electricity by MPC to the NPC shall be subject to zero percent VAT. MPC filed on December
20, 1999 an administrative claim for refund of unutilized input VAT. It is the allegation of MPC that since its
sales to NPC is subject to zero percent VAT, then the input VAT must be refunded.
Issue:
Whether or not MPC is entitled to the refund of its input VAT payments made from 1993 to 1996
amounting to P146,760,509.48.
Ruling:
No. The claim for refund or tax credit for the creditable input VAT payment made by MPC was filed
beyond the period provided by law for such claim. As provided in Sec. 112(A) of NIRC, any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax. Thus, when a zero-rated VAT taxpayer pays its input VAT a
year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the
unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the
pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given
that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the
third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or
tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30,
1998. Consequently, MPC's claim for refund or tax credit filed on December 10, 1999 had already prescribed.
______________________________________________________________________________________________________________________________

G.R. No. 184823, October 6, 2010, DEL CASTILLO, J.
Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year
prescriptive period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the
NIRC apply in cases of erroneous payment or illegal collection of internal revenue taxes. Section 112(A) provides
that the two-year prescriptive period for claiming a refund/credit of unutilized input VAT shall be reckoned from
the close of the taxable quarter when the relevant sales were made, regardless of whether said tax was paid or
not. On the other hand, the two-year prescriptive period for claiming refund/credit of erroneously or illegally
paid taxes shall be reckoned from the date of payment of the said tax or penalty.
Facts:
Respondent Aichi Forging Company (Aichi) is a corporation duly organized and existing under the
laws of the Republic of the Philippines. It is registered with the BIR as a VAT entity. On September 30, 2004
Aichi filed a claim for refund of input VAT for the period July 1, 2002 to September 30, 2002 with the
petitioner CIR. On the same date, Aichi filed a Petition for Review with the CTA for the refund of the same
input VAT. The CTA ruled in favor of Aichi and granted Aichi’s claim for refund. Hence, this petition.The CIR
argues that the administrative and judicial claims of Aichi were filed beyond the two-year prescriptive period
within which to claim a tax refund/credit. According to the CIR Article 13 of the NCC provides that when the
law speaks of a year, it is equivalent to 365 days. Thus, since the year 2004 was a leap year, the CIR argues
that the two-year prescriptive period expired on September 29, 2004. In addition, the CIR argues that the
simultaneous filing of the administrative and the judicial claim contravenes Sections 112 and 229 of the NIRC.
It is the position of the CIR that a prior filing of an administrative claim is a condition precedent before a
judicial claim can be filed. The CIR argued that the CTA had no jurisdiction to entertain the Petition for
Review filed by Aichi without a prior resolution by the CIR of the administrative claim.
Issue:
Whether or not respondent’s judicial and administrative claims for tax refund/credit were filed
within the two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.
Ruling:
Yes, but the judicial claim was prematurely filed. Unutilized input VAT must be claimed within two
years after the close of the taxable quarter when the sales were made. In Commissioner of Internal Revenue v.
Primetown Property Group, Inc., we said that as between the Civil Code, which provides that a year is
equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12
calendar months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat
priori.Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period
July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s administrative claim
was timely filed.
However, notwithstanding the timely filing of the administrative claim, we are constrained to deny
respondent’s claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC.
Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit]," within which to grant or deny the
claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA
within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act
on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA
within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30,
2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For
this reason, we find the filing of the judicial claim with the CTA premature.
Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of a
judicial claim as long as both the administrative and the judicial claims are filed within the two-year
prescriptive period has no legal basis. In fact, applying the two-year period to judicial claims would render
nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer
should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC
envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and
(2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within
which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with
the CTA.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION

G.R. No. 187485, February 12, 2013, Carpio, J.
G.R. No. 196113
PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 197156
The 120-day period may extend beyond the two-year prescriptive period, as long as the administrative
claim is filed within the two-year prescriptive period.
Facts:
The primary issue in these three consolidated cases pertains to the proper period for filing the
judicial claim for refund of creditable input tax. In these cases, all taxpayers involved timely filed their
administrative claims with the CIR. But San Roque and Taganito both prematurely filed their judicial claims
without waiting for the lapse of 120-day period within which the Commissioner must act on the said claims.
Philex, on the other hand, filed belatedly since it filed its judicial claim only after 426 days which is way
beyond the 120+30-day period.
Issue:
Whether or not the judicial claims for refunds were filed within the proper period.
Ruling:
In CIR v. San Roque - San Roque filed its petition for review with the CTA only after 13 days from
filing its amended administrative claim with the CIR. Clearly, San Roque failed to comply with the 120-day
waiting period. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly
illegally, erroneously or excessively collected from him, does not entitle him as a matter of right to a tax
refund or credit. xx x The 120-day period may extend beyond the two-year prescriptive period, as long as the
administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal mistake is
that it did not wait for the Commissioner to decide within the 120-day period, a mandatory period.
In Taganito v. CIR - Like San Roque, Taganito also filed its petition for review with the CTA without
waiting for the 120-day period to lapse. However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10
December 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of
the Aichi doctrine.Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the
CTA on time.
In Philex Mining v. CIR - Unlike San Roque and Taganito, Philex’s case is not one of premature filing
but of late filing. Philex did not file any petition with the CTA within the 120-day period. Philex did not also
file any petition with the CTA within 30 days after the expiration of the 120-day period. x x xIn any event,
whether governed by jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to
be rejected because of late filing. Whether the two-year prescriptive period is counted from the date of
payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter when the
sales attributable to the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim
was indisputably filed late.The theory that the 30-day period must fall within the two-year prescriptive
period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that
the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot
interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his
claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical
interpretation of Section 112(A) and (C).
______________________________________________________________________________________________________________________________
PHILAM ASSET MANAGEMENT, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. Nos. 156637/162004, December 14, 2005, PANGANIBAN, J.
A taxable corporation with excess quarterly income tax payments may apply for either a tax refund or a
tax credit, but not both. The choice of one precludes the other. Failure to indicate a choice, however, will not bar
a valid request for a refund, should this option be chosen by the taxpayer later on.
Facts:
Petitioner Philam Asset Management (Philam), a domestic corporation, acts as the investment
manager of both Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI). As such investment manager,
Philam receives compensation in the form of a monthly management fee from which PFI and PBFI withhold
an amount equivalent to 5% representing the creditable withholding tax.In April 1998, Philam filed its annual
corporate income tax return for the taxable year 1997 which represents a net loss. Consequently, Philam
failed to utilize the creditable tax withheld by PFI and PBFI in the amount of P522, 092. Thereafter, in April
1999, Philam filed its Annual Income Tax Return with the BIR for the taxable year 1998 declaring again a net
loss. Thus, there was no tax due against Philam for the taxable year 1998. Likewise, Philam had an unapplied
creditable withholding tax in the amount of P459,756.07. Philam then filed a claim for refund for its
unapplied creditable withholding taxes for the years 1997 and 1998. The BIR however failed to act on said
claim which prompted Philam to file a Petition for Review with the CTA. The CTA denied the claim of Philam.
On appeal, the CA, in dismissing the claim of Philam held that the failure of Philam in indicating in its
respective ITRs for both years its option to have the amounts either refunded or carried over and applied to
the succeeding year was fatal to its claim. The CA held that to request for either a refund or a credit of income
tax paid, a corporation must signify its intention by marking the corresponding option box on its annual
corporate adjustment return.
Issues:
1. Whether or not the failure of Philam to indicate in its ITR the option to refund its creditable
withholding tax is fatal to its claim for refund.
2. Whether or not Philam is entitled to a refund of its creditable taxes withheld for taxable years 1997
and 1998.
Ruling:
1. No. Section 76 of the 1997 NIRC offers two options to a taxable corporation whose total quarterly
income tax payments in a given taxable year exceeds its
total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit. The first option
is relatively simple. Any tax on income that is paid in excess of the amount due the government may be
refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the
refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax
liabilities of the succeeding taxable year.These two options under Section 76 are alternative in nature. The
choice of one precludes the other. One cannot get a tax refund and a tax credit at the same time for the same
excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a
valid request for a refund, should one still choose this option later on. A tax credit should be construed merely
as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by
respondent. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax
administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice
expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes
no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.
2. Yes, but only for the year 1997. The carry-over option under Section 76 is permissive. A corporation
that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and
credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the
succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable
period, and no application for a tax refund or issuance of a tax credit certificate shall then be
allowed.According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR.As this
option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words,
petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments. This argument
does not hold water. The subsequent acts of petitioner reveal that it has effectively chosen the carry-over
option.The fact that it filled out the portion "Prior Year’s Excess Credits" in its 1999 FAR means that it
categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form
clearly states "Less: Tax Credits/Payments." The contention that it merely filled out that portion because it
was a requirement -- and that to have done otherwise would have been tantamount to falsifying the FAR -- is
a long shot. Failure to indicate the amount of "prior year’s excess credits" does not mean falsification by a
taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has been -- or will be --
filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable
year already shows an overpayment in taxes.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. PERF REALTY CORPORATION
G.R. No. 163345, July 4, 2008, REYES, R.T., J.
One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.
Failure to signify one's intention in the FAR does not mean outright barring of a valid request for a refund,
should one still choose this option later on.
Facts:
In April 1998, respondent PERF Realty Corporation (PERF) filed its Annual Income Tax Return (ITR)
for the year 1997 showing a net taxable income in the amount of P6,430,345.00 and income tax due
of P2,250,621.00. After deducting the creditable withholding taxes from its total income tax, it appeared that
PERF had an overpayment of income taxes. Consequently, PERF filed an administrative claim with the BIR for
refund of overpaid income taxes. For failure of the BIR to act on the claim of Philam, the latter filed a Petition
for Review with the CTA. The CTA denied the claim of PERF on the ground of insufficiency of evidence. The
CTA noted that the failure of PERF to indicate in its 1997 ITR the option to either claim the excess income tax
as a refund or tax credit pursuant to Section 76 of the NIRC was vital to its claim. Likewise, the CTA noted that
PERF failed to present in evidence its 1998 annual ITR. It held that the failure of PERF to signify its option on
whether to claim for refund or opt for an automatic tax credit and to present its 1998 ITR left the Court with
no way to determine with certainty whether or not PERF has applied or credited the refundable amount
sought for in its administrative and judicial claims for refund. On appeal, the CA reversed the decision of the
CTA and granted PERF’s claim for refund.
Issue:
Whether or not PERF is entitled to a refund of its overpaid income taxes.
Ruling:
Yes. The failure of respondent to indicate its option in its annual ITR to avail itself of either the tax
refund or tax credit is not fatal to its claim for refund. Section 76 offers two options: (1) filing for tax refund
and (2) availing of tax credit. The two options are alternative and the choice of one precludes the other.
Failure to indicate a choice, however, will not bar a valid request for a refund, should this option be
chosen by the taxpayer later on. The requirement is only for the purpose of easing tax administration
particularly the self-assessment and collection aspects.
In this case, PERF did not mark the refund box in its 1997 FAR. Neither did it perform any act
indicating that it chose tax credit. In fact, in its 1998 ITR, PERF left blank the portion "Less: Tax Credit/
Payments." That action coupled with the filing of a claim for refund indicates that PERF opted to claim a
refund. Under these circumstances, PERF is entitled to a refund of its 1997 excess tax credits in the amount
of P1,280,504.00.The failure of respondent to present in evidence the 1998 ITR is not fatal to its claim for
refund. PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of the records of
the case and clearly showed that income taxes in the amount of P1,280,504.00 were not claimed as tax credit
in 1998. Furthermore, there is no need to rule on the issue of the admissibility of the 1998 ITR since the CTA
ruled that PERF already complied with the requisites of applying for a tax refund. The verification process is
not incumbent on PERF; it is the duty of the CIR to verify whether or not PERF had carried over the 1997
excess income taxes.
______________________________________________________________________________________________________________________________
BELLE CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 181298, January 10, 2011, DEL CASTILLO, J.
Section 69 of the old National Internal Revenue Code (NIRC) allows unutilized tax credits to be refunded
as long as the claim is filed within the prescriptive period. This, however, no longer holds true under Section 76 of
the 1997 NIRC as the option to carry-over excess income tax payments to the succeeding taxable year is now
irrevocable.
Facts:
Petitioner Belle Corporation (Belle) is a domestic corporation engaged in the real estate and property
business. Belle’s ITR for the taxable year 1997 reflected an overpayment of income taxes in the amount of
P132,043,528.00. Instead of claiming the amount as a tax refund, Belle decided to apply it as a tax credit to
the succeeding taxable year by marking the tax credit option box in its 1997 ITR. Thereafter, for the taxable
year 1998, the ITR of Belle showed a tax due in the amount of P25,596,210.00, thus, after deducting it from
the unutilized excess income tax payment of Belle in 1997, Belle still has an unutilized excess income tax
payments for the taxable year 1997 in the amount of P106,447,318.00. Consequently, Belle filed an
administrative claim for refund with the CIR for the unutilized excess income tax payments, which claim was
however unacted upon by the CIR. Notwithstanding the filing of the administrative claim for refund, Belle
carried over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof to its
1999 Minimum Corporate Income Tax (MCIT) liability.Thereafter, due to the inaction of the CIR, Belle
appealed its claim for refund with the CTA. The CTA denied the claim of Belle which prompted the latter to
elevate the matter to the CA. The CA, in likewise denying the claim of Belle explained that the overpayment
for taxable year 1997 can no longer be carried over to taxable year 1999 because excess income payments
can only be credited against the income tax liabilities of the succeeding taxable year, pursuant to Section 69 of
the old Tax Code, in this case up to 1998 only and not beyond. Neither can the overpayment be refunded as
the remedies of automatic tax crediting and tax refund are alternative remedies.
Issue:
Whether or not Belle is entitled to a refund of its excess income tax payments for the taxable year
1997.
Ruling:
No. In the instant case, both the CTA and the CA applied Section 69 of the old NIRC in denying the
claim for refund. We find, however, that the applicable provision should be Section 76 of the 1997 NIRC
because at the time petitioner filed its 1997 final ITR, the old NIRC was no longer in force.Under the new law,
in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still
precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no
longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried
over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income
tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded.
Accordingly, since petitioner already carried over its 1997 excess income tax payments to the
succeeding taxable year 1998, it may no longer file a claim for refund of unutilized tax credits for taxable year
1997.
To repeat, under the new law, once the option to carry-over excess income tax payments to the
succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized
excess income tax payments may no longer be allowed.
______________________________________________________________________________________________________________________________
SILKAIR (SINGAPORE) PTE, LTD. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 173594, February 6, 2008, CARPIO MORALES, J.
The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on
whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.
Facts:
Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws of Singapore
which has a Philippine representative office, is an online international air carrier. In 2001, Silkair filed with
the BIR an application for the refund of the excise taxes it claimed to have paid on its purchases of jet fuel
from Petron Corporation. However, the BIR failed to act on the claim of Silkair prompting the latter to file a
Petition for Review with the CTA. In its answer, the CIR maintains that Silkair failed to prove that the sale of
the petroleum products was directly made from a domestic oil company to the international
carrier. According to the CIR, the excise tax on petroleum products is the direct liability of the
manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax but
part of the price which the buyer has to pay to obtain the article. In denying the claim of Silkair, the CTA ruled
that the excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, thus, any
claim for refund should be filed by the latter; and where the burden of tax is shifted to the purchaser, the
amount passed on to it is no longer a tax but becomes an added cost of the goods purchased.
Issue:
Whether or not Silkair is the proper party to claim the refund.
Ruling:
No. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to
another.Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return
shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products
from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to
claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement
between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to
Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.
______________________________________________________________________________________________________________________________
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 183531, March 25, 2015, REYES, J.
Before a claim for tax refund/credit may be granted, taxpayers must first comply with the invoicing
requirements prescribed by Revenue Regulations, one of which is that the word "zero-rated" imprinted on the
invoice covering zero-rated sales. Failure to comply with this invoicing requirement will result to the denial of
the claim for tax refund/credit.
Facts:
Petitioner Eastern Telecommunication Philippines, Inc. (ETPI) is a domestic corporation registered

with the BIR as a VAT taxpayer. As a telecommunications company, ETPI handles incoming
telecommunications services for non-resident foreign telecommunication companies and relay said
international calls within and around other places in the Philippines. From these services to non-resident
foreign telecommunications companies, ETPI generates foreign currency revenues which are inwardly
remitted in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas to its US dollar
accounts in banks in the Philippines. Believing that it is entitled to a refund for the unutilized input VAT
attributable to its zero-rated sales, ETPI filed with the BIR an administrative claim for refund and/or tax
credit of its alleged excess input VAT derived from its zero-rated sales for the period from January 1999 to
December 1999. However, without waiting for the decision of the BIR, ETPI filed a petition for review before
the CTA to toll the running of the two-year prescriptive period.
In denying the claim of ETPI, the CTA held that in order for a zero-rated taxpayer to claim a tax credit
or refund, the taxpayer must first comply with the mandatory invoicing requirements under the regulations.
One such requirement is that the word "zero-rated" be imprinted on the invoice or receipt. Since ETPI failed
to imprint the word "zero-rated" on the face of its VAT invoices or receipts, in violation of Revenue
Regulations No. 7-95, its claim for refund/credit should be denied.
Issue:
Whether or not ETPI’s failure to imprint the word "zero-rated" on its invoices or receipts is fatal to its
claim for tax refund or tax credit for excess input VAT.
Ruling:
Yes. Section 244 of the NIRC explicitly grants the Secretary of Finance the authority to promulgate
the necessary rules and regulations for the effective enforcement of the provisions of the tax code. Such rules
and regulations "deserve to be given weight and respect by the courts in view of the rule-making authority
given to those who formulate them and their specific expertise in their respective fields."Consequently, the
invoicing requirements enumerated in Section 4.108-1 of Revenue Regulations No. 7-95 must be observed by
all VAT-registered taxpayers, one of which is that the word "zero-rated" imprinted on the invoice covering
zero-rated sales.A consequence of failing to comply with the invoicing requirements is the denial of the claim
for tax refund or tax credit.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. IRONCON BUILDERS AND DEVELOPMENT CORPORATION

G.R. No. 180042, February 8, 2010, ABAD, J.
Taxes withheld on certain payments under the creditable withholding tax system are but intended to
approximate the tax due from the payee. The withheld taxes remitted to the BIR are treated as deposits or
advances on the actual tax liability of the taxpayer, subject to adjustment at the proper time when the actual tax
liability can be fully and finally determined.
Facts:
In 2001 respondent Ironcon Builders and Development Corporation (Ironcon) filed a claim for
refund with the BIR of its income tax overpayment and excess creditable VAT. The BIR however failed to act
on the claim of Ironcon which prompted the latter to file a Petition for Review with the CTA. The CTA initially
dismissed the claim of Ironcon allegedly for its failure to substantiate its claim. However, upon Ironcon’s
motion for reconsideration to which the amended quarterly VAT returns for 2001 of Ironcon were attached,
the CTA issued an amended decision granting the claim of Ironcon for a refund of its excess creditable VAT.
Petitioner CIR maintains that nowhere in the NIRC which grant taxpayers the option to refund excess
creditable VAT withheld, as such it follows that such refund cannot be allowed. Excess creditable VAT
withheld is not like excess income taxes withheld. In the latter case, Sections 76 and 58(D) of the NIRC
specifically make the option to seek a refund available to the taxpayer. The CIR submits that the only option
available to taxpayers in case of excess creditable VAT withheld is to apply the excess credits to succeeding
quarters.
Issue:
Whether or not the creditable value-added tax (VAT) withheld from Ironcon in excess of its output
VAT liability may be the subject of a tax refund in place of a tax credit.
Ruling:
No. Even if the law does not expressly state that Ironcon’s excess creditable VAT withheld is
refundable, it may be the subject of a claim for refund as an erroneously collected tax under Sections 204(C)
and 229. It should be clarified that this ruling only refers to creditable VAT withheld pursuant to Section 114
prior to its amendment. After its amendment by R.A. 9337, the amount withheld under Section 114 is now
treated as a final VAT, no longer under the creditable withholding tax system.
The rule is that before a refund may be granted, respondent Ironcon must show that it had not used
the creditable amount or carried it over to succeeding taxable quarters. Originally, the CTA’s Second Division
said in its decision that Ironcon’s failure to offer in evidence its quarterly returns for 2001 was fatal to its
claim. Ironcon filed a motion for reconsideration, attaching its 2001 returns, and, at the hearing of the motion,
had these returns marked as Exhibits "A-1," "B-1," "C-1," and "D-1." Petitioner CIR argues that these Exhibits
should be deemed inadmissible considering that they were offered only after trial had ended and should be
treated as forgotten evidence. However, once a claim for refund has been clearly established, it may set aside
technicalities in the presentation of evidence.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v.THE PHILIPPINE AMERICAN LIFE INSURANCE CO., THE
COURT OF TAX APPEALS and THE COURT OF APPEALS
G.R. No. 105208, May 29, 1995, ROMERO, J.
The two-year prescriptive period provided under Section 229 of the NIRC for the recovery of erroneously
or illegally collected taxes should be reckoned not on the date the quarterly taxes withheld are remitted to the
BIR but on the date of the filing of the Final Adjustment Return.
Facts:
In the years 1983 and 1984, respondent Philippine American Life Insurance Co. (Philam) had
overpaid its corporate income tax. As a result, Philam, on December 16, 1985, filed a claim for refund with the
petitioner CIR praying for the refund of its overpaid taxes. However, in order to toll the prescriptive period,
Philam, during the pendency of its claim with the CIR, filed a petition for review with the CTA on January 2,
1986. The CTA ruled in favor of Philam and ordered the CIR to refund the claim of Philam. Hence, this
petition.
The CIR maintains that the two-year prescriptive period provided in Section 229 of the NIRC
(formerly Section 292) is reckoned from the date the taxes withheld quarterly are remitted to the BIR and not
on the date the Final Adjustment Return is filed.
Issue:
Whether or not the two-year prescriptive period to file a claim for refund of erroneously or illegally
collected taxes should be reckoned from the date of the remittance of the taxes withheld quarterly and not on
the date the Final Adjustment Return is filed.
Ruling:
No. Section 292 (now Section 229) stipulates that the two-year prescriptive period to claim refunds
should be counted from date of payment of the tax sought to be refunded. When applied to tax payers filing
income tax returns on a quarterly basis, the date of payment mentioned in Section 292 (now Section 230)
must be deemed to be qualified by Sections 68 and 69 of the present Tax Code.It may be observed that
although quarterly taxes due are required to be paid within sixty days from the close of each quarter, the fact
that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final
adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due
from a corporation. Neither amount can serve as the final figure to quantity what is due the government nor
what should be refunded to the corporation.
Clearly, the prescriptive period of two years should commence to run only from the time that the
refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the
present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record
shows that the claim for refund was filed on December 10, 1985 and the petition for review was brought
before the CTA on January 2, 1986. Both dates are within the two-year reglementary period.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE NATIONAL BANK

G.R. No. 161997, October 25, 2005, J Garcia
Advance income tax voluntarily remitted to the BIR not as a consequence of a prior tax assessment or
computation by the taxpayer based on business income is not barred by the two (2) year prescriptive period for
the refund or recovery of tax erroneously or illegally collected.
Facts:
Sometime in 1991 the Philippine National Bank (PNB) herein respondent, spurred by the call of the
former President Aquino for more revenues for national development, remitted to the BIR herein petitioner,
the amount of P180,000,000.00 as advance payment for income tax. The said payment was made by PNB
voluntarily and not as a consequence of a prior tax assessment or computation. Thereafter, for the years 1992
till 1995, PNB suffered losses resulting into a negative tax position. Subsequently, PNB wrote to BIR
requesting that the amount representing the advance payment for income tax be issued in favour of PNB as a
Tax Credit Certificate (TCC). The BIR denied the request on the ground that the same has been barred by the
two (2) year prescriptive period for refund or recovery of taxes reckoned from the time of payment of the
same. PNB elevated the case to the CTA, denied. PNB appealed to the CA, the CA reversed and set aside the
decision of the BIR and CTA and held that the TCC be issued to PNB, hence this petition by BIR.
Issue:
Whether the claim for TCC by PNB has already been barred by the two (2) year prescriptive period
reckoned from the time of payment of the advance income tax by PNB
Ruling:
No, the claim of PNB is not covered by the two (2) year prescriptive period for the refund or recovery
for tax erroneously or illegally collected. As we see it then, the core issue in this case pivots on the
applicability hereto of the two (2)-year prescriptive period under in Section 230 (now Sec. 229) of the NIRC,
reading:
SEC. 230. 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 sum, alleged to have been excessive 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 begun 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.
In no sense can the subject amount of advance income tax voluntarily remitted to the BIR by the
[respondent], not as a consequence of prior tax assessment or computation by the taxpayer based on
business income, be treated as similar to those national revenue taxes erroneously, illegally or wrongfully
paid as to be automatically covered by the two (2)-year limitation under Sec. 230 for the right to its recovery.
When the P180 million advance income tax payment was tendered by [respondent], no tax had been assessed
or due, or actually imposed and collected by the BIR. Neither can such payment be considered as illegal
having been made in response to a call of patriotic duty to help the national government . We therefore hold
that the tax credit sought by [respondent] is not simply a case of excess payment, but rather for the
application of the balance of advance income tax payment for subsequent taxable years after failure or
impossibility to make such application or carry over the preceding four (4)-year period when no tax liability
was incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-
year prescriptive period as to legally bar any request for such tax credit certificate considering the special
circumstances under which the advance income tax payment was made and the unexpected event (four years
of business losses) which prevented such application or carry over.
GOVERNMENT REMEDIES
Assessment and collection
THE COMMISSIONER OF INTERNAL REVENUE v. PHOENIX ASSURANCE CO., LTD.

G.R. No. L-19727, May 20, 1965, J Bengzon JP
In case of amendment in the return, the five (5) year prescriptive period for the Government to collect
national revenue taxes is reckoned from the date of the filing of the amended return, and not from the filing of
the original return.
Facts:
Phoenix Assurance Co. Ltd (Phoenix) herein respondent, filed its income tax return for 1952 on April
1, 1953. Later on it amended said return on August 30, 1955, reporting a tax liability in favour of the BIR
herein petitioner. After examination of the amended return, the BIR assessed deficiency income tax on August
1, 1958. Phoenix argued that the right of the BIR to collect Phoenix’s taxes had already prescribed pursuant to
Section 331 of the Tax Code which provides that “internal revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall
be begun after the expiration of such period. For the purposes of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day”
Issue:
Whether the right of the BIR to collect tax from Phoenix had already prescribed
Ruling:
No, the right to collect tax from Phoenix had not yet prescribed. Considering that the deficiency
assessment was based on the amended return which, as aforestated, is substantially different from the
original return, the period of limitation of the right to issue the same should be counted from the filing of the
amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958,
when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to
assess the deficiency tax on such amended return has not prescribed. To strengthen our opinion, we believe
that to hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply
reporting in their original return heavy losses and amending the same more than five years later when the
Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder. The object of
the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its
prejudice.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. PASCOR REALTY AND DEVELOPMENT CORPORATION,

ROGELIO A. DIO and VIRGINIA S. DIO
G.R. No. 128315, June 29, 1999, J Panganiban
An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached
to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals. Verily, an assessment is not necessary before a filing of a criminal complaint for under the Tax
Code may be sustained.
Facts:
The CIR herein petitioner, authorized certain Revenue Officers to examine the books of accounts and
other accounting records of Pascor Realty Development Corporation (Pascor) herein private respondent. The
said Revenue Officers recommended for the issuance of an assessment against Pascor. Thereafter, the CIR
without issuing an assessment to Pascor filed a criminal complaint against Pascor for tax evasion. Pascor
elevated the case to the CTA claiming that a prior assessment is a condition sine qua non before a criminal
complaint against a taxpayer may be filed, the CIR moved to dismiss the case on the ground that there was no
assessment issued against Pascor yet. The CTA held that the criminal complaint filed was tantamount to an
assessment and hence therefore the CTA had acquired jurisdiction over the case. The CA affirmed the decision
of the CTA and dismissed Pascor’s petition, hence this petition before the SC.
Issues:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment.
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
Ruling:
1. No, it cannot be construed as an assessment. To start with, an assessment must be sent to and
received by a taxpayer, and must demand payment of the taxes described therein within a specific period. The
issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and
the period within which to protest it. It should also be stressed that the said document is a notice duly sent to
the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases,
mails or sends such notice to the taxpayer. In the present case, the revenue officers' Affidavit merely
contained a computation of respondents' tax liability. It did not state a demand or a period for payment.
Worse, it was addressed to the justice secretary, not to the taxpayers.
2. No, an assessment is not necessary. Pascor maintain that the filing of a criminal complaint must be
preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases
where a false or fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. The issuance
of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there
is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit
position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically
and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a
criminal case had been filed against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.
______________________________________________________________________________________________________________________________
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. COURT OF APPEALS

COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
G.R No. 105563, March 10, 1995 J Regalado
The law requiring the payment of the 25% surcharge in case the ad valorem tax is not seasonably paid
is mandatory. The CIR is not vested with any authority to waive or dispense with the collection thereof.
Facts:
Atlas Consolidated Mining Development Corporation (ACMDC) herein petitioner, is a domestic

corporation engaged in mining activities. Thereafter the BIR cause the service of an assessment notice to
ACMDC and demand for payment of deficiency ad valorem percentage and fixed taxes including its
increments on its copper, silver, gold, and pyrite minerals exported abroad. ACMDC protested the assessment
sent by the BIR. The BIR denied the protest of ACMDC. This prompted ACMDC to elevate the case to the CTA;
the CTA held that ACMDC was not liable for deficiency and ad valorem taxes on copper and silver. However
the CTA held ACMDC liable for interest consisting of 25% surcharge for late payment of the ad valorem tax
and late filing of notice of removal of silver, gold, and pyrite extracted during certain periods. To this ACMDC
appealed to the CA, the CA affirmed the decision of the CTA. Now, ACMDC comes before the SC assailing the
decision of the CA and CTA insofar as it held ACMDC liable to pay the 25% surcharge on silver, gold and pyrite
extracted by it, hence this petition.
Issue:
Whether ACMDC is liable for the 25% surcharge on silver, gold and pyrite extracted by it
Ruling:
Yes. Under Sec. 245 of the old Tax Code, the payment of the ad valorem tax shall be made upon
removal of the mineral products from the mine site or if payment cannot be made, by filing a bond in the form
and amount to be approved by the Commissioner conditioned upon the payment of the said tax.
In the instant case, the records show that the payment of the ad valorem tax on gold, silver and pyrite
was belatedly made. ACMDC, however, maintains that it should not be required to pay the 25% surcharge
because the correct quantity of gold and silver could be determined only after the copper concentrates had
gone through the process of smelting and refining in Japan while the amount of pyrite cannot be determined
until after the flotation process separating the copper mineral from the waste material was finished.However
the Court sees it that even if the silver and gold cannot as yet be physically separated from the copper
concentrate until the process of smelting and refining was completed, the estimated commercial quantity of
the silver and gold could have been determined in much the same way that petitioner is able to estimate the
commercial quantity of copper during the assay.The law requiring the payment of the 25% surcharge in case
the ad valorem tax is not seasonably paid is mandatory. It provides a plan which works out automatically. The
CIR is not vested with any authority to waive or dispense with the collection thereof.
______________________________________________________________________________________________________________________________
LUCAS ADAMSON, THERESE ADAMSON, and SARA DE LOS REYES v. COURT OF APPEALS, and, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE
G.R. No. 120935, May 21, 2009, J Puno
A mere recommendation letter of the Commissioner cannot be considered a formal assessment.
Facts:
Lucas Adamson et al (Adamson et al) sold shares of stock to APC Holding Limited on multiple
instances. Thereafter Adamson et al paid in favour of the BIR the capital gains tax for the aforementioned
transactions. Later on the CIR issued a Notice of Taxpayer to Adamson et al informing of deficiencies on their
payment of capital gains tax and value added tax. (It is to be noted that the Notice of Taxpayer is not the tax
assessment contemplated by law.) For failure to pay the aforementioned taxes, the CIR filed with the DOJ an
affidavit of complaint against Adamson et al for violating the penal provisions of the NIRC specifically as
regards the provisions on tax evasion. The DOJ found probable cause thus warranting the filing of the criminal
case against Adamson et al. Adamson et al assails the validity of the criminal proceeding on the ground that
no prior tax assessment regarding the tax liability of Adamson et al has been issued to them prior to the
institution of the criminal proceeding, hence this petition. On its part, the CIR argues that the
recommendation letter it filed before the DOJ was tantamount to an assessment thus foregoing with the need
to issue an assessment against Adamson et al
Issue:
1. Whether the recommendation letter filed by the CIR before the DOJ may be considered as an
assessment for the tax liability of Adamson et al
2. Whether a prior tax assessment is required before the institution of a criminal case for tax evasion
Ruling:
1. No In the context in which it is used in the NIRC, an assessment is a written notice and demand made
by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A
written communication containing a computation by a revenue officer of the tax liability of a taxpayer and
giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment since it is
yet indefinite. Furthermore, it cannot be be considered a formal assessment for the following reasons: (a) it
was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability,
nor a period for payment set therein; and (c) the letter was never mailed or sent to the taxpayers by the
Commissioner. In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal information against Adamson et al.
2. Yes provided that fraudulent tax returns are involved. When fraudulent tax returns are involved as in
the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Here,
the private respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes
they have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary
finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI
shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not
been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross
disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of
fraud. Thus, the applicability of Ungab v. Cusi (Nos. L-41919-24, May 30, 1980, 97 SCRA 877) is evident to the
cases at bar. In this seminal case, this Court ruled that there was no need for precise computation and formal
assessment in order for criminal complaints to be filed against him.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES v. THE COURT OF APPEALS, and NIELSON & COMPANY, INC.
G.R. No. L-38540, April 30, 1987, J Padilla
In the service of demand letter, direct denial of receipt of a mailed demand letter by the addressee shifts
the burden upon the party favoured by the presumption of receipt of letter (the sender), to prove that the mailed
letter was indeed received by the addressee. Verily, a follow up letter which reiterates demand for payment of
taxes is considered notice of assessment.
Facts:
In a demand letter dated July 16 1955 the CIR assessed Nielson & Company Inc. (NCI) herein private
respondent, for ad valorem tax, occupational fees, additional residence tax and 25% surcharge of late
payment for the years 1949 to 1952. Thereafter, because of lack of reply on the part of NCI, the CIR sent a
follow up letter dated September 19 1956 reiterating its demand for the payment of the taxes as originally
demanded in the letter dated July 16 1955. According to the CIR, the demand letter was released and mailed
on August 4 1955 by the Chief Records Section of the BIR and that the original of the July 16 1955 letter was
not returned to BIR thus said demand letter must be considered to have been received by the NCI. According
to the CIR, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed
complete and effective upon the expiration of five (5) days after mailing. As the letter of demand dated 16 July
1955 was actually mailed to private respondent, there arises the presumption that the letter was received by
private respondent in the absence of evidence to the contrary. For the failure to protest the demand made by
the CIR, the CIR filed a case for collection with the CFI. The CFI dismissed the case. Prompting the CIR to
elevate the case to the CA, the CA dismissed the petition of CFI, now represented by the Republic of the
Philippines (Republic) herein petitioner, on the ground that the CIR failed to adduce proof that NCI received
the demand letter dated July 16 1955 was indeed received by NCI in the ordinary course of mail, hence this
petition filed by the Republic before the SC.
Issue:
Whether the CA erred in holding that NCI never received the demand letter of July 16 1955
Ruling:
No, the CA was correct in holding that the NCI never received the demand letter of July 16 1955.
However, NCI is still made liable because of the receipt of the follow up letter dated September 19 1956. As
correctly observed by the respondent court in its appealed decision, while the contention of petitioner is
correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, stilt this is
merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the
burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the
addressee. Since petitioner has not adduced proof that private respondent had in fact received the demand
letter of 16 July 1955, it cannot be assumed that private respondent received said letter. Records, however,
show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its
demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-
up letter is considered a notice of assessment in itself which was duly received by private respondent in
accordance with its own admission.
______________________________________________________________________________________________________________________________
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC.

G.R. No. 136975, March 31, 2005, J Callejo Sr
The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be
determined by estimation, provided the estimation is not arrived at arbitrarily and capriciously.
Facts:
Hantex Trading Co., Inc. (Hantex) herein respondent, is a corporation duly organized and existing
under the laws of the Philippines engaged in the sale of plastic products, importations of synthetic resins and
other chemicals for the manufacture of its products. Sometime in 1989 the Economic Intelligence and
Investigation Bureau received confidential information for the alleged discrepancy as regards the payment of
taxes by Hantex based from Import Entry and Internal Revenue Declarations (Consumption Entries) of
Hantex with the Bureau of Customs (BC) This discrepancy were corroborated by the certificates issued by
one Merlita Tomas and Augusto Danganan (Tomas and Danganan) of the BC to the effect that the
aforementioned Consumption Entries were filed by Hantex and thereafter processed and released by BC after
payment of duties and taxes by Hantex albeit with discrepancies as to the amount of paid taxes. However, and
it is noteworthy to take that Tomas and Danganan did not certify the authenticity of the aforementioned
Consumption Entries because the remaining copies filed were mere photocopies, the original having been
eaten by termites. Armed with the Consumption Entries and certificates issued Tomas and Danganan, the BIR
invited Hantex for a conference and to furnish the BIR with pertinent documents for the determination of the
discrepancy of the paid taxes and thereafter assess Hantex for the deficiency amount. To this Hantex refused
on the ground that for the past year Hantex has been subjected to numerous investigations by the BIR, BC and
other government agencies as regards collection of taxes and that pursuant to the NIRC an investigation of
the books and accounts of a corporate taxpayer may be done only once (1) a year. Because of the absence of
Hantex’s accounting records, CIR issued an assessment for payment of deficiency tax against Hantex based
upon the Consumption Entries and certificates of Tomas and Danganan. Hantex protested to the assessment
alleging that the assessment’s arrived estimate was arbitrary and capricious. The case, later on, was elevated
to the CA which upheld the argument of Hantex and held that the assessment was arbitrary and capricious. It
held that the Consumption Entries which are mere photocopies and the certificates are insufficient so as to
warrant the aforementioned assessment, hence this petition by the CIR before the SC.
Issue:
Whether the assessment issued by CIR against Hantex is valid
Ruling:
No, the assessment is arbitrary and capricious for lack of factual basis. All presumptions are in favor
of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on
sufficient evidence. Upon the introduction of the assessment in evidence, a prima facie case of liability on the
part of the taxpayer is made. However, the prima facie correctness of a tax assessment does not apply upon
proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the BIR
has come out with a naked assessment, i.e., without any foundation character, the determination of the tax
due is without rational basis.
The petitioner cannot find solace on the certifications of Tomas and Danganan because they did not
authenticate the machine copies of the Consumption Entries, and merely indicated therein the entry numbers
of Consumption Entries and the dates when the Bureau of Customs released the same. The certifications of
Tomas and Danganan do not even contain the landed costs and the advance sales taxes paid by the importer,
if any. Comparing the certifications of Tomas and Danganan and the machine copies of the Consumption
Entries, only a part of the entry numbers of such copies are included in the said certifications; the entry
numbers of the rest of the machine copies of the Consumption Entries are not found therein. Thus, the
computations of the EIIB and the BIR on the quantity and costs of the importations of the respondent in the
amount of P105,761,527.00 for 1987 have no factual basis, hence, arbitrary and capricious.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue
(BIR) v. SALUD V. HIZON
G.R. No. 130430, December 13, 1999, J Mendoza
The present Code authorizes the CIR to delegate the powers vested in him under the pertinent provisions
of the Code to any subordinate official with the rank equivalent to a division chief or higher. Verily, the Litigation
and Prosecution Section of the Legal Division of the regional district offices are authorized to institute the
necessary civil and criminal actions for tax collection
Facts:
Because of tax deficiency incurred by Salud Hizon (Hizon), the BIR issued assessment notice to Hizon
for payment of the aforementioned tax deficiency. For failure to pay, the BIR served warrants of distraint and
levy to collec tax deficiency from Hizon. However for unknown reasons, the disposition of the properties
sought to be attached through the warrants were not disposed of. After almost three (3) years herein
respondent, the BIR Region 4 Office represented by one Norberto Salud Chief of the Legal Division, filed a
complaint for collection against Hizon before the RTC. The said complaint was verified by Amancio Saga the
Bureau’s Regional Director in Pampanga. Hizon assails the validity of the complaint. He argued that the
complaint was not filed upon authority of the CIR as required by the NIRC. The RTC and CA held that the BIR
Region 4 Office had no authority to initiate the case for collection, it being lodged with the CIR. Now, the BIR
Region 4 Office represented by the Republic of the Philippines, (Republic) herein petitioner sought reversal of
the decision of the CA, hence this petition.
Issue:
Whether the BIR Regional Office as well as the Bureau’s Regional Director has authority to initiate a
complaint for collection of tax deficiency
Ruling:
Yes, they have authority to initiate the same. Revenue Administrative Order No. 10-95 specifically
authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute
the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the
BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore,
compliance with the law.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code
authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the
Code to any subordinate official with the rank equivalent to a division chief or higher, subject to certain
exceptions which do not include filing of tax collection cases.
Tax Lien
THE HONGKONG & SHANGHAI BANKING CORPORATION v. JAMES J. RAFFERTY, as Collector of Internal
Revenue of the Philippine Islands
G.R. No. L-13188, November 15, 1918, J Malcolm
A lien in its modern-acceptation is understood to denote a legal claim or charge on property, either real
or personal, as security for the payment of some debt or obligation. Its meaning is more extensive than the jus
retentionis (derecho de retencion) of the civil law. In order that the lien may follow the property into the hands
of a third party, it is further essential that the latter should have notice, either actual or constructive.
Facts:
One Pujalte & Co., (Pujalte) was engaged in the business of lumbering in Mindanao. Thereafter the
CIR assessed Pujate for forest charges. This prompted Pujate to execute a bond in the to secure payment of
the forest charges due to the government, thus allowing Pujate to remove their timbers from the public
forests for shipment by sea without prior payment of forest charges. Thereafter the timber shipped was
eventually manufactured and turned into railroad ties. These railroad ties however were rejected by the
Manila Railroad Co. During this time, Pujate was indebted to Hongkong and Shanghai Banking Corporation
(HSBC), herein petitioner for sum of money. Being unable to pay the same, Pujate assigned to HSBC among
other things the large quantity of the railroad ties manufactured. Later on, for failing to pay the forest charges
in favour of the government and being unable to go after the bond, the CIR instituted delinquency
proceedings before the lower court and had distress warrant issued and levy be made against the railroad
ties with the HSBC. Prior to the aforementioned warrant and levy, HSBC did not have knowledge or notice of
the tax deficiency of Pujate. HSBC protested before the lower court, the lower court declared that the railroad
ties are considered as lien for taxes which may be levied upon by the CIR. The lower court took judicial notice
of Section 149 of The Internal Revenue Law of 1914 which provides that: “Every internal-revenue tax on
property or on any business or occupation and every tax on resources and receipts, and any increment to any
of them incident to delinquency, shall constitute a lien superior to all other charges or liens not only on the
property itself upon which such tax may be imposed but also upon the property used in any business or
occupation upon which the tax is imposed and upon all property rights therein.”
Issue:
Whether the lien follows the property subject to the tax into the hands of a third party when at the
time of transfer, no demand for payment had been made and when the purchaser had no notice of the
existence of the lien
Ruling:
No, the lien does not follow the property under such circumstance. In order that the lien may follow
the property into the hands of a third party, it is further essential that the latter should have notice, either
actual or constructive. The reason is the benevolence of our Constitution which prohibits the taking of
property without due process of law. In the case of real estate or special assessment taxation a man cannot
get rid of his liability to a tax by buying without notice. The rule, however, is different where the vendee has
no knowledge of the taxes on personality existing at the time, or had no means of knowing from the public
records that such taxes had accrued.
Keeping the foregoing statement of facts, issues, and law before us, the present case offers no serious
difficulty. The plaintiff was not of course personally liable for any part of the internal revenue taxes due the
Government from Pujalte & Co. On the date the railroad ties were transferred from Pujalte & Co. to the
Hongkong & Shanghai Banking Corporation no demand for payment of the tax had been made. The bonds in
favor of the Government were still presumably subsisting. No demand in fact was made until over a year later
when distraint proceedings were initiated. When the Hongkong & Shanghai Banking Corporation purchased
and acquired these 2,000 ties in February, 1915, there was nothing to show that Pujalte & Co. were
delinquent tax payers. No public record could be consulted to protect the purchaser from loss by reason of
the existence of a secret lien. A businessman of ordinary prudence could not be expected to foresee that the
personal property which he had taken in satisfaction of a debt was burdened by a tax. On this date, because
no demand had been made and because the plaintiff had no notice of the tax, there was no valid subsisting
lien upon the ties.
______________________________________________________________________________________________________________________________
Commissioner of Internal Revenue v. National Labor Relations Commission

G.R. No. 74965, November 9, 1994, Mendoza J.
It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of
personal property but from the time the tax became due and payable.
Facts:
Maritime Company of the Philippines was assessed by the CIR which thereby showed that it has
deficiency of several taxes amounting to P17,284,882.45. Assessment was not contested thereby it became
final and Maritime did not pay for the said taxes which prompted CIR to issue warrants of distraint on the real
and personal property of Maritime. A receipt for goods, articles and things seized under the Authority of the
NIRC code was executed covering the six barges of Maritime. However the barges were not in possession of
Maritime. The receipt requires under the NIRC as proof of the constructive distraint of property. It is an
undertaking by the taxpayer or person in possession of the property covered that he will preserve the
property and deliver it upon order of the court or the Internal Revenue Commissioner. The receipt later on
was not signed by the persons in possession of the barges.
It was later on appeared that four of the barges placed under constructive distraint were levied to
satisfy a judgment for unpaid wages and other benefits of the employees of Maritime Company. CIR asked for
the annulment of sale of the barges but it was denied due to the fact that the receipt which is the proof of the
constructive restraint was not signed by the persons in possession of the barges which later on was affirmed
by NLRC and contended that Commissioner of Internal Revenue failed to show that the barges which were
levied upon in execution and sold at public auction had been validly placed under constructive distraint and
likewise rejected CIR’s contention that the government's claim for taxes was preferred under Art. 2247, in
relation to Art. 2241(1) of the Civil Code, on the ground that under this provisions only taxes and fees which
are due on specific movables enjoy preference, whereas the taxes claimed by CIR were not due on the four
barges in question. Writ of execution
Issue:
Whether or not tax lien is preferred over the payment for the wages of the employees
Ruling:
Yes, Tax lien is preferred. It is settled that the claim of the government predicated on a tax lien is
superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the
service of the warrant of distraint of personal property but from the time the tax became due and payable.
Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with
respect to movable or immovable properties on which they are due and that since the taxes sought to be
collected in this case are not due on the barges in question the government's claim cannot prevail over the
claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor
Code, "enjoy first preference."
In Republic v. Peralta, it was held that the claim of the Bureau of Internal Revenue for unpaid tobacco
inspection fees constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien upon all the
properties and assets, movable or immovable, of the insolvent as taxpayer. Clearly, under Articles 2241 No. 1,
2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given preference over any other claim of
any other creditor, in respect of any and all properties of the insolvent.
Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned by their employer.
Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims
established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid
wages are already covered by Article 2241, number 6: "claims for laborer's wages, on the goods
manufactured or the work done," or by Article 2242, number 3: "claims of laborers and other workers
engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said
buildings, canals or other works." To the extent that claims for unpaid wages fall outside the scope of Article
2241, number 6 and 2242, number 3, they would come with the ambit of the category of ordinary preferred
credits under Article 2244.
______________________________________________________________________________________________________________________________
Bank of Philippine Islands v. Wenceslao Trinidad

G.R. No. L-16014, October 4, 1921, Johnson, J.
There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. In the
former all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal
Revenue in the latter the residue of such proceeds over and above what is required to pay the tax sought to be
realized, including expenses, is returned to the owner of the property.
Facts:
Taba Saw Mill the owner of machinery for sawing lumber conveyed to Bpi by way of chattel mortgage
the machinery as a security for the loan obtained by Taba Saw Mill. Taba Mill formed a partnership with
Pujatle and Co thereby the machinery now was co-owned by Pujatle. Chattel mortgage was registered and at
the time of registration it is free from tax liens. CIR upon its assessment that Pujatle has deficiency taxes and
thereafter it was not paid. CIR thereby seized and distrained certain property including the machinery. When
the deficiency tax was found to be due to the Government from Pujalte and Co. as forestry charges, and when
the property in question was seized by the CIR, the said chattel mortgage was still subsisting. It is admitted
that at the time of its seizure the said property was being used in the sawmill of Pujalte and Co. BPI claimed to
be the said owner of the property and demanded its release but it was denied thereby it paid the deficiency
tax under protest to prevent the sale of machinery and immediately brought an action to recover the paid
amount before the CFI of Zamboanga however, it was dismissed and absolved CIR from liability. CFI ruled
that that the party who was liable to pay the taxes for which the property in question was distrained was not
the BPI but Pujalte and Co.; and that BPI having "voluntarily and spontaneously" paid the debt of the latter,
had no cause of action against the defendant collector, and could only recover the sum so paid by it from
Pujalte and Co. And that "even supposing for a moment" that the BPI had a right of action against the
defendant to recover the sum paid by it to the latter, yet this action must fail because the property in
question, having been used by Pujalte and Co. in its business of cutting and sawing lumber, was liable to
seizure and distraint under section 149 of Act No. 2339.
Issue:
Whether or not BPI can still recover for the payment made
Ruling:
Yes,Section 140 of the Internal Revenue Law (Act No. 2339) provides: “When the validity of any tax
in questioned, or amount disputed, or other question raised as to liability therefor, the person against whom
or against whose property the same is sought to be enforced shall pay the tax under instant protest, or upon
protest within ten days, and shall thereupon request the decision of the Collector of Internal Revenue. If the
decision of the Collector of Internal Revenue is adverse, or if no decision is made by him within six months
from the date when his decision was requested, the taxpayer may proceed, at any time within two years after
the payment of the tax, to bring an action against the Collector of Internal Revenue for the recovery of the
sum alleged to have been illegally collected, the process to be served upon him, upon the provincial treasurer,
or upon the officer collecting the tax.”
Forfeiture is "the divestiture of property without compensation, in consequence of an offense. The

effect of such forfeiture is to transfer the title to the specific thing from the owner to the sovereign power."
There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. In the former
all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal
Revenue in the latter the residue of such proceeds over and above what is required to pay the tax sought to be
realized, including expenses, is returned to the owner of the property. Clearly, the remedy applicable to the
present case is that provided for in section 140, above quoted.And at the time of the seizure of the property
here in question, the plaintiff held a valid and subsisting chattel mortgage on the same, duly registered in the
registry of deeds. "A chattel mortgage is a conditional sale of personal property as security for the payment of
a debt, or the performance of some other obligation specified therein, the condition being that the sale shall
be void upon the seller paying the purchaser a sum of money or doing some other act named." Therefore, so
long as the mortgage exists, the dominion with respect to the mortgaged personal property rests with the
creditor-pledgee from the time of the inscription of the mortgage in the registry, and the furniture ceases to
be the property of the debtor for the reason that it has become the property of the creditor, in like manner as
the domination of a thing sold is transferred to the purchaser and ceases to belong to the vendor from the
moment of the delivery thereof, as a result of the sale.
Civil action
Ferdinand R. Marcos v. Court of Appeals

G.R. No. 120880, June 5, 1997, Torres, Jr, J.
Assessments may be protested administratively by filing a request for reconsideration or reinvestigation

in such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in
part, the individual, association or corporation adversely affected by the decision on the protest may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of said decision; otherwise, the decision shall
become final, executory and demandable
Facts:
The estate of Former President Ferdinand Marcos was investigated by Special Tax Audit for tax
liabilities which thereby concluded that the Marcoses has failed to file written notice of death of the decedent
an estate tax return and several income tax returns covering 1982-1986 which violates NIRC. Subsequently,
criminal charges were filed against Mrs Imelda Marcos for violation of the NIRC. CIR assessed the estate and
the income of Spouses Marcos and issued that there are deficiency estate and income tax assessments which
were not protested by the Marcoses thus became final and unappealable. Thereby the BIR Commissioner
issued twenty-two notices of levy on real property against certain parcels of land owned by the Marcoses - to
satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos. Thereafter Ferdinand Marcos II
questioned the validity of the levy and contended that the properties should not be levied to cover the tax
dues since the properties are still pending in the probate court unless the court orders to do so or until the
probate proceeding has already been terminated.
Issue:
Whether or not Bureau of Internal Revenue has the authority to collect by the summary remedy of
levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the supposed will of the deceased.
Ruling:
Yes. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not
a mandatory requirement in the collection of estate taxes. IOn the contrary, under Section 87 of the NIRC, it is
the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a
Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court which approves the assessment and
collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have
been pursued through the proper administrative and judicial avenues provided for by law.Section 229 of the
NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly
authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by implementing regulations within (30) days
from receipt of the assessment; otherwise, the assessment shall become final and unappealable.If the protest
is denied in whole or in part, the individual, association or corporation adversely affected by the decision on
the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise, the decision shall become final, executory and demandable.”
Apart from failing to file the required estate tax return within the time required for the filing of the
same, Bongbong, and the other heirs never questioned the assessments served upon them, allowing the same
to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by
President Marcos.
______________________________________________________________________________________________________________________________
Republic of the Philippines v. Lim Tian Teng Sons and Co. Inc.
G.R. No. L-21731, March 31, 1966, Bengzon, J.P, J.
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of collecting the tax assessed.
Facts:
Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal office in Cebu City, engaged in
1951 and 1952, among others, in the exportation of copra. It filed its income tax return for 1952 based on
accrued income and expenses. Its return showed a loss of P56,109.98. It took up as part of the beginning
inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as
part of its outstanding stock as of December 31, 1951. Collector of Internal Revenue assessed a deficiency
income tax of P10,074.00 and 50% surcharge thereon amounting to P5,037.00 and demanded payment
thereof not later than February 15, 1957. On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested
reinvestigation of its 1952 income tax liability. Thereupon, the Deputy Collector of Internal Revenue, by his
letter dated October 16, 1957, informed the taxpayer that its request for reinvestigation would be granted
provided it executed within ten days a waiver of the statute of limitations as required in General Circular V-
258 dated August 20, 1957. In his letter dated December 10, 1957, the Deputy Collector of Internal Revenue
extended the period within which to execute and file with him the waiver of the statute of limitations to
December 31, 1957, but advised that if no waiver is forthcoming on or before said date, judicial action for
collection would be instituted without further notice. Receipt of this letter is denied by appellant company. As
Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the statute of limitations, the Collector of Internal
Revenue instituted eight months after, specifically on September 2, 1958, an action in the Court of First
Instance of Cebu for the collection of deficiency income tax which ruled in favor of CIR. Lim maintains that the
lower court has no jurisdiction to entertain this case on the ground that the Collector of Internal Revenue has
not yet issued his final decision on its requests for reinvestigation. It stands that final decision of the Collector
of Internal Revenue on the disputed assessment is a condition precedent to the filing of an action in the Court
of First Instance for the collection of a tax.
Issue:
Whether or not Collector of Internal Revenue is required to rule first on taxpayer's request for
reinvestigation before he can go to court for the purpose of collecting the tax assessed
Ruling:
No, The Collector of Internal Revenue is authorized to collect delinquent internal revenue taxes
either by distraint and levy or by judicial action or both simultaneously. The only requisite before he can
collect the tax is that he must first assess the same within the time fixed by law. And in the case of a false or
fraudulent return with intent to evade the tax or of a failure to file a return, a proceeding in court for the
collection of such tax may be begun without assessment.
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the
contrary, Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under
Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax,
fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much
latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the
government chiefly relies to obtain the means the carry on its operations, and it is of the utmost importance
that the modes adopted to enforce collection of taxes levied should be summary and interfered with as little
as possible. No government could exist if all litigants were permitted to delay the collection of its taxes.
Moreover, before the creation of the Court of Tax Appeals the remedy of a taxpayer who desired to
contest an assessment issued, by the Collector of Internal Revenue was to pay the tax and bring an action in
the ordinary courts for its recovery pursuant to Section 306 of the Code.5 Collection or payment of the tax
was not made, to, wait until after the Collector of Internal Revenue has resolved all issues raised by the
taxpayer against an assessment. Republic Act 1125 creating the Court of Appeals allows the taxpayer to
dispute the correctness legality of an assessment both in the purely administrative level and in said court, but
it does not stop the Collector of Internal Revenue from collecting the tax through any of the means provided
for in Section 316 of the Tax Code, except when enjoined by said Court of Tax Appeals. Section 11 of Republic
Act 1125 states in part:
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue
shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of
his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the
collection by the Bureau of Internal Revenue or the Commissioner of Customs 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.
______________________________________________________________________________________________________________________________
Elpidio Yabes and Severino Yabes v. Hon. Napoleon Flojo

G.R. No. L-46954, July 20, 1982, Concepcion Jr, J.
Court of First Instance of can only acquire jurisdiction over a tax filed if the assessment made by the
Commissioner of Internal Revenue had become final and incontestable. And if the assessment made still is not
final, Court of Tax Appeals has jurisdiction.
Facts:
Doroteo Yabes of Calamaniugan Cagayan an exclusive dealer of products of the International

Harvester Macleod, Inc., received a letter from the Commissioner of Internal Revenue dated March 27, 1962,
demanding payment of the amount of P15,976.81, as commercial broker's fixed and percentage taxes plus
surcharges. It protested the assessment on the ground that his agreements with the International Macleod
Inc. were purchase and sale and not of agency, hence he claimed that he is not liable to pay the taxes. To give
time for the Commissioner to study the case and several other cases similar thereto, the lawyers of Doroteo
Yabes agreed to file, and their client, Doroteo Yabes did file a tax waiver on October 20, 1962, extending the
period of prescription to December 31, 1967; It was thereafter extended to another 5 years of prescription
which is until Dec 31,1970. There after Doroteo died and substituted by his heirs herein petitioners
Thereafter, no word was received by the petitioners or their lawyers during the interim of more than
three (3) years, but on January 20, 1971, petitioners as heirs of the deceased Doroteo Yabes received the
summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First
Instance of Cagayan which seeks to collect from the petitioners the sum of P 15,976.82, as deficiency
commercial broker's fixed and percentage taxes. Taking the complaint as the final decision of the
Commissioner on the disputed assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on
February 12, 1971, a petition for review of said disputed assessment with the Court of Tax Appeals; CIR
contended that CTA has no jurisdiction because of the fact that the assessment has already become final. CFI
ruled in favor of CIR
Issue:
Whether or not the assessment has already become final thereby depriving CTA with jurisdiction
over the case
Ruling:
No, There is no reason for SC to disagree from or reverse the Court of Tax Appeals' conclusion that
under the circumstances of this case, what may be considered as final decision or assessment of the
Commissioner is the filing of the complaint for collection in the respondent Court of First Instance of Cagayan,
the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal with the
Court of Tax Appeals was filed on time.
The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed
against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had
become final and incontestable. If the contrary is established, as this Court holds it to be, considering the
aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment
made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case.
Petitioners received the summons of the respondent Court of First Instance of Cagayan on January 20, 1971,
and petitioners filed their appeal with the Court of Tax Appeals, on February 12, 1971, well within the thirty-
day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive
appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving
disputed assessments and other matters arising under the National Internal Revenue Code. For want of
jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed.
______________________________________________________________________________________________________________________________
Fernandez Hermanos Inc. v. Commissioner of Internal Revenue

G.R. No. L-21551, September 30, 1969, TEEHANKEE, J.:
A judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of
first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the
taxpayer's petition for review wherein payment of the tax is prayed for. This is but logical for where the
taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is vested
with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court.
Facts:
Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of engaging
in business as an investment company. Upon verification of the taxpayer's income tax returns for the period
in question, the Commissioner of Internal Revenue assessed against the taxpayer as alleged deficiency income
taxes for the years 1950-1954. Said assessments were the result of alleged discrepancies found upon the
examination and verification of the taxpayer's income tax returns for the said years Later on the tax Court
modified the deficiency assessments accordingly, found the total deficiency income taxes due from the
taxpayer for the years under review to amount to P123,436.00. Both parties have appealed from the
respective adverse rulings against them in the Tax Court's decision. Fernandez filed petition for review
onMay 6, 1960 in the Tax Court He contented that the Commissioner's action to recover its tax liability should
be deemed to have prescribed for failure on the part of the Commissioner to file a complaint for collection
against it in an appropriate civil action, as contradistinguished from the answer filed by the Commissioner to
its petition for review of the questioned assessments. CIR contended that assessments were made on
February 24 and 27, 1956 while Fernandez claimed that it was made on December 27, 1955
Issue:
Whether or not the government's right to collect the deficiency income taxes in question has already
prescribed
Ruling:
No, Supreme Court has consistently held that a judicial action for the collection of a tax is begun by
the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the
Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment of the tax is
prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the
Court of Tax Appeals, the said Court is vested with the authority to pronounce judgment as to the taxpayer's
liability to the exclusion of any other court.
In the present case, regardless of whether the assessments were made on February 24 and 27, 1956,
as claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's right
to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was filed
with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer with a prayer
for payment of the taxes due, long before the expiration of the five-year period to effect collection by judicial
action counted from the date of assessment.
Criminal action
Republic of the Philippines v. Pedro B. Patanao

G.R. No. L-22356, July 21, 1967, Angeles, J.
Acquittal in criminal cases cannot operate to discharge the accused from the duty of paying the taxes
which the law requires to be paid.
Facts:
Pedro Patanao a holder of ordinary timber license with concession failed to file income tax returns on
1953 and 1954 although he filed income tax returns for 1951, 1952, and 1955 after investigation it was
proved to be false and fraudulent because he did not report substantial income earned by him from his
business. He was charged with criminal case for violation of the NIRC but later on he was acquitted with the
charged. Thereafter, he contended that since the criminal liability has already been extinguished, he shall no
longer be civilly liable.
Issue:
Whether or not the acquittal for the criminal charges in violation of tax code automatically
extinguishes civil liability
Ruling:
No, Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally
liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax
law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged
himself in business, and not because of any criminal act committed by him. The criminal liability arises upon
failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation
principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of
the income tax law. Another reason, of course, is found in the fact that while section 73 of the National
Internal Revenue Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal
or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in
criminal proceedings. The only civil remedies provided, for the collection of income tax, in Chapters I and II,
Title IX of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which
remedies are generally exclusive in the absence of a contrary intent from the legislator.
Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal
proceeding under the tax law or, otherwise stated, since the said civil liability is not deemed included in the
criminal action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail exoneration
from his liability to pay the taxes. Hence, the acquittal in the said criminal cases cannot operate to discharge
Patanao from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a
consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising
from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.
______________________________________________________________________________________________________________________________
People of the Philippines v. Ildefonso Tierra

G.R. No. L-17177-80, December 28, 1964, Bengzon, C. J
Any subsequent satisfaction of the tax liability, by payment or prescription, will not operate to
extinguish such criminal liability, since the duty to pay the tax is imposed by statute independent of any attempt
on the part of the taxpayer to evade payment.
Facts:
Ildefonso Tierre was engaged in general merchandise business including buying and selling of school
supplies. He filed his income tax return for the years 1946, 1947, and 1949. It was later on examined by the
BIR and found out that appellant had filed false and fraudulent returns for the said years and made its
assessment. CIR made a formal demand to pay the deficiency income taxes including surcharges which he has
failed to do so. He protested against the assessments. Thereafter he was criminally charged of three
information for fraudulent filing of tax returns which is a violation of the NIRC. RTC found him guilty for the
violation of NIRC. He however contended that informations filed has already been prescribed. Tierre
contends that his criminal liability in the three informations has been extinguished because of the failure of
the government to take any timely action, judicial or administrative, to collect his income tax liabilities, and
because of this failure, the right of the government to collect the taxes was lost by prescription in accordance
with section 332 of the National Internal Revenue Code. On the premise that his criminal liability arose from
his failure to satisfy this civil liability, He argues that the extinguishment of this civil liability by prescription
ipso facto extinguished any criminal action based thereon.
Issue:
Whether or not the criminal liability of Tierre, for three informations has been extinguished by
reason of the extinguishment of his civil liability to pay taxes.
Ruling:
No, The filing of a false and fraudulent income tax return and the failure to pay the tax necessarily
makes the delinquent taxpayer amenable to the penal provisions of Section 73 of the Code. Any subsequent
satisfaction of the tax liability, by payment or prescription, will not operate to extinguish such criminal
liability, since the duty to pay the tax is imposed by statute independent of any attempt on the part of the
taxpayer to evade payment. Whether under the National Internal Revenue Code or under the Revised Penal
Code, the satisfaction of civil liability is not one of the grounds for the extinction of criminal action. The failure
of the government, therefore, to enforce by appropriate civil remedies the collection of the taxes, does not
detract from its right criminally to prosecute violations of the Code. The criminal actions subsist so long as
there are no legal grounds that would bar their prosecution.
______________________________________________________________________________________________________________________________
Quirico P. Ungab v. Hon. Vicente N. Cusi

G.R. No. L-41919-24, May 30, 1980, Concepcion Jr, J.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return
with intent to evade and defeat the tax.
Facts:
BIR Examiner Ben Garcia examined the income tax returns filed by the Quirico P. Ungab, for the
calendar year ending December 31, 1973 and discovered that the Ungab failed to report his income derived
from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of
Taxpayer" to the Ungab informing him that there is due from him the amount of P104,980.81, representing
income, business tax and forest charges for the year 1973. Ungab however protested the assessment and
claimed that he was only a dealer or agent on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was accurately stated. BIR Examiner Ben
Garcia was fully convinced that the he had filed a fraudulent income tax return so that he submitted a "Fraud
Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the records of the
case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that Ungab is
guilty of tax evasion. Thereafter, State Prosecutor Jesus Acebes conducted a preliminary investigation of the
case, and finding probable cause, filed six (6) criminal informations against the Ungab for violation of NIRC.
Ungab contended that the informations are null and void for want of authority on the part of the State
Prosecutor to initiate and prosecute the said cases and that the filing of information was premature since the
CIR has not yet resolved his protest against the assessment and he was denied due course to appeal in the
CTA
Issue:
Whether or not the filing of information was premature since the CIR has not yet resolved his protest
against the assessment
Ruling:
No, what is involved here is not the collection of taxes where the assessment of the Commissioner of
Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of
the National Internal Revenue Code which is within the cognizance of RTC. While there can be no civil action
to enforce collection before the assessment procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat
and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent
return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on
the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the
error and promptly to assess has no connections with the commission of the crime. The crime is complete
when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade
and defeat a part or all of the tax. Besides, it has been ruled that a petition for reconsideration of an
assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the
prescriptive period of a criminal action for violation of law.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. PASCOR REALTY AND DEVELOPMENT CORPORATION,
ROGELIO A. DIO and VIRGINIA S. DIO
G.R. No. 128315 June 29, 1999 PANGANIBAN, J.
An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached
to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals.
Facts:
By virtue of Letter of Authority No. 001198, the then BIR Commissioner authorized 3 Revenue
Officers to examine the books of accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a
recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for
the years 1986 and 1987, respectively. Consequently, the CIR filed a criminal complaint before the DOJ
against the PRDC, its President and its Treasurer alleging evasion of taxes in the total amount of P10,513,671
.00. PRDC, et. al. received a subpoena from the DOJ in connection with the criminal complaint. The CIR denied
the urgent request for reconsideration/reinvestigation of PRDC, et al. on the ground that no formal
assessment of the has as yet been issued by the Commissioner. PRDC, et. al.then elevated the Decision of the
CIR to the Court of Tax Appeals. The CIR filed a Motion to Dismiss the petition on the ground that the CTA has
no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against
PRDC, et. al. The CTA denied the said motion to dismiss. The Court of Appeals sustained the CTA and
dismissed the petition. Hence, this recourse to this Court.
Issue:
Whether or not the revenue officers' Affidavit-Report, which was attached to criminal revenue
Complaint filed the Department of Justice, constituted an assessment that could be questioned before the
Court of Tax Appeals.
Ruling:
NO. An assessment informs the taxpayer that he or she has tax liabilities. But not all documents
coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with,
an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described
therein within a specific period. Necessarily, the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an
assessment or to protest the same, or whether interest and penalty may accrue thereon. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice
to the taxpayer. In the present case, the revenue officers' Affidavit merely contained a computation of
respondents' tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the
justice secretary, not to the taxpayers. The fact that the Complaint itself was specifically directed and sent to
the Department of Justice and not to private respondents shows that the intent of the commissioner was to
file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers
recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.
______________________________________________________________________________________________________________________________
EMILIO E. LIM, SR. and ANTONIA SUN LIM vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES
G.R. Nos. L-48134-37, October 18, 1990, FERNAN, C.J.
As Section 354 stands in the statute book , it would indeed seem that tax cases, such as the present ones,
are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings
for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years.
Facts:
Spouses Lim were engaged in the dealership of various household appliances. They filed income tax
returns for the years 1958 and 1959. A raid was conducted by the NBI at their business address and on
another property owned by them. Seized from the Lim couple were business and accounting records which
served as bases for an investigation undertaken by BIR. In the course of said investigation, it was discovered
that the income tax returns filed by spouses for the years 1958 and 1959 were false or fraudulent
Accordingly, the then Acting CIR informed the spouses that there was due from them the amount of
P922,913.04 as deficiency income taxes for 1958 and 1959, giving them until May 7, 1965 to pay the amount
(first assessment). Emilio E. Lim, Sr., requested for a reinvestigation. The BIR expressed willingness to grant
such request but subject to conditions which Emilio E. Lim, Sr. refused to comply. Instead, he reiterated his
request for another investigation. The BIR rendered a final decision holding that there was no cause for
reversal of the assessment against the Lim couple. The final notice and demand for payment was served on
petitioners through their daughter-in-law on July 3, 1968. As the Lim spouses refused to pay the deficiency
tax, four (4) separate criminal informations were filed against them in the CFI of Manila for violation of
Sections 45 and 51 (refusal to pay deficiency tax and filing of fraudulent income tax return respectively) in
relation to Section 73 of the National Internal Revenue Code.The trial court rendered two (2) joint decisions
finding petitioners guilty as charged. The Court of Appeals affirmed in toto the twin decisions of the lower
court. Hence this present petition. In an effort to exculpate themselves, petitioners have raised the defense of
prescription.
Issue
Whether or not the offenses the Lim spouses are charged with have already prescribed.
Ruling:
NO. The dispute centers as to when the reckoning point from which the 5 year prescriptive period
shall commence. Prescription runs 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 proceeding for its
investigation and punishment.
Indubitably, petitioners had filed false and fraudulent income tax returns for the years 1958 and
1959. Considering that this occurred in the late 1950's, the defraudation was on a massive scale.
Relative to the Criminal Cases which involved petitioners' refusal to pay the deficiency income taxes
due, the Court ruled that the prescriptive period commenced to run from the time the final notice and
demand for payment of the deficiency taxes was served to petitioners in July 3, 1968. It was only then that the
cause of action on the part of the BIR accrued. This is so because prior to the receipt of the letter-assessment,
no violation has yet been committed by the taxpayers. The offense was committed only after receipt was
coupled with the wilful refusal to pay the taxes due within the alloted period.
With regard to the Criminal Cases which dealt with petitioners' filing of fraudulent consolidated
income tax returns, Section 354 of the NIRC speaks not only of discovery of the fraud but also institution of
judicial proceedings. In other words, in addition to the fact of discovery, there must be a judicial proceeding
for the investigation and punishment of the tax offense before the five-year limiting period begins to run. It
was only in September 1, 1969 that the aforementioned offenses were indorsed to the Fiscal's Office for
preliminary investigation. Inasmuch as a preliminary investigation is a proceeding for investigation and
punishment of a crime, it was only on said date that the prescriptive period commenced.
In the light of the foregoing, the Court rules that the aforementioned criminal cases instituted by the
Government in June 23, 1970 are not time-barred.
LOCAL GOVERNMENT CODE OF 1991, as amended
LOCAL GOVERNMENT TAXATION
Taxpayer's remedies
JESUS C. ESTANISLAO, in his capacity as the Secretary of Financevs.

HONORABLE AMADO COSTALES, as Presiding Judge of the Regional Trial Court, Branch 14, at
Zamboanga City, and CITY OF ZAMBOANGA, represented by the Honorable City Mayor,
G.R. No. 96516, May 8, 1991,GANCAYCO, J.
The authority of the City is limited to the imposition of a percentage tax on the gross sales or receipts of
said product which, being non-essential, shall be at the rate of not exceeding 2% of the gross sales or receipts of
the softdrinks for the preceding calendar year. The tax being imposed under said Ordinance is based on the
output or production and not on the gross sales or receipts as authorized under the Local Tax Code. Hence,
Ordinance No. 44 is void.
Facts:
Ordinance No. 44 was passed by the Sangguniang Panglungsod of Zamboanga City which imposed
P0.01 tax per liter of softdrinks produced, manufactured, and/or bottled within the territorial jurisdiction of
the City of Zamboanga. A copy of which was sent to the then Minister of Financefor his review pursuant to
P.D. No. 231 (The Local Tax Code). In response, the Minister of Finance sent a letter addressed to the
Sanggunian suspending the effectivity of Ordinance No. 44 on the ground that it contravenes Section 19(a) of
the Local Tax Code. The City of Zamboanga appealed said decision to the Regional Trial Court which rendered
a decision finding the tax levied under said Ordinance as not among those that the Sanggunian may impose
under the Local Tax Code. Nonetheless, it upheld its validity on the ground that the Minister of Finance did
not take appropriate action on the matter within the prescribed period of 120 days after receipt of a copy
thereof.Hence, this petition.
Issue:
Whether or not Ordinance No. 44 of Zamboanga is a valid ordinance.
Ruling:
NO. As per Section 19 (a) in relation with Sec 23 of the Local Tax Code, it is clear that Zamboanga City
may impose, in lieu of the graduated fixed tax prescribed under Section 19 of the Local Tax Code, a percentage
tax on the gross sales for the preceding calendar year of non-essential commodities at the rate of not
exceeding two per cent and on the gross sales of essential commodities at the rate of not exceeding one per
cent.
Ordinance No. 44 of the respondent Zamboanga City imposes P0.01 per liter of softdrinks produced,
manufactured, and/or bottled within the territorial jurisdiction of the City of Zamboanga. No doubt this
Ordinance is ultra vires as it is not within the authority of the City to impose said tax.
The authority of the City is limited to the imposition of a percentage tax on the gross sales or receipt
of said product which, being non-essential, shall be at the rate of not exceeding 2% of the gross sales or
receipts of the softdrinks for the preceding calendar year. The tax being imposed under said Ordinance is
based on the output or production and not on the gross sales or receipts as authorized under the Local Tax
Code. Thus, City Ordinance No. 44 is null and void. Any taxes paid under protest thereunder should be
accordingly refunded to the taxpayers concerned.
______________________________________________________________________________________________________________________________
ILOILO BOTTLERS, INC.vs. CITY OF ILOILO

G.R. No. L-52019, August 19, 1988, CORTES, J.
The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the
acts, privileges or businesses are done or performed within the jurisdiction of said Specifically,the situs of the act
of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any
of the activities may be taxed in Iloilo City.
Facts:
Iloilo Bottlers, Inc. is engaged in the business of bottling softdrinks under the trade name of Pepsi
Cola And 7-up. In 1960, the City of Iloilo enacted Ordinance No. 5 which imposes a municipal license tax on
persons, firms, and corporations engaged in the business of distribution, manufacture, and bottling of
softdrinks within the territorial jurisdiction of the City of Iloilo. In 1968, Iloilo Bottlers, Inc. transferred its
bottling operations to its new plant in Barrio Ungca, Municipality of Pavia from its original plant inside Iloilo
City. As a consequence of which, it stopped paying the municipal license tax.The City of iloilo demanded from
the Iloilo Bottlers, Inc. compliance with the said ordinance in view of the fact that it was engaged in
distribution of the softdrinks in the City of Iloilo, and it further demanded payment of back taxes from the
time it transferred its bottling plant to the Municipality of Pavia. The plaintiff demurred to the said demand
arguing that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as
distributor under the said ordinance although it sells its product directly to its consumers in the different
towns of the Province of Iloilo including the City of Iloilo by means of a fleet of delivery trucks. Nevertheless,
plaintiff paid the tax under protest because of the defendant’s threat that it would cancel its business
operations. The court a quo rendered a decision in favor of the plaintiff. The City of Iloilo appealed to the
Court of Appeals which certified the case to this Court.
Issue:
Whether or not Iloilo Bottlers, Inc. may be considered engaged in the distribution of softdrinks in
Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the
ordinance.
Ruling:
YES. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2)
manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the
tax. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in lloilo province. Sales transactions with customers were
entered into and sales were perfected and consummated by route salesmen. Truck sales were made
independently of transactions in the main office. The delivery trucks were not used solely for the purpose of
delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until
recently, "rolling stores". The corporation was engaged in the separate business of selling or distributing soft-
drinks, independently of its business of bottling them. As already mentioned, sales were made by Iloilo
Bottlers, Inc. in Iloilo City. Thus, the company liable under the tax ordinance.
______________________________________________________________________________________________________________________________
CITY OF MANILA, HON. ALFREDO S. LIM, AS MAYOR OF THE CITY OF MANILA, AND ANTHONY Y.
ACEVEDO, CITY TREASURERv.HON. ANGEL VALERA COLET, AS PRESIDING JUDGE, REGIONAL TRIAL
COURT OF MANILA (BR. 43), AND MALAYSIAN AIRLINE SYSTEM
G.R. No. 120051, December 10, 2014, LEONARDO-DE CASTRO, J.
The sanggunian of the municipality or city cannot enact an ordinance imposing business tax on the
gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by
hire, and common carriers by air, land, or water, when said sanggunian was already specifically prohibited from
doing so.
Facts:
The case involves 10 consolidated petitions involving several corporations operating as common
carriers assailing the constitutionality of Section 21(B) of Ordinance No. 7794 of the City of Manila, otherwise
known as the Revenue Code of the City of Manila, as amended by Ordinance No. 7807. Sec.21 (B) imposed
business tax on “transportation contractors, persons who transport passenger or freight for hire, and
common carriers by land, air or water” Said Ordinance No. 7807 amended the same by lowering the tax rate
from 3% per annum to .5% per annum. Consequently, the treasurer of the City of Manila began imposing and
collecting the business tax as provided by the aforementioned statutory provision.
Because they were assessed and/ or compelled to pay business taxes pursuant to Section 21(B) of
the Manila Revenue Code before they were issued their business permits for 1994, several corporations
questioned the constitutionality of Sec. 21 (B) for being contrary to the Constitution and the Local
Government Code, and asked for the refund of what they had paid as business tax. The City of Manila argued
that it was constitutional and valid and such position was adopted by the RTC and the CA when the case
reached the respective fora. The City argued that the enactment of Sec. 21 (B) is based on the exempting
clause found at the beginning of Sec. 133, in conjunction with Section 143(h), of the LGC.
Issue:
Whether or not Sec. 21 (B) of the Manila Revenue Code, as amended by Ordinance No. 7807
unconstitutional.
Ruling:
YES. The power to tax is not inherent in LGUs to whom the power must be delegated by Congress and
must be exercised within the guidelines and limitations that Congress may provide.
Sec. 5 of Article X of the Constitution granted LGUs the “power to create its own sources of revenues
and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide...”
In conformity with said constitutional provision, the Local Gov’t Code was enacted by Congress. Sec. 130 of
the LGC provides for the fundamental principles governing the taxing powers of LGUs. Sec. 133 of the LGC
provides for the common limitations on the taxing powers of LGU section 133(j) of which provides that
“unless otherwise provided herein,” the taxing power of LGUs shall not extend to “taxes on the gross receipts
of transportation contractors and persons engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code.” Sec. 133(j) of the LGC is a specific
provision that explicitly withholds from any LGU the power to tax the gross receipts of transportation
contractors, common carriers, persons engaged in the transportation of passengers or freight by hire, and
common carriers by air, land, or water.
In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance imposing
business tax on the gross receipts of transportation contractors, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air, land, or water, when said sanggunian was already
specifically prohibited from doing so. Furthermore, such a construction is pursuant to the legislative intent to
exclude from the taxing power of the LGU the imposition of business tax against common carriers to prevent
a duplication of the so-called “common carrier’s tax.”
______________________________________________________________________________________________________________________________
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY,

vs. BA LEPANTO CONDOMINUM CORPORATION
G.R. No. 154993 October 25, 2005, Tinga, J.
A condominium corporation, while enjoying such powers of ownership, is prohibited by lawfrom

transacting its properties for the purpose of gainful profit.Accordingly, and with a significant degree of comfort,
we hold that condominium corporations are generally exemptfrom local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks todeclare otherwise.
Facts:
BA Lepanto is a condominium corporation which owns and holds title to the condominium located in
Makati City.The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular
assessments from itsmembers for operating expenses, capital expenditures on the common areas, and other
special assessments asprovided for in the Master Deed with Declaration of Restrictions of the Condominium.
In 1998, BA Lepanto received a Notice of Assessment from the the City of Makati stating that thecorporation
is liable for business taxes, fees, and charges for theyears 1995 to 1997. The Notice of Assessment was silent
as to the statutory basis of the business taxes assessed.Through counsel, the Corporation responded with a
written tax protest addressed to theCity Treasurer. BA Lepanto contended that it does not fall on either the
Makati Revenue Code or the Local Government Code because it is not abusiness within the meaning under the
said codes. The protest was rejected by the City Treasurer. From the denial of the protest, the Corporation
filed an Appeal with the RTC which dismissed the same. The RTC concluded that the activities of
theCorporation fell squarely under the definition of business under Section 13(b) of the Local Government
Code, andthus subject to local business taxation. BA Lepanto appealed to CA which reversed RTC ruling.
Hence, this appeal.
Issue:
Whether or not the City of Makati may collect business taxes on condominium corporations.
Ruling:
NO. We can elicit from the Condominium Act that a condominium corporation is precluded by statute
from engaging in corporate activities other than the holding of the common areas, the administration of the
condominium project, and other acts necessary, incidental or convenient to the accomplishment of such
purposes. Neither themaintenance of livelihood, nor the procurement of profit, fall within the scope of
permissible corporate purposesof a condominium corporation under the Condominium Act.The articles of the
said corporation was examined, and the court found that: none of these stated corporatepurposes are geared
towards maintaining a livelihood or the obtention of profit. Even though the Corporation isempowered to
levy assessments or dues from the unit owners, these amounts collected are not intended for theincurrence of
profit by the Corporation or its members, but to shoulder the multitude of necessary expenses thatarise from
the maintenance of the Condominium Project. Theprofit 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. A condominium corporation, while enjoying
such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful
profit. Accordingly, and with a significant degree of comfort, we hold that condominium corporations are
generally exemptfrom local business taxation under the Local Government Code, irrespective of any local
ordinance that seeks todeclare otherwise.
______________________________________________________________________________________________________________________________
PETRON CORPORATION vs. MAYOR TOBIAS M. TIANGCO, and MUNICIPAL TREASURER MANUEL T.
ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA, respondents.
G.R. No. 158881, April 16, 2008, TINGA, J.
While local government units are authorized to burden all such other class of goods with "taxes, fees
and charges," excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of
taxes with respect to petroleum products.
Facts:
Petron maintains a depot or bulk plant in Navotas Fishport Complex. Through the said depot, it sells
diesel fuels to the vessels used in commercial fishing in and around Manila Bay. Later, Petron received a letter
from the office of Mayor Tiangco assessing it for business taxes in the amouont of 6.2M covering 1997-2001
pursuant to the Navotas Revenue Code. A protest was filed by Petron arguing that under the IRR of the NIRC,
it is exempt from local business tax. Also, an opinion was rendered by the Bureau of Local Government
Finance providing for that sales of petroleum fuels are NOT subject to local taxation. Letter protest was
denied and a final demand to pay was sent to Petron. Petron filed a complaint for cancellation of assessment
with TRO before the RTC. RTC dismissed the complaint.
Issue:
Whether the municipality of Navotas may impose a business tax on Petron?
Ruling:
NO. Under Section 133(h) of the Local Government Code, the exercise of the taxing powers of local
government units do not extend to “excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products” among others.
The language of Section 133(h) makes plain that the prohibition with respect to petroleum products
extends not only to excise taxes thereon, but all "taxes, fees and charges." The earlier reference in paragraph
(h) to excise taxes comprehends a wider range of subjects of taxation: all articles already covered by excise
taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and such
non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the later reference to "taxes, fees and charges" pertains only to
one class of articles of the many subjects of excise taxes, specifically, "petroleum products". While local
government units are authorized to burden all such other class of goods with "taxes, fees and charges,"
excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with
respect to petroleum products.
______________________________________________________________________________________________________________________________

Facts:
Issue:
Ruling:
______________________________________________________________________________________________________________________________
HAGONOY MARKET VENDOR ASSOCIATION, petitioner, v. MUNICIPALITY OF HAGONOY, BULACAN,

respondent.
G.R. No. 137621 February 6, 2002 PUNO, J.
An appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within
thirty (30) days from effectivity of the ordinance and even during its pendency, the effectivity of the assailed
ordinance shall not be suspended.
Facts:
On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted an ordinance, Kautusan
Blg. 28, which increased the stall rentals of the market vendors in Hagonoy. Article 3 provided that it shall
take effect upon approval. The subject ordinance was posted from November 4-25, 1996. On December 8,
1997, the Hagonoy Market Vendor Association’s President filed an appeal with the Secretary of Justice
assailing the constitutionality of the tax ordinance. It claimed it was unaware of the posting of the ordinance.
Respondent opposed the appeal pointing out that petitioner’s appeal, made over a year later, was already
time-barred. The Secretary of Justice dismissed the appeal on the ground that it was filed out of time, i.e.,
beyond thirty (30) days from the effectivity of the Ordinance on October 1, 1996, as prescribed under Section
187 of the 1991 Local Government Code. On appeal to the CA, petitioner did not assail the finding of the
Secretary of Justice that their appeal was filed beyond the reglementary period. Instead, it urged that the
Secretary of Justice should have overlooked this mere technicality and ruled on its petition on the merits.
However, the same was dismissed.
Issue:
Whether the appeal was timely filed.
Ruling:
No. The aforecited law (Sec. 187 of the 1991 Local government Code) requires that an appeal of a tax
ordinance or revenue measure should be made to the Secretary of Justice within thirty (30) days from
effectivity of the ordinance and even during its pendency, the effectivity of the assailed ordinance shall not be
suspended. In the case at bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its
appeal only in December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the
Secretary of Justice correctly dismissed it for being time-barred. At this point, it is apropos to state that the
timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a mere
technicality that can be easily brushed aside. The periods stated in Section 187 of the Local Government Code
are mandatory. Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and
collect public market stall rentals. Being its lifeblood, collection of revenues by the government is of
paramount importance. The funds for the operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of
revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time limit
for an aggrieved party to assail the legality of revenue measures and tax ordinances.
______________________________________________________________________________________________________________________________
VICTORIAS MILLING CO., INC. , v. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS

OCCIDENTAL
G.R. No. L-21183 September 27, 1968SANCHEZ, J.
Municipal license tax does not refer solely to a license for regulation.
Facts:
The disputed ordinance was approved by the municipal Council of Victorias by way of an amendment
to two municipal ordinances separately imposing license taxes on operators of sugar centralsand sugar
refineries.The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to
sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual
output capacity. The production of Victorias Milling Co. Inc. comes within these items in the schedule of both
its sugar central and its sugar refinery located in the Municipality of Victorias. It challenged the validity of the
Ordinance before the trial court. The lower court declared the Ordinance void, among others, since the
ordinance in question refers to license taxes or fees, and that it is settled that a license tax should be limited to
the cost of licensing, regulating and surveillance,the trial court ruled that said license taxes in dispute are
unreasonable. Both parties filed an appeal.
Issue:
Whether Ordinance No. 1, series of 1956acts as a revenue measure as opposed to a regulatory power.
Ruling:
Yes. The Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the
exercise of the municipality's regulatory power but as a revenue measure — a tax on occupation or business.
The authority to impose such tax is backed by the express grant of power in Section 1 of Commonwealth Act
472.A municipality is authorized to impose three kinds of licenses: (1) license for regulation of useful
occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises;
and (3) license for revenue. The first two easily fall within the broad police power granted under the general
welfare clause. The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and
yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by
statute upon the municipality. It is so granted under Commonwealth Act 472.
We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not
necessarily connote the idea that the tax is imposed — as the lower court would want it — to mean a revenue
measure in the guise of a license tax. For really, this runs counter to the declared purpose to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to
designate impositions exacted for the exercise of various privileges." It does not refer solely to a license for
regulation. In many instances, it refers to "revenue-raising exactions on privileges or activities." On the other
hand, license fees are commonly called taxes. But, legally speaking, the latter are "for the purpose of raising
revenues," in contrast to the former which are imposed "in the exercise of police power for purposes of
regulation."
______________________________________________________________________________________________________________________________
NATIONAL POWER CORPORATION v. CITY OF CABANATUAN

G.R. No. 149110 April 9, 2003PUNO, J.
Sec. 151 in relation to sec. 137 of the LGC clearly authorizes the City of Cabanatuan to impose on NPC
the franchise tax in question.
Facts:
Pursuant to Sec 37 of Ordinance No. 165-92,the City of Cabanatuan assessed the NPC a franchise tax.
NPC, whose capital stock was subscribed and paid wholly by the Philippine Government, refused to pay the
tax assessment. It argued that the City has no authority to impose tax on government entities. It also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with Sec. 13 of R.A. No. 6395, as amended. The City filed a collection suit in the
RTC. It alleged that petitioner's exemption from local taxes has been repealed by Sec. 193 of R.A. No. 7160.
The trial court dismissed the case and held that the tax exemption privileges granted to petitioner subsist
despite the passage of R.A. No. 7160. The CA reversed the trial court's Orderon the ground that Sec. 193, in
relation to Secs. 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.
Issue:
Whether NPC is liable to pay the assessed tax.
Ruling:
Yes. One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize
the LGUs to impose taxes, fees or charges on the aforementioned entities.
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent
city government to impose on the petitioner the franchise tax in question. In section 131 (m) of the LGC,
Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid
any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is
"a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the
state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income,
but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that
the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the
respondent city government.
______________________________________________________________________________________________________________________________
LUCENA D. DEMAALA v. COMMISSION ON AUDIT, REPRESENTED BY ITS CHAIRPERSON COMMISSIONER

MA. GRACIA M. PULIDO TAN
G.R. No. 199752, February 17, 2015 LEONEN, J.
It was well within the power of the Sangguniang Panlalawigan of Palawan to enact an ordinance
providing for additional levy on real property tax for the special education fund at the rate of 0.5% rather than
at 1%.
Facts:
Sangguniang Panlalawigan of Palawan enacted an ordinance entitled “An Ordinance Approving and
Adopting the Code Governing the Revision of Assessments, Classification and Valuation of Real Properties in
the Province of Palawan.” Chapter 5, Sec. 48 of which provides for an additional levy on real property tax for
the special education fund at the rate of one-half percent or 0.5%. On post-audit, the Audit Team Leader
questioned the levy of the special education fund at the rate of only 0.5% rather than at 1%, the rate stated in
Section 235of the LGC. The Regional Cluster Director held Lucena D. Demaala, the municipal treasurer of
Narra, and all special education fund payors liable for the deficiency in special education fund collections.
Their motions for reconsideration were denied. Series of appeals were made before different tribunals but all
for naught. Hence, this appeal.
Issue:
Whether a municipality within the Metropolitan Manila Area, a city, or a province may have an
additional levy on real property for the special education fund at the rate of less than 1%.
Ruling:
Yes. Setting the rate of the additional levy for the special education fund at less than 1% is within the
taxing power of local government units. It is consistent with the guiding constitutional principle of local
autonomy. Fiscal autonomy entails “the power to create . . . own sources of revenue.” In turn, this power
necessarily entails enabling local government units with the capacity to create revenue sources in accordance
with the realities and contingencies present in their specific contexts. The power to create must mean the local
government units’ power to create what is most appropriate and optimal for them; otherwise, they would be
mere automatons that are turned on and off to perform prearranged operations.
There are, in this case, three (3) considerations that illumine our task of interpretation: (1) the text of
Section 235, which, to reiterate, is cast in permissive language; (2) the seminal purpose of fiscal autonomy;
and (3) the jurisprudentially established preference for weighing the scales in favor of autonomy of local
government units. We find it to be in keeping with harmonizing these considerations to conclude that Section
235’s specified rate of 1% is a maximum rate rather than an immutable edict. Accordingly, it was well within
the power of the Sangguniang Panlalawigan of Palawan to enact an ordinance providing for additional levy on
real property tax for the special education fund at the rate of 0.5% rather than at 1%.
______________________________________________________________________________________________________________________________
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. v. CITY OF DAVAO and ADELAIDA B.
BARCELONA, in her capacity as the City Treasurer of Davao,
G.R. No. 143867 August 22, 2001MENDOZA, J.
In approving §23 of R.A. No. 7925, I does not appear that Congress intended it to operate as a blanket
tax exemption to all telecommunications entities.
Facts:
PLDT applied for a Mayor's Permit to operate its Davao Metro Exchange. City of Davao withheld
action on the application pending payment by PLDT of the local franchise tax. PLDT protested the assessment
of the local franchise tax and requested a refund of the franchise tax paid by it. It contended that it was
exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance
(BLGF), stating that PLDT shall be exempt from the payment of franchise and business taxes imposable by
LGUs under Sections 137 and 193, respectively, of the LGC, upon the effectivity of RA 7925 on March 16,
1995. Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund. And so,
PLDT filed a petition in the RTC of Davao seeking a reversal of City Treasurer's denial of PLDT's protest and
the refund of the franchise tax paid by it for the year 1998.
The trial court denied PLDT's appeal and affirmed the City Treasurer's decision. It ruled that the LGC
withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to
impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.
Issue:
Whether, after the withdrawal of its exemption by virtue of §137 of the LGC, PLDT has again become
entitled to exemption from local franchise tax.
Ruling:
No. The trial court held that, under these (Sec. 137 and 193 of the LGC) provisions, all exemptions
granted to all persons, whether natural and juridical, including those which in the future might be granted,
are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local
taxes. We disagree. Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v.
Edu,where a provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed
by PAL, it was held that a subsequent amendment of PAL's franchise, exempting it from all other taxes except
that imposed by its franchise, again entitled PAL to exemption from the date of the enactment of such
amendment. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting future
grants of exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national
In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as
a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925 cannot be
considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of
local franchise taxes.
______________________________________________________________________________________________________________________________
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. v. CITY OF DAVAO and ADELAIDA B.
BARCELONA, in her capacity as the City Treasurer of Davao,
G.R. No. 143867 August 22, 2001MENDOZA, J.
In approving §23 of R.A. No. 7925, I does not appear that Congress intended it to operate as a blanket
tax exemption to all telecommunications entities.
Facts:
PLDT applied for a Mayor's Permit to operate its Davao Metro Exchange. City of Davao withheld
action on the application pending payment by PLDT of the local franchise tax. PLDT protested the assessment
of the local franchise tax and requested a refund of the franchise tax paid by it. It contended that it was
exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance
(BLGF), stating that PLDT shall be exempt from the payment of franchise and business taxes imposable by
LGUs under Sections 137 and 193, respectively, of the LGC, upon the effectivity of RA 7925 on March 16,
1995. Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund. And so,
PLDT filed a petition in the RTC of Davao seeking a reversal of City Treasurer's denial of PLDT's protest and
the refund of the franchise tax paid by it for the year 1998. The trial court denied PLDT's appeal and affirmed
the City Treasurer's decision. It ruled that the LGC withdrew all tax exemptions previously enjoyed by all
persons and authorized local government units to impose a tax on businesses enjoying a franchise
notwithstanding the grant of tax exemption to them.
Issue:
Whether, after the withdrawal of its exemption by virtue of §137 of the LGC, PLDT has again become
entitled to exemption from local franchise tax.
Ruling:
No. The trial court held that, under these (Sec. 137 and 193 of the LGC) provisions, all exemptions
granted to all persons, whether natural and juridical, including those which in the future might be granted,
are withdrawn unless the law granting the exemption expressly states that the exemption also applies to local
taxes. We disagree. Sec. 137 does not state that it covers future exemptions. In Philippine Airlines, Inc. v.
Edu,where a provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed
by PAL, it was held that a subsequent amendment of PAL's franchise, exempting it from all other taxes except
that imposed by its franchise, again entitled PAL to exemption from the date of the enactment of such
amendment. The Tax Code provision withdrawing the tax exemption was not construed as prohibiting future
grants of exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does
not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national
In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as
a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws
granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925 cannot be
considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of
local franchise taxes.
______________________________________________________________________________________________________________________________
PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION v. THE MUNICIPALITY OF JAGNA,

PROVINCE OF BOHOL
G.R. No. L-24265 December 28, 1979MELENCIO-HERRERA, J.
The storage fee imposed under the question Ordinance is actually a municipal license tax or fee on those
exercising the privilege of storing copra in a bodega within the Municipality's territorial jurisdiction.
Facts:
Procter & Gamble Philippines is engaged in the manufacture of soap, edible oil, margarine and other
similar products, and for this purpose maintains a "bodega" in Municipality of Jagna where it stores copra
purchased in the municipality and therefrom ships the same for its manufacturing and other
operations.Municipal Council of Jagna enacted an ordinance imposing storage fees on all exportable copra
deposited in the bodega within the jurisdiction of their municipality. The said company filed a suit before the
trial court, wherein it prayed that 1) Ordinance No. 4 be declared inapplicable to it, or in the alternative, that
it be pronounced ultra-vires and void for being beyond the power of the Municipality to enact; and 2) that
defendant Municipality be ordered to refund to it the amount of P42,265.13 which it had paid under protest;
and costs. The trial Court upheld the defendant Municipality's power to enact the Ordinance in question
under section 2238 of the Revised Administrative Code, otherwise known as the general welfare clause. It
was argued that the Ordinance is inapplicable to it as it is not engaged in the business or trade of storing
copra for others for compensation or profit and that the only copra it stores is for its exclusive use in
connection with its business as manufacturer; that the levy is intended as an "export tax" as it is collected on
"exportable copra' and, therefore, beyond the power of the Municipality to enact, among others.
Issue:
Whether defendant Municipality was authorized to impose and collect the storage fee.
Ruling:
Yes. A municipality is authorized to impose three kinds of licenses: (1) a license for regulation of
useful occupation or enterprises; (2) license for restriction or regulation of non-useful occupations or
enterprises; and (3) license for revenue. It is thus unnecessary, as plaintiff would have us do, to determine
whether the subject storage fee is a tax for revenue purposes or a license fee to reimburse defendant
Municipality for service of supervision because defendant Municipality is authorized not only to impose a
license fee but also to tax for revenue purposes.The storage fee imposed under the question Ordinance is
actually a municipal license tax or fee on persons, firms and corporations, like plaintiff, exercising the
privilege of storing copra in a bodega within the Municipality's territorial jurisdiction. For the term "license
tax" has not acquired a fixed meaning. It is often used indiscriminately to designate impositions exacted for
the exercise of various privileges. In many instances, it refers to revenue-raising exactions on privileges or
activities. Moreover, the business of buying and selling and storing copra is property the subject of regulation
within the police power granted to municipalities under section 2238 of the Revised Administrative Code or
the "general welfare clause."
______________________________________________________________________________________________________________________________
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY

G.R. No. L-36081 April 24, 1989 FELICIANO, J.
An ordinance carries with it the presumption of validity. The question of reasonableness though is open
to judicial inquiry.
Facts:
Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City as
amended by Ordinance No. 9236, Series of 1972 imposes five percent (5 %) tax on gross receipts on rentals or
lease of space in privately-owned public markets in Quezon City. Progressive Development Corporation, owner
and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the then CFI of Rizal on the ground that
the supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income
which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as
amended. The lower court dismissed the petition, ruling that the questioned imposition is not a tax on
income, but rather a privilege tax or license fee which local governments, like Quezon City, are empowered to
impose and collect.
Issue:
Whether or not the tax imposed by Quezon City on gross receipts of stall rentals is a license tax or fee.
Ruling:
Yes. We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from the national incometax imposed
by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but
rather a license tax or fee for the regulation of the business in which the petitioner is engaged. While it is true
that the amount imposed by the questioned ordinances may be considered in determining whether the
exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it
nevertheless will be presumed to be reasonable. Local governments are allowed wide discretion in
determining the rates of imposable license fees even in cases of purely police power measures, in the absence
of proof as to particular municipal conditions and the nature of the business being taxed as well as other
detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates.
An ordinance carries with it the presumption of validity. The question of reasonableness though is
open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go
slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitory,
arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors
relevant to such an inquiry are the municipal conditions as a whole and the nature of the business made
subject to imposition.
______________________________________________________________________________________________________________________________
ERICSSON TELECOMMUNICATIONS, INC. v. CITY OF PASIG, represented byits City Mayor, Hon. Vicente
P.Eusebio, et al.
G.R. NO. 176667November 22, 2007AUSTRIA-MARTINEZ, J.
Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide
that the tax should be computed based on gross receipts.
Facts:
Ericsson Telecommunications, Inc. was assessed local business tax deficiency for the years 1998 to
2001 based on its gross revenues by the City Treasurer of Pasig City. The company filed protest on both
assessments claiming that the computation of the local business tax should be based on gross receipts and not
on gross revenue. City of Pasigdenied Ericsson’s protests. Consequently, the latter filed a petition for
reviewwith the RTC praying for the annulment and cancellation of petitioners deficiency local business taxes.
The trial court cancelled and set aside the assessments. However, CA set aside the judgment on appeal.
Issue:
Whether the local business tax on contractors should be based on gross receipts.
Ruling:
Yes. In petitioner’s case, its audited financial statements reflect income or revenue which accrued to
it during the taxable period although not yet actually or constructively received or paid. This is because
petitioner uses the accrual method of accounting, where income is reportable when all the events have
occurred that fix the taxpayers right to receive the income, and the amount can be determined with
reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the
amount in gross income. The imposition of local business tax based on petitioners gross revenue will
inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the
same jurisdiction for the same thinginasmuch as petitioners revenue or income for a taxable year will
definitely include its gross receipts already reported during the previous year and for which local business
tax has already been paid.Thus, respondent committed a palpable error when it assessed petitioners local
business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the
Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be
computed based on gross receipts.
______________________________________________________________________________________________________________________________
CAGAYAN ELECTRIC POWER AND LIGHT CO., INC. v. CITY OF CAGAYAN DE ORO
G.R. No. 191761 November 14, 2012CARPIO, J.
CEPALCO’s act of leasing for a consideration the use of its posts, poles or towers to other pole users falls
under the Local Government Code’s definition of business as defined in Sec 131(1) of the LGC.
Facts:
Sangguniang Panlungsod of Cagayan de Oro (City Council) passed Ordinance No. 9503-2005
imposing a tax 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. Cagayan Electric Power and Light Company, Inc. (CEPALCO) was informed of the passage of the
subject ordinance. CEPALCO, purportedly on pure question of law, filed a petition for declaratory relief
assailing the validity of the Ordinance before the RTC on the ground that the tax imposed by the disputed
ordinance is in reality a tax on income which City of Cagayan de Oro may not impose, the same being
expressly prohibited by Section 133(a) of Republic Act No. 7160 (R.A. 7160) otherwise known as the Local
Government Code (LGC) of 1991. CEPALCO argues that, assuming the City Council can enact the assailed
ordinance, it is nevertheless exempt from the imposition by virtue of Republic Act No. 9284 (R.A. 9284)
providing for its franchise. The trial court ruledin favor of the City of Cagayan de Oro. The judgment was
affirmed by the CA.
Issue:
Whether the Ordinance imposes income tax.
Ruling:
No. Unfortunately for CEPALCO, we agree with the ruling of the trial and appellate courts that
Ordinance No. 9503-2005 is a tax on business. CEPALCO’s act of leasing for a consideration the use of its
posts, poles or towers to other pole users falls under the Local Government Code’s definition of business.
Business is defined by Section 131(d) of the Local Government Code as "trade or commercial activity
regularly engaged in as a means of livelihood or with a view to profit." In relation to Section 131(d), Section
143(h) of the Local Government Code provides that the city may impose taxes, fees, and charges on any
business which is not specified in Section 143(a) to (g) and which the sanggunian concerned may deem
proper to tax. The Local Government Code withdrew tax exemption privileges previously given to natural or
juridical persons, and granted local government units the power to impose franchise tax. It is hornbook
doctrine that tax exemptions are strictly construed against the claimant. For this reason, tax exemptions must
be based on clear legal provisions. The separate opinion in PLDT v. City of Davao is applicable to the present
case.
______________________________________________________________________________________________________________________________
PHILIPPINE BASKETBALL ASSOCIATION vs. COURT OF APPEALS, COURT OF TAX APPEALS, AND
G.R. No. 119122 August 8, 2000, J.Purisima
While Section 13 of the Local Tax Code mentions "other places of amusement", professional basketball
games are definitely not within its scope.
Facts:
PBA received an assessment letter from the Commissioner of Internal Revenue (respondent
Commissioner) for the payment of deficiency amusement tax. It contested the assessment by filing a protest
with respondent Commissioner who denied the same. PBA claimed that the national government has no
jurisdiction collect amusement taxes, because it is the local government that has such jurisdiction.
Issue:
Whether or not PBA is correct in claiming that the national government has no jurisdiction to collect
amusement tax.
Ruling:
No. From the foregoing it is clear that the "proprietor, lessee or operator of . . . professional
basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross
receipts to the Bureau of Internal Revenue, which payment is a national tax. The said payment of amusement
tax is in lieu of all other percentage taxes of whatever nature and description.
The foregoing provision of law in point indicates that the province can only impose a tax on
admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and
other places of amusement. The authority to tax professional basketball games is not therein included, as the
same is expressly embraced in PD 1959, which amended PD 1456.
While Section 13 of the Local Tax Code mentions "other places of amusement", professional
basketball games are definitely not within its scope. Under the principle of ejusdem generis, where general
words follow an enumeration of persons or things, by words of a particular and specific meaning, such
general words are not to be construed in their widest extent, but are to be held as applying only to persons or
things of the same kind or class as those specifically mentioned.Thus, in determining the meaning of the
phrase "other places of amusement", one must refer to the prior enumeration of theaters, cinematographs,
concert halls and circuses with artistic expression as their common characteristic. Professional basketball
games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the
latter basically belong to artistic forms of entertainment while the former caters to sports and gaming.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY
DEVELOPMENT CORPORATION
G.R. No. 183505 February 26, 2010, J. Del Castillo
The legislature never intended operators or proprietors of cinema/theatre houses to be covered by VAT.
The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive.
Facts:
SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are
domestic corporations duly organized and existing under the laws of the Republic of the Philippines. Both are
engaged in the business of operating cinema houses. Several Assessment Notices (PAN) for value added tax
(VAT) deficiency on cinema ticket sales were sent to both. They later filed protest contending that gross
receipts derived by operators or proprietors of cinema/theatre houses from admission tickets are not subject
to VAT. CIR on the other hand he maintains that the exhibition of movies by cinema operators or proprietors
to the paying public, being a sale of service, is subject to VAT.
Issue:
Whether or whether the gross receipts derived by operators or proprietors of cinema/theater houses
from admission tickets are subject to VAT.
Ruling:
No. The gross receipts derived by operators or proprietors of cinema/theatre houses from admission
tickets are subject to VAT.The legislature never intended operators or proprietors of cinema/theater houses
to be covered by VAT. The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive. These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991
precisely because the VAT law was intended to replace the percentage tax on certain services. The mere fact
that they are taxed by the local government unit and not by the national government is immaterial.
The Local Tax Code, in transferring the power to tax gross receipts derived by cinema/theater
operators or proprietor from admission tickets to the local government, did not intend to treat
cinema/theater houses as a separate class. No distinction must, therefore, be made between the places of
amusement taxed by the national government and those taxed by the local government.To hold otherwise
would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be
paying an additional 10% VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991,
or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997
would be in a better position than those taxed under the LGC of 1991. We need not belabor that a literal
application of a law must be rejected if it will operate unjustly or lead to absurd results.Thus, we are
convinced that the legislature never intended to include cinema/theater operators or proprietors in the
coverage of VAT.
______________________________________________________________________________________________________________________________
LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary Manuel F. Bruan, LTO
Regional Office, Region X represented by its Regional Director, Timoteo A. Garcia; and LTO Butuan
represented by Rosita G. Sadiaga, its Registrar vs. CITY OF BUTUAN, represented in this case by
Democrito D. Plaza II, City Mayor
G.R. No. 131512 January 20, 2000, J. Vitug
The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs is
the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause
contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the
effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of
licenses for the driving thereof.
Facts:
RTC in Butuan City heldthat the authority to register tricycles, the grant of the corresponding
franchise, the issuance of tricycle drivers' license, and the collection of fees therefor had all been vested in the
Local Government Units ("LGUs"). Accordingly, it decreed the issuance of a permanent writ of injunction
against LTO, prohibiting and enjoining LTO, as well as its employees and other persons acting in its behalf,
from (a) registering tricycles and (b) issuing licenses to drivers of tricycles. The Court of Appeals, on appeal to
it, sustained the trial court.The City of Butuan asserts that one of the salient provisions introduced by the
Local Government Code is in the area of local taxation which allows LGUs to collect registration fees or
charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of
tricycles. LTO explains that one of the functions of the national government that, indeed, has been transferred
to local government units is the franchising authority over tricycles-for-hire of the Land Transportation
Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to register all motor
vehicles and to issue to qualified persons of licenses to drive such vehicles.
Issue:
Whether or not the city of Butuan is correct under premises.
Ruling:
No. The contention of City of Butuan is not correct. Such as can be gleaned from the explicit language
of the statute, as well as the corresponding guidelines issued by DOTC, the newly delegated powers pertain to
the franchising and regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO
relative to the registration of motor vehicles and issuance of licenses for the driving thereof. Clearly
unaffected by the Local Government Code are the powers of LTO under R.A. No. 4136 requiring the
registration of all kinds of motor vehicles "used or operated on or upon any public highway" in the country.
The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs
is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary
clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to
have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles
and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in
nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety
by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R.A.
4136. Not insignificant is the rule that a statute must not be construed in isolation but must be taken in
harmony with the extant body of laws.
The basic aim of police power is public good and welfare. Taxation, in its case, focuses and power of
government to raise revenue in order to support its existence and carry out its legitimate objectives. Although
correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the
other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their
respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1)
indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not
been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the
Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of
tricycles has been provided. Repeal by implication is not favored.
REAL PROPERTY TAXATION
Taxpayer's remedies
MANILA ELECTRIC COMPANY vs.NELIA A. BARLIS, in her capacity as Officer-in-Charge/Acting

Municipal Treasurer of Muntinlupa, substituting EDUARDO A. ALON, former Municipal Treasurer of
Muntinlupa, Metro Manila
G.R. No. 114231 June 29, 2004, J. CALLEJO, SR
Unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial
use and possession of it regardless of whether or not he is the owner.
Facts:
From 1968 to 1972, MERALCO, erected four (4) power generating plants in Sucat, Muntinlupa. To
equip the power plants, various machineries and equipment were purchased both locally and abroad. When
the Real Property Tax Code took effect, MERALCO filed its tax declarations covering the Sucat power plants,
including the buildings thereon as well as the machineries and equipment. In 1976, the Provincial Assessor
found that the market value of the machineries amounted to P41,660,220.00, and its assessed value
at P33,328,380.00. Later, in 1978, the Municipal Assessor assessed the value of the machineries and
equipment at P36,974,610.00. From 1975 to 1978, MERALCO paid the real property taxes on the said
properties on the basis of their assessed value as stated in its tax declarations. In 1978, MERALCO sold all the
power-generating plants including the landsite to the National Power Corporation (NAPOCOR). In 1985, the
Municipal Assessor of Muntinlupa, while reviewing records pertaining to assessment and collection of real
property taxes, discovered, among others, that MERALCO, for the period beginning January 1, 1976 to
December 29, 1978, misdeclared and/or failed to declare for taxation purposes a number of real properties
consisting of several equipment and machineries found in the said power plants. A review of the Deed of Sale
which MERALCO executed in favor of NAPOCOR when it sold the power plants to the latter convinced the
municipal government of Muntinlupa that the true value of the machineries and equipment was
misdeclared/undeclared. The Municipal Assessor of Muntinlupa, on his own, then determined and assessed
the valueof the subject properties for taxation purposes from 1977 to 1978.
Municipal Treasurer of Muntinlupa issued three notices to MERALCO, requesting it to pay the full
amount of the claimed deficiency in the real property taxes covering the machinery and equipment found in
the said power plants. The demands remained unheeded thus Municipal Treasurer issued Warrants of
Garnishmentordering the attachment of MERALCO’s bank deposits PCIB. MERALCO filed before the Regional
Trial Court (RTC) of Makati a Petition for Prohibition with Prayer for Writ of Preliminary Mandatory
Injunction and/or Temporary Restraining Order. It averred that real estate tax is a tax on real property; as
such, any tax delinquency on property should follow the present owner, in this case, the National Power
Corporation.
Issue:
Whether or not MERALCO is liable for delinquency tax.
Ruling:
Yes. The fact that NAPOCOR is the present owner of the Sucat power plant machineries and
equipment does not constitute a legal barrier to the collection of delinquent taxes from the previous owner,
MERALCO, who has defaulted in its payment. In Testate Estate of Concordia T. Lim vs. City of Manila, the Court
held that the unpaid tax attaches to the property and is chargeable against the person who had actual or
beneficial use and possession of it regardless of whether or not he is the owner. In that case, the Court
declared that to impose the real property tax on the subsequent owner which was neither the owner nor the
beneficial user of the property during the designated periods would not only be contrary to law but also
unjust.
______________________________________________________________________________________________________________________________
STA. LUCIA REALTY & DEVELOPMENT, Inc. vs.CITY OF PASIG,MUNICIPALITY OF CAINTA, PROVINCE OF
RIZAL
G.R. No. 166838 June 15, 2011, J. LEONARDO-DE CASTRO
In light of the foregoing, we hold that the Pasig RTC should have held in abeyance the proceedings in
Civil Case No. 65420, in view of the fact that the outcome of the boundary dispute case before the Antipolo RTC
will undeniably affect both Pasig’s and Cainta’s rights. In fact, the only reason Pasig had to file a tax collection
case against Sta. Lucia was not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to
another local government unit. Evidently, had the territorial boundaries of the contending local government
units herein been delineated with accuracy, then there would be no controversy at all.
Facts:
Sta. Lucia is the registered owner of several parcels of land TCT, all of which indicated that the lots
were located in Municipality of Pasig. Later, one parcel of land was consolidated with another which was
situated Cainta. The two combined lots were subsequently partitioned into three, now all bearing the Cainta
address. A commercial building owned by Sta. Lucia East Commercial Center, Inc., a separate corporation,
was built on one of these lots.Subsequently, Cainta filed a petition for the settlement of its land boundary
dispute with Antipolo RTC. Pasig filed a Complaint against Sta. Lucia for the collection of real estate taxes,
including penalties and interests, on the lots covered including the improvements thereon (the subject
properties). Sta. Lucia, in its Answer, alleged that it had been religiously paying its real estate taxes to Cainta,
just like what its predecessors-in-interest did, by virtue of the demands and assessments made and the Tax
Declarations issued by Cainta on the claim that the subject properties were within its territorial jurisdiction.
Sta. Lucia further argued that since 1913, the real estate taxes for the lots covered by the above TCTs had
been paid to Cainta.
Issue:
Whether Sta. Lucia should continue paying its real property taxes to Cainta, as it alleged to have
always done, or to Pasig, as the location stated in Sta. Lucia’s TCTs.
Ruling:
Neither. The Pasig RTC should have held in abeyance the proceedings in Civil Case No. 65420, in view
of the fact that the outcome of the boundary dispute case before the Antipolo RTC will undeniably affect both
Pasig’s and Cainta’s rights. In fact, the only reason Pasig had to file a tax collection case against Sta. Lucia was
not that Sta. Lucia refused to pay, but that Sta. Lucia had already paid, albeit to another local government unit.
Evidently, had the territorial boundaries of the contending local government units herein been delineated
with accuracy, then there would be no controversy at all.In the meantime, to avoid further animosity, Sta.
Lucia is directed to deposit the succeeding real property taxes due on the subject properties, in an escrow
account with the Land Bank of the Philippines.
Although it is true that "Pasig" is the locality stated in the TCTs of the subject properties, both Sta.
Lucia and Cainta aver that the metes and bounds of the subject properties, as they are described in the TCTs,
reveal that they are within Cainta’s boundaries. This only means that there may be a conflict between the
location as stated and the location as technically described in the TCTs. Mere reliance therefore on the face of
the TCTs will not suffice as they can only be conclusive evidence of the subject properties’ locations if both
the stated and described locations point to the same area.
______________________________________________________________________________________________________________________________
CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO, LAGUNA and THE
SANGGUNIANG PANGLUNSOD OF SAN PABLO, LAGUNAvs.HONORABLE BIENVENIDO V. REYES, in his
capacity as Presiding Judge, Regional Trial Court, Branch 29, San Pablo City and the MANILA ELECTRIC
COMPANY
G.R. No. 127708 March 25, 1999, J. GONZAGA-REYES
It is true that the phrase "in lieu of all taxes" found in special franchises has been held in several cases to
exempt the franchise holder from payment of tax on its corporate franchise imposed of the Internal Revenue
Code, as the charter is in the nature of a private contract and the exemption is part of the inducement for the
acceptance of the franchise, and that the imposition of another franchise tax by the local authority would
constitute an impairment of contract between the government and the corporation. But these "magic words"
contained in the phrase "shall be in lieu of all taxes'' have to give way to the peremptory language of the LGC
specifically providing for the withdrawal of such exemption privileges
Facts:
The Sangguniang Panglunsod of San Pablo City enacted Ordinance No. 56, otherwise known as the
Revenue Code of the City of San Pablo. The said aid Ordinance provides: “There is hereby imposed a tax on
business enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the cross annual receipts,
which shall include both cash sales and sales on account realized during the preceding calendar year within
the city.”
Pursuant to this ordinance, the City Treasurer sent to private respondent a letter demanding
payment of the aforesaid franchise tax. The RTC later declared the imposition of a franchise tax under the
Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo as ineffective and void
insofar as the respondent MERALCO is concerned for being violative of Act No. 3648, Republic Act No. 2340
and PD 551. The RTC also granted MERALCO'S claim for refund of franchise taxes paid under
protest.Sangguninag Panglungsod of San Pablo’s position is that RA 7160 (LGC) expressly repealed Act No.
3648, Republic Act No. 2340 and Presidential Decree 551 and that pursuant to the provisions of Sections 137
and 193 of the LGC, the province or city now has the power to impose a franchise tax on a business enjoying a
franchise. It rely on the ruling in the case of Mactan Cebu International Airport Authority vs. Marcos where
the Supreme Court held that the exemption from real property tax granted to Mactan Cebu International
Airport Authority under its charter has been withdrawn upon the effectivity of the LGC.
Issue:
Whether or not whether the City of San Pablo may impose a local franchise tax pursuant to the LGC
upon the Manila Electric Company.
Ruling:
Yes. City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila Electric
Company.It is our view that petitioners correctly rely on the provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO`s tax exemption has been withdrawn. The explicit language of Section
137 which authorizes the province to impose franchise tax "notwithstanding any exemption granted by any
law or other special law" is all-encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.
Sec. 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless
otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons
whether natural or juridical, including government-owned or controlled corporations except 1) local water
districts, 2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and
educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the
exemptions to the three enumerated entities. 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 familiar
maxim expressio untus est exclusio alterius. In the absence of any provision of the Code to the contrary, and
we find no other provision in point, any existing tax exemption or incentive enjoyed by MERALCO under
existing law was clearly intended to be withdrawn.
It is true that the phrase "in lieu of all taxes" found in special franchises has been held in several cases
to exempt the franchise holder from payment of tax on its corporate franchise imposed of the Internal
Revenue Code, as the charter is in the nature of a private contract and the exemption is part of the
inducement for the acceptance of the franchise, and that the imposition of another franchise tax by the local
authority would constitute an impairment of contract between the government and the corporation. But
these "magic words" contained in the phrase "shall be in lieu of all taxes'' have to give way to the peremptory
language of the LGC specifically providing for the withdrawal of such exemption privileges.
______________________________________________________________________________________________________________________________
CALTEX (PHILIPPINES) INC. vs. CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY
G.R. No. L-50466 May 31, 1982, J. Aquino
We hold that the said equipment and machinery, as appurtenances to the gas station building or shed
owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the
gas station, for without them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code.
Facts:
This case is about the realty tax on machinery and equipment installed by Caltex (Philippines) Inc. in
its gas stations located on leased land. The machines and equipment consists of underground tanks, elevated
tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car
hoists, truck hoists, air compressors and tireflators.The machines and equipment are loaned by Caltex to gas
station operators under an appropriate lease agreement or receipt. It is stipulated in the lease contract that
the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when
received, ordinary wear and tear accepted. The city assessor of Pasay City characterized the said items of gas
station equipment and machinery as taxable realty. Caltex invokes the rule that machinery which is movable
in its nature only becomes immobilized when placed in a plant by the owner of the property or plant but not
when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person
acted as the agent of the owner.
Issue:
Whether or not the machines are subject of real property taxation.
Ruling:
Yes. The said equipment and machinery, as appurtenances to the gas station building or shed owned
by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas
station, for without them the gas station would be useless, and which have been attached or affixed
permanently to the gas station site or embedded therein, are taxable improvements and machinery within the
meaning of the Assessment Law and the Real Property Tax Code.
Here, the question is whether the gas station equipment and machinery permanently affixed by
Caltex to its gas station and pavement (which are indubitably taxable realty) should be subject to the realty
tax. This question is different from the issue raised in the Davao Saw Mill case. Improvements on land are
commonly taxed as realty even though for some purposes they might be considered personalty (84 C.J.S. 181-
2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property" (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila Electric Co., 119
Phil. 328, where Meralco's steel towers were considered poles within the meaning of paragraph 9 of its
franchise which exempts its poles from taxation. The steel towers were considered personalty because they
were attached to square metal frames by means of bolts and could be moved from place to place when
unscrewed and dismantled. Nor are Caltex's gas station equipment and machinery the same as tools and
equipment in the repair shop of a bus company which were held to be personal property not subject to realty
tax (Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
______________________________________________________________________________________________________________________________
CITY OF PASIG, REPRESENTED BY THE CITY TREASURER and THE CITY ASSESSOR vs. REPUBLIC OF
THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
G.R. No. 185023 August 24, 2011, J. CARPIO
Only those portions of the properties leased to taxable entities are subject to real estate tax for the
period of such leases.
Facts:
Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land also known as the
“payanig properties” allegedly forming part if the ill-gotten wealth of former President Marcos. In 1986, the
registered owner of MPLDC, Jose Y. Campos (Campos), voluntarily surrendered MPLDC to the Republic of the
Philippines though the PCGG. Later, Pasig City Assessor’s Office sent MPLDC two notices of tax delinquency
for its failure to pay real property tax on the properties for the period 1979 to 2001. Independent Realty
Corporation (IRC) informed the Pasig City Treasurer that the tax for the period 1979 to 1986 had been paid,
and that the properties were exempt from tax beginning 1987.City Treasurer informed MPLDC and IRC that
the properties were not exempt from tax. It later sent to MPLDC a notice of final demand for payment. MPLDC
received two warrants of levy on the properties.
The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG),
filed with the RTC a petition for prohibition with prayer for issuance of a temporary restraining order or writ
of preliminary injunction to enjoin petitioner Pasig City from auctioning the properties and from collecting
real property tax.
Issue:
Whether or not the “payanig properties” are tax-exempt
Ruling:
The petition is partly meritorious. In sum, only those portions of the properties leased to taxable
entities are subject to real estate tax for the period of such leases. Pasig City must, therefore, issue to
respondent new real property tax assessments covering the portions of the properties leased to taxable
entities. If the Republic of the Philippines fails to pay the real property tax on the portions of the properties
leased to taxable entities, then such portions may be sold at public auction to satisfy the tax delinquency.
Even as the Republic of the Philippines is now the owner of the properties in view of the voluntary
surrender of MPLDC by its former registered owner, Campos, to the State, such transfer does not prevent a
third party with a better right from claiming such properties in the proper forum. In the meantime, the
Republic of the Philippines is the presumptive owner of the properties for taxation purposes.
Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the
Philippines are exempt from real property tax "except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." Thus, the portions of the properties not leased to taxable
entities are exempt from real estate tax while the portions of the properties leased to taxable entities are
subject to real estate tax. The law imposes the liability to pay real estate tax on the Republic of the Philippines
for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the
Philippines passes on the real estate tax as part of the rent to the lessees.
In the present case, the parcels of land are not properties of public dominion because they are not
"intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads." Neither are they "intended for some public service or for the development of the
national wealth." MPLDC leases portions of the properties to different business establishments. Thus, the
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.
______________________________________________________________________________________________________________________________
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, v. COURT OF APPEALS, CITY OF

PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
G.R. No. 155650, July 20, 2006, Carpio, J.
The Manila International Airport Authority (MIAA) is not a GOCC. It is a government instrumentality,
and, hence, exempt from payment of real estate taxes.
Facts:
The Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) and administers the land, improvements and equipment therein. In 1997, the Office of the
Government Corporate Counsel (OGCC) issued an opinion, saying that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Sec. 21 of the MIAA Charters. MIAA
received notices of real estate tax delinquency, and later on, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer
for preliminary injunction or temporary restraining order. The petition sought to restrain the City of
Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands
and Buildings. MIAA contended that Sec. 21 of its charter specifically exempts MIAA from real estate tax and
that it is also exempted under 193the Local Government Code, because the Airport Lands and Buildigs are
owned by the Republic. The City invoked Sec. 193 of the Local Government Code, which expressly withdrew
the tax exemption privileges of government-owned and-controlled corporations (GOCC) upon the effectivity
of the Local Government Code.
Issue:
Whether or not MIAA is exempt from real estate tax.
Ruling:
Yes. Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause
in Section 133 stating "[u]nless otherwise provided in this Code." This exception — which is an exception to
the exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a)
of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic,
whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if
the beneficial use of such property is given to a taxable entity.
In the first place, MIAA is not a GOCC, because it is neither a stock nor a non-stock corporation.
Rather, it is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA
is vested with corporate powers. Also, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public dominion are owned by the State
or the Republic under Art. 420 of the Civil Code.
Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a
taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real property leased becomes subject to real estate tax.
Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
______________________________________________________________________________________________________________________________
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (PFDA) vs. CENTRAL BOARD OF ASSESSMENT

APPEALS, LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY, CITY OF LUCENA, LUCENA CITY
ASSESSOR AND LUCENA CITY TREASURER
G.R. No. 178030 December 15, 2010, J. Carpio
The Authority is actually a national government instrumentality which is defined as an agency of the
national government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.
Facts:
Lucena Fishing Port Complex (LFPC) is one of the fishery infrastructure projects undertaken by the
National Government under the Nationwide Fish Port-PackageThe Philippine Fisheries Development
Authority (PFDA) was created by virtue of P.D. 977 with functions and powers to manage, operate, and
develop the Navotas Fishing Port Complex and such other fishing port complexes that may be established by
the Authority. Pursuant thereto, PFDA took over the management and operation of LFPC. Later City
Government of Lucena demanded payment of realty taxes on the LFPC property. It claimed that the PFDA is a
government-owned or controlled corporation, and is therefore subject to the real property tax imposed by
local government units pursuant to Section 232 in relation to Sections 193 and 234 of the Local Government
Code.
Issue:
Whether or not PFDA is a government owned and controlled corporation, accordingly, not exempt
from real property tax payment.
Ruling:
No. PFDA is not a but an instrumentality of the government. The Authority has a capital stock but it is
not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence it is not a stock
corporation. Neither is it a non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as an agency of the
national government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. When the law vests in a government instrumentality
corporate powers, the instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.
In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals,the Court resolved
the issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the
national government. In that case, the City of Iloilo assessed real property taxes on the Iloilo Fishing Port
Complex (IFPC), which was managed and operated by PFDA. The Court held that PFDA is an instrumentality
of the government and is thus exempt from the payment of real property tax.
______________________________________________________________________________________________________________________________
FELS ENERGY, INC. vs. THE PROVINCE OF BATANGAS andTHE OFFICE OF THE PROVINCIAL ASSESSOR
OF BATANGAS
G.R. No. 168557 February 16, 2007
NATIONAL POWER CORPORATION vs. LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO
C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor
G.R. No. 170628 February 16, 2007 J. Carpio
Power barges are real property that can be subjected to real property taxation.
Facts:
NPC entered into a lease contract with Polar Energy, The contract was for a period of five years.
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. Art. 10 of the said
agreement provides: “NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees,
charges and other levies imposed by the National Government of the Republic of the Philippines or any
agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal Income Taxes of its employees.” FELS received an assessment
of real property taxes on the power barges from Provincial Assessor of Batangas City. FELS referred the
matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC
the full power and authority to represent it in any conference regarding the real property assessment of the
Provincial Assessor. The Provincial Assessor averred that the barges were real property for purposes of
taxation under THE LGC.
Issue:
Whether or not the power barges are real property and are thus subject to real property tax.
Ruling:
Yes. In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a power
company brought an action to review property tax assessment. On the city’s motion to dismiss, the Supreme
Court of New York held that the barges on which were mounted gas turbine power plants designated to
generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to real property taxation.
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under
Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a
government- owned and controlled corporation engaged in the supply, generation, and transmission of
electric power. We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. Time and again, the Supreme
Court has stated that taxation is the rule and exemption is the exception.The law does not look with favor on
tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be
mistaken and too categorical to be misinterpreted.Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we
hold that FELS is considered a taxable entity.
______________________________________________________________________________________________________________________________

Facts:
Issue:
Ruling:
______________________________________________________________________________________________________________________________
ESTATE OF THE LATER MERCEDES JACOBvs. CA, et al.

G.R. No. 120435, December 22, 1997,Bellosillo, J.
CITY TREASURER OF QUEZON CITY vs. CA AND BERNARDITA TOLENTINO
G.R. No. 120974, December 22, 1997,Bellosillo, J.
The notification to the right person, i.e., the real owner, is an essential and indispensable requirement of
the law, non-compliance with which renders the auction sale void.
Facts:
Alberto Sta. Maria owned a parcel of land which he sold to Teresa Valencia who had the title
cancelled and a new TCT issued in her name but failed to have the tax declaration transferred in her name.
She paid the real estate taxes in the name of Sta. Maria. Valencia entered into a contract of sale of the property
on installment with a mortgage in favor of Bernardita Tolentino. However, from 1979 to 1983 Valencia failed
to pay the real estate taxes due. Notices of tax delinquency and intent to sell the property were sent to Sta.
Maria's address. In the auction sale, Spouses Chua bought the land in question. A certificate of sale was issued
to the Chuas but it showed on its face that the land was still covered by the old TCT. The Office of the City
Treasurer was unaware that it had already been canceled. In the Final Bill of Sale issued to the Chuas the TCT
still appeared in the name of Sta. Maria so the Chuas filed for the cancellation of the TCT and issuance of a
new title in their name which was granted. In the meantime, Tolentino paid in full the purchase price of the
property so that Valencia executed a deed of absolute sale in her favor. In view of the fire that gutted the
Office of the Register of Deeds of Quezon City, Tolentino filed a petition for reconstitution of the TCT. The
Chuas demanded delivery of possession from Tolentino and Valencia. Tolentino sued for annulment of the
auction sale which was granted and was affirmed by the CA.
Issue:
Whether or not the auction sale is valid?
Ruling:
No. In ascertaining the identity of the delinquent taxpayer, for purposes of notifying him of his tax
delinquency and the prospect of a distraint and auction of his delinquent property, City Treasurer should not
have simply relied on the tax declaration. The property being covered by the Torrens system, it would have
been more prudent for him, which was not difficult to do, to verify from the Office of the Register of Deeds of
Quezon City where the property is situated and as to who the registered owner was at the time the auction
sale was to take place, to determine who the real delinquent taxpayer was within the purview of the third
paragraph of Sec. 73. For one who is no longer the lawful owner of the land cannot be considered the "present
registered owner" because, apparently, he has already lost interest in the property, hence is not expected to
defend the property from the sale at auction. The purpose of PD No. 464 is to collect taxes from the
delinquent taxpayer and, logically, one who is no longer the owner of the property cannot be considered the
delinquent taxpayer.
It is therefore clear that the delinquent taxpayer referred to under Sec. 72 of PD No. 464 is the actual
owner of the property at the time of the delinquency and mere compliance by the provincial or city treasurer
with Sec. 65 of the decree is no longer enough. The notification to the right person, i.e., the real owner, is an
essential and indispensable requirement of the law, non-compliance with which renders the auction sale void.
______________________________________________________________________________________________________________________________
NATIONAL POWER CORPORATION vs. PROVINCE OF ISABELA

G.R. No. 165827, June 16, 2006, Callejo, Sr., J.
LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, but this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs
to impose taxes, fees or charges on the aforementioned entities.
Facts:
Province of Isabela filed an action for sum of money against NPC, a GOCC engaged in the generation
and sale of electric power. The Province of Isabela alleged that NPC's Magat River Hydro-Electric Plant is
located within its territory and that, for this reason, it imposed a franchise tax on NPC pursuant to Section
137 of the LGC. It averred that NPC paid the franchise tax for the years 1992 and 1993 but failed and refused
to pay for the year 1994. NPC averred that the Hydro-Electric Plant is constructed on the land owned by the
NIA situated at Ifugao. It admitted that it paid franchise tax to Isabela only upon its representation that the
plant is located within its territorial jurisdiction. It alleged that, due to the boundary dispute between Isabela
and Ifugao, it is in a quandary as to whom it should pay the franchise tax. The Province of Ifugao filed a
Complaint-in-Intervention claiming that the Hydro-Electric Power Plant is subject to franchise tax being
situated within its territory. All the principal structures of the power plant are within its jurisdiction; only
those incidental structures which have nothing to do with the production of hydroelectric power are located
within the respondent's territory. It maintained that Isabela has no legal basis to assert a claim over the
franchise tax over the power plant. NPC asserts that it is a non-profit corporation pursuant to Section 13 of
Rep. Act No. 6395; as such, it is not covered by the LGC, and therefore not obliged to pay franchise tax.
Issue:
Whether or not NPC is subject to franchise tax under the LGC?
Ruling:
Yes. The case is on all fours with the case of National Power Corporation v. City of Cabanatuan(449
Phil. 233, 2003), where this very same issue was settled by the Court where petitioner likewise refused to pay
franchise tax to the City of Cabanatuan by invoking the tax exemption provided under its charter. The Court,
however, declared that petitioner is not exempt from paying franchise tax. Indeed, taxation is the rule and
exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in
fact, covered by the exemption so claimed. Tax exemptions should be granted only by clear and unequivocal
provision of law on the basis of language too plain to be mistaken. They cannot be extended by mere
implication or inference. In this case, petitioner relies solely on the exemption granted to it by its charter,
arguing that its exemption from franchise tax remained despite the enactment of the LGC.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions
of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. Section 137 of
the LGC is one of those exceptions. It authorizes the province to impose a tax on business enjoying a franchise,
at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
______________________________________________________________________________________________________________________________
THE CITY GOVERNMENT OF QUEZON CITY, et al., vs. BAYAN TELECOMMUNICATIONS INC.
G.R. No. 162015, March 6, 2006, Garcia, J.
While the system of local government taxation has changed with the onset of the 1987 Constitution, the
power of local government units to tax is still limited.
Facts:
Bayantel is a legislative franchise holder under R.A. 3259. Under Section 14 of R.A. 3259, it states that
“The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive
of the franchise, as other persons or corporations are now or hereafter may be required by law to pay.” After
the LGC took effect, Congress enacted R.A. 7633, amending Bayantel's original franchise stating that “The
grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be
required by law to pay.” Bayantel owned real properties on which it maintained various telecommunications
facilities within Quezon City. The government of QC enacted the Quezon City Revenue Codeimposing real
property tax on all real properties in QC and reiterating the withdrawal of exemption from real property tax
under Section 234 of the LGC. Hence, new tax declarations for Bayantel's real properties in QC were issued by
the City Assessor. Meanwhile, the Public Telecommunications Policy Act of the Philippines envisaged to level
the playing field among telecommunications companies, took effect. Bayantel sought the exclusion of its real
properties but was denied. Bayantel appealed and did not pay the real property taxes. The city treasurer sent
out notices of delinquency and issuance of warrants of levy against Bayantel's properties preparatory to their
sale at a public auction. Hence, Bayantel filed a petition for prohibition with an urgent application for a TRO
and/or writ of preliminary injunction which was granted. The court also declared that Bayantel’s properties
are exempt.
Issue:
Whether or not Bayantel’s properties in Quezon City are exempt from real property tax?
Ruling:
Yes. While the system of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu
International Airport Authority (261 SCRA 667, 1996): “The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely be virtue of a
valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as
the Congress may provide which, however, must be consistent with the basic policy of local
autonomy.”Admittedly, R.A. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has
already withdrawn Bayantel's former exemption from realty taxes, Congress opted to pass R.A. 7633 using,
under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise" which was the basis for
Bayantel's exemption from realty taxes prior to the LGC. The Court views this subsequent piece of legislation
as an express and real intention on the part of Congress to once again remove from the LGC's delegated taxing
power, all of the franchisee's properties that are actually, directly and exclusively used in the pursuit of its
franchise.
______________________________________________________________________________________________________________________________
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC. vs. JESSIE CANTOS

G.R. No. 180200, November 25, 2013, Del Castillo, J.
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a
specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden.
Facts:
By virtue of R.A. 7678, Digital Telecommunications (Digitel) was granted a legislative franchise to
install, operate and maintain telecommunications systems. Upon seeking the renewal of its Mayor’s Permit in
Balayan, Batangas, Digitel was informed by Mayor Martinez, Jr. that its business operation would be
restrained should it fail to pay the assessed real property taxes. Digitel failed to pay so the Chief of the Permit
and License Division issued a Cease and Desist Order enjoining Digitel from further operating its business.
Digitel filed a case for annulment of the order. The court ruled in favor of Digitel. It held that the enjoinment
of Digitel’s business operation is not one of the remedies available to enforce collection of real property taxes
under existing laws and that Digitel is only liable to pay real property taxes on properties not used in
connection with the operation of its franchise relying on Section 5 of R.A. 7678. The mayor appealed but was
dismissed by the CA which became final and executor. Cantos, the provincial treasurer, issued warrants of
levy certifying that several real properties of Digitel in Batangas are delinquent in the payment of real
property taxes. Hence, the properties would be advertised and sold at public auction. Digitelrequested the
lifting of the warrants of levy and to refrain from proceeding with the public sale of its property. It invoked
the final decision decreeing Digitel’s exemption from the payment of real property tax which it claimed to be
binding. But since the warrants remained unlifted, Digitel filed with a Petition for Indirect Contempt and
Prohibition with prayer for the issuance of a TRO.
Issue:
Whether or not the properties of Digitel are exempt from real property tax?
Ruling:
No. In the later case of Digital Telecommunications Philippines, Inc. v. City Government of Batangas
(G.R. No. 156040, December 11, 2008), the Court en banc speaking thru Justice Carpio pronounced: “Nowhere
in the language of the first sentence of Section 5 of RA 7678 does it expressly or even impliedly provide that
petitioner’s real properties that are actually, directly and exclusively used in its telecommunications business
are exempt from payment of realty tax. On the contrary, the first sentence of Section 5 specifically states that
the petitioner, as the franchisee, shall pay the ‘same taxes on its real estate, buildings, and personal property
exclusive of this franchise as other persons or corporations are now or hereafter may be required by law to
pay.The heading of Section 5 is ‘Tax Provisions,’ not Tax Exemptions. To reiterate, the phrase ‘exemption from
real estate tax’ or other words conveying exemption from realty tax do not appear in the first sentence of
Section 5. Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to
a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common
burden. Any doubt whether a tax exemption exists is resolved against the taxpayer.” As things now stand,
petitioner’s real properties, whether used in the furtherance of its franchise or not, are subject to real
property tax. Hence, its reliance on the rulings in Civil Case No. 3514 and Digital Telecommunications
Philippines, Inc. v. Province of Pangasinan becomes unavailing.
______________________________________________________________________________________________________________________________
ANGELES UNIVERSITY FOUNDATION vs. CITY OF ANGELES, et al.

G.R. No. 189999, June 27, 2012, Villarama, Jr., J.
In order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal
proof, that it is a charitable institution and its real properties are actually, directly and exclusively used for
charitable purposes.
Facts:
Angeles University Foundation (AUF) is a non-stock, non-profit education foundation which filed an
application for a building permit for the construction of the AUF Medical Center. The city requiredAUF to pay
for building permit and locational clearance fee but AUF claimed that it is exempt. Justice Secretary Gonzalez
declared AUF to be exempt from the payment of building permit fees. AUF wrote the respondents requesting
to reverse the disputed assessments. Despite AUF’s plea, respondents refused to issue the building permits
for the construction of the AUF Medical Center and renovation of a school building in Marisol Village. AUF
paid under protest which later requested the respondents to refund the fees but was denied. Hence, AUF filed
a complaint seeking to refund the fees it paid before the court. The respondents asserted that the claim of
AUF cannot be granted because its structures are not among those mentioned in the National Building
Code as exempted from the building permit fee. As to the real property taxes imposed on AUF’s property
located in Marisol Village, respondents pointed out that said premises will be used as a school dormitory
which cannot be considered as a use exclusively for educational activities.
Issue:
Whether or not the parcel of land which has been assessed for real property tax is exempt?
Ruling:
No. In Lung Center of the Philippines v. Quezon City(G.R. No. 144104, June 29, 2004), this Court
held that only portions of the hospital actually, directly and exclusively used for charitable purposes are
exempt from real property taxes, while those portions leased to private entities and individuals are not
exempt from such taxes. We explained the condition for the tax exemption privilege of charitable and
educational institutions, as follows: “Under the 1973 and 1987 Constitutions and R.A. 7160 in order to be
entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is determinative of whether
the property is used for tax-exempt purposes.”
Petitioner failed to discharge its burden to prove that its real property is actually, directly and
exclusively used for educational purposes. While there is no allegation or proof that petitioner leases the land
to its present occupants, still there is no compliance with the constitutional and statutory requirement that
said real property is actually, directly and exclusively used for educational purposes. The respondents
correctly assessed the land for real property taxes for the taxable period during which the land is not being
devoted solely to petitioner’s educational activities. Accordingly, the CA did not err in ruling that petitioner is
likewise not entitled to a refund of the real property tax it paid under protest.
______________________________________________________________________________________________________________________________
SPOUSES RAMON AND ROSITA TAN vs. GORGONIA BANTEGUI, et al.

G.R. No. 154027, October 24, 2005, Panganiban, J.
The auction sale of real property for the collection of delinquent taxes is in personam. Publication of the
notice of delinquency will not suffice, considering that the procedure in tax sales is in personam.
Facts:
Bantegui acquired the questioned property and rented it to the Caedos. She executed her SPA,
making Bautista her representative and went to USA. Her taxes on the property were paid but only until 1977
but not as to the years 1978 to 1983. For failure to pay the taxes, the Quezon City treasurer sold said property
at public auction to the Capistranos. Since the property was not redeemed, title to said property was
consolidated to the Capistranos. The Capistranos did not take possession of the land or inform the Caedos
about the sale or collected any rent from them and did not also pay real property taxes. The property was
sold to the Pereyras, who mortgaged it to the Rural Bank of Imus. These transfers were unknown to Bantegui
and the Caedos. Later, Bantegui applied for administrative reconstitution of her title as it was lost in a fire
which title was subsequently issued in her name. She paid the realty taxes on the subject property for the
years 1987 to 1989 but the city treasurer refused to accept her payment for 1990. Meanwhile, said property
was again sold by the Pereyras to the Tans who paid for the release of the mortgage and overdue taxes. The
Tans through their lawyer, informed the Caedos of their ownership over the property and demanded that the
Caedos vacate the property. They filed an action for ejectment against the Caedos which the Court ruled in
favor of the Tans. The Caedos appealed which was remanded and for failure of the Caedos to appear during
the hearing of the case, they were declared in default and were ejected from the property. Bantegui, thru
Bautista, and joined by the Caedos, filed a Complaint for Annulment of Sale, Quieting of Title, Injunction and
Damages.
Issue:
Whether or not the auction sale was valid?
Ruling:
No. The tax sale did not conform to the requirements prescribed under the Real Property Tax Code.
No notice of delinquency or of sale was given to either Gorgonia Bantegui, the delinquent owner; or to her
representative. The auction sale of real property for the collection of delinquent taxes is in personam, not in
rem. Although sufficient in proceedings in rem like land registration, mere notice by publication will not
satisfy the requirements of proceedings in personam. "Publication of the notice of delinquency will not suffice,
considering that the procedure in tax sales is in personam." It is still incumbent upon the city treasurer to
send the notice directly to the taxpayer -- the registered owner of the property -- in order to protect the
latter's interests. Although preceded by proper advertisement and publication, an auction sale is void absent
an actual notice to a delinquent taxpayer. The sale of land "for tax delinquency is in derogation of property
rights and due process; the prescribed steps must be followed strictly."In the present case, notices either of
delinquency or of sale were not given to the delinquent taxpayer. Those notices are mandatory, and failure to
issue them invalidates a sale. Because it was clearly in contravention of the requirements under the law and
jurisprudence, the subsequent sale of the real property did not make its purchaser the new owner.
______________________________________________________________________________________________________________________________
C. N. HODGES vs. THE MUNICIPAL BOARD OF THE CITY OF ILOILO, et al.

G.R. No. L-18276, January 12, 1967, Ruiz Castro, J.
The doctrine that the grant of the power to tax to chartered cities under section 2 of the Local
Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject
only to the limitation that the tax so levied is for "public purposes, just and uniform."
Facts:
Invoking the Local Autonomy Act, the municipal board of the City of Iloilo enacted "An Ordinance
Imposing Municipal Tax On The Sale of Real Property Situated In The City of Iloilo", which ordains that "Any
person, firm, association or corporation who shall sell real property situated in the City of Iloilo shall pay a
real property sales tax of 1/2 of 1% of the contract price and/or consideration before such sale could be
registered and the ownership thereof transferred in the Office of the Register of Deeds of Iloilo." C. N. Hodges
was engaged in the business of buying and selling real estate in the city and the province of Iloilo, stood to be
subjected to the tax thus imposed. Contending that the ordinance was beyond the corporate powers of the
Iloilo City, he filed, prior to the effectivity date of the ordinance, an action for declaratory relief to test its
validity. After the ordinance became effective, Hodges paid the taxes imposed under the authority upon sales
of real estate made by him. The respondents justified the enactment of the ordinance in the city charter and
also upon the authority vested in the city the Local Autonomy Act.
Issue:
Whether or not the enactment of the ordinance is within themunicipal board’s powers?
Ruling:
Yes. The doctrine that the grant of the power to tax to chartered cities under section 2 of the Local
Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned" therein,
subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining
Company vs. Municipality of Roxas, Province of Palawan, G.R. L-20125, July 20, 1965). There is no showing, and
we do not believe it is possible to show, that the tax levied, called by any name - percentage tax or sales tax -
comes under any of the specific exceptions listed in section 2 of the Local Autonomy Act. Not being excepted,
it must be regarded as coming within the purview of the general rule. Since its public purpose, justness and
uniformity of application are not disputed, the tax so levied must be sustained as valid.
On all fours to the case at bar is C.N. Hodges vs. The Municipal Board of the City of Iloilo, et al., G.R.
18129, January 31, 1963, which, significantly enough, not only involved the same parties but as well
concerned another ordinance of the appellant City. Upholding the validity thereof and affirming the
corporate power of the appellant City to enact the same, this Court made the following pronouncements:“It
would appear that the City of Iloilo, thru its municipal board, is empowered (a) to impose municipal licenses,
taxes or fees upon any person engaged in any occupation or business, or exercising any privilege, in the city;
(b) to regulate and impose reasonable fees for services rendered in connection with any business, profession
or occupation conducted within the city; and (c) to levy for public purposes just and uniform taxes, licenses
and fees. It would also appear that municipalities and municipal districts are prohibited from imposing any
percentage tax on sales, or other taxes in any form on articles subject to specific tax, except gasoline, under
the provisions of the NIRC.”
______________________________________________________________________________________________________________________________
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY AND CONSTANTINO ROSAS
G.R. No. 144104, June 29, 2004, Callejo, Sr., J.
In order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real properties are actually, directly and exclusivelyused
for charitable purposes.
Facts:
Both the land and the hospital building of the Lung Center were assessed for real property taxes by
the City Assessor of Quezon City. Later, Lung Center filed a Claim for Exemption from real property taxes
based on its claim that it is a charitable institution. The request was denied, and a petition was filed before the
Local Board of Assessment Appeals of Quezon City (QC-LBAA) for the reversal of the resolution of the City
Assessor. Lung Center alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is
exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used
for charity patients and that the major thrust of its hospital operation is to serve charity patients. Moreover, it
is a charitable institution and as such is exempt from real property taxes. The QC-LBAA rendered judgment
dismissing the petition and holding the petitioner liable for real property taxes. It was affirmed on appeal by
the Central Board of Assessment Appeals of Quezon City (CBAA) which ruled that Lung Center was not a
charitable institution and that its real properties were not actually, directly and exclusively used for
charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the
law. The CA rendered judgment affirming CBAA.
Issue:
Whether or not the real properties of Lung Center are exempt from real property tax?
Ruling:
Yes but only to the portions of the land occupied by the hospital and portions of the hospital used for
its patients, whether paying or non-paying, are exempt from real property taxes. The portions of the land
leased to private entities as well as those parts of the hospital leased to private individuals are not exempt
from such taxes. Those portions of its real property that are leased to private entities are not exempt from
real property taxes as these are not actually, directly and exclusively used for charitable purposes.
Under the 1973 and 1987 Constitutions and R.A. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b)
its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is
defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and
“exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used
for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to
taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively”
without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.What is meant
by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and
actual application of the property itself to the purposes for which the charitable institution is organized. It is
not the use of the income from the real property that is determinative of whether the property is used for tax-
exempt purposes.
______________________________________________________________________________________________________________________________
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY v. CITY

OF PARANAQUE
G.R. No. 191109, July 18, 2012, Mendoza, J.
[R]eal property owned by the Republic of the Philippines is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person.
Facts:
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Paranaque City. Then Paranaque City Treasurer Liberato Carabeo
issued a Warrant of Levy on PRA’s reclaimed properties located in Paranaque based on the assessment for
delinquent real property taxes made for tax years 2001 and 2002. On August 3, 2009, after an exchange of
several pleadings and the failure of both parties to arrive at a compromise agreement, PRA filed a Motion for
Leave to File and Admit Attached Supplemental Petition which sought to declare as null and void the
assessment for real property taxes, the levy based on the said assessment, the public auction sale conducted,
and the Certificates of Sale issued pursuant to the auction sale.On January 8, 2010, the RTC rendered its
decision dismissing PRA’s petition, ruling that PRA was not exempt from payment of real property taxes
because it was a GOCC under Section 3 of PD No. 1084. Therefore, as a GOCC, local tax exemption is
withdrawn by virtue of Section 193 of R.A. No. 7160 Local Government Code (LGC) which was the prevailing
law in 2001 and 2002 with respect to real property taxation.
Issue:
Whether or not the trial court gravely erred in finding that petitioner is liable to pay real property tax
on the subject reclaimed lands consideringthat petitioner is an incorporated instrumentality of the national
government and is, therefore, exempt from payment of real property tax.
Ruling:
YES, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value shares as
provided in Section 7 of P.D. No. 1084, it is not authorized to distribute dividends, surplus allotments or
profits to stockholders.PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members. Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage all
government reclamation projects.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA.
On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts PRA from paying
realty taxes and protects it from the taxing powers of LGUs.It is clear from Section 234 that real property
owned by the Republic of the Philippines is exempt from real property tax unless the beneficial use thereof
has been granted to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no showing on record either that PRA leased the subject
reclaimed properties to a private taxable entity.
______________________________________________________________________________________________________________________________
ALLIED BANKING CORPORATION, as trustee for the trust fund of COLLEGE ASSURANCE PLAN
PHILIPPINES, INC. (CAP) v. THE QUEZON CITY GOVERNMENT, THE QUEZON CITY TREASURER, THE
QUEZON CITY ASSESSOR AND THE CITY MAYOR OF QUEZON CITY
G.R. No. 154126, October 11, 2005, Carpio Morales, J.
The proviso directing that the real property tax be based on the actual amount reflected in the deed of
conveyance or the prevailing BIR zonal value is invalid not only because it mandates an exclusive rule in
determining the fair market value but more so because it departs from the established procedures stated in the
Local Assessment Regulations No. 1-92 and unduly interferes with the duties statutorily placed upon the
local assessor by completely dispensing with his analysis and discretion which the Code and the regulations
require to be exercised.
Facts:
On July 1, 1998, Allied Banking, as trustee for CAP purchased from Liwanag Natividad a parcel of land
in the amount of P38 million. Prior to the sale, Natividad et al had been paying the annual real property tax
based on the property’s fair market value of P4.5 million and assessed value of P1.8 million under a tax
declaration. After acquisition of the property, petitioner was required to pay P102, 600 as quarterly real
estate tax pegged at the market value of P38 million which was the consideration appearing on the Deed of
Absolute Sale. Petitioner paid the same under protest, assailing the Quezon City ordinance enacted on
December 1995 whereby the City Assessor shall undertake a general revision of real property assessments
using as basis a newly approved schedule and providing that “parcels of land, sold x x x after the effectivity of
this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance
or the current approved zonal value of the BIR, whichever is higher.” Petitioner assailed Section 3 of the
ordinance for being violative of the equal protection clause and uniformity taxation clauses.
Issue:
Whether or not section 3, Quezon City ordinance no. 357, series of 1995, is a valid law.
Ruling:
NO. This Court holds that the proviso in question is invalid as it adopts a method of assessment or
appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations
and the Local Assessment Regulations No. 1-92 issued by the Department of Finance. Under these
immediately stated authorities, real properties shall be appraised at the current and fair market value
prevailing in the locality where the property is situated and classified for assessment purposes on the basis of
its actual use.
Using the consideration appearing in the deed of conveyance to assess or appraise real properties is
not only illegal since the appraisal, assessment, levy and collection of real property tax shall not be let to any
private person, but it will completely destroy the fundamental principle in real property taxation that real
property shall be classified, valued and assessed on the basis of its actual use regardless of where located,
whoever owns it, and whoever uses it. Necessarily, allowing the parties to a private sale to dictate the fair
market value of the property will dispense with the distinctions of actual use stated in the Code and in the
regulations.The proviso must be stricken down for being contrary to public policy and for restraining trade.
______________________________________________________________________________________________________________________________
JOSE B. L. REYES and EDMUNDO REYES v. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE RONO, in
their capacities as appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his
capacity as City Assessor of Manila
G.R. Nos. L-49839-46, April 26, 1991, Paras, J.
Assessors, in finding the value of the property, have to consider all the circumstances and elements of
value and must exercise a prudent discretion in reaching conclusions.
Facts:
Petitioners are the owners of parcels of land which are leased and entirely occupied as dwelling sites
by tenants who are paying monthly rentals not exceeding P300.00. RA 6359 was enacted, prohibiting for one
year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which another's
dwelling is located, where such rentals do not exceed three hundred pesos a month but allowing an increase
in rent by not more than 10% thereafter. In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision entailed an increase in the corresponding tax rates prompting petitioners
to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the
reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used in determining the land values
instead of the comparable sales approach which the City Assessor adopted.
Issue:
Whether or not the honourable board erred in adopting the “comparable sales approach” method in
fixing the assessed value of appellants’ properties.
Ruling:
YES. The crux of the matter is in the method used in tax assessment of the properties in question.
Petitioners maintain that the “income approach” would have been more realistic while respondent Board of
Tax Appeals opted the comparable sales approach. It is unquestionable that both the "Comparable Sales
Approach" and the "Income Approach" are generally acceptable methods of appraisal for taxation purposes.
However, it is conceded that the propriety of one as against the other would of course depend on several
factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad(44 Phil. 383),
it has been stressed that the assessors, in finding the value of the property, have to consider all the
circumstances and elements of value and must exercise a prudent discretion in reaching conclusions.Under
the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle to guide
the appraisal and assessment of real property for taxation purposes is that the property must be "appraised
at its current and fair market value."
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents, namely: (1)
that the sale must represent a bonafide arm's length transaction between a willing seller and a willing buyer
and (2) the property must be comparable property. Nothing can justify or support their view as it is of judicial
notice that for properties covered by P.D. 20 especially during the time in question, there were hardly any
willing buyers.
Government and Taxpayer's Remedy in Local Taxation
SPOUSES SILVESTRE O. PLAZA AND ELENA Y. PLAZA v. GUILLERMO LUSTIVA, ELEODORA VDA. DE
MARTINEZ, AND VICKY SAYSON GOLOSENO
G.R. No. 172909, March 5, 2014, Brion, J.
The law authorizes the local government unit to purchase the auctioned property only in instances
where "there is no bidder" or "the highest bid is xxx insufficient."
Facts:
Among the five Plaza siblings, Barbara was adjudged by the CA as the owner of the subject
agricultural land. Barbara’s successors, respondents in this case, thus continued occupying the property.
Petitioners, who are the son and daughter-n-law of one of Barbara’s sibling filed a complaint for injunction
and/or TRO against respondents and the City Government of Butuan. They prayed that the respondents be
enjoined from unlawfully and illegally threatening to take possession of the subject property. According to
the petitioners, they acquired the land from Virginia Tuazon in 1997; Tuazon was the sole bidder and winner
in a tax delinquency sale conducted by the City of Butuan on December 27, 1996. In their answer, the
respondents pointed out that they were never delinquent in paying the land taxes and were in fact not aware
that their property had been offered for public auction and that Tuazon is a government employee who is
disqualified to bid in the public auction as provided under the LGC and such sale, if ever there was, is void.
Issue:
1. Whether or not Section 181 applies in the case at bar.

2. Whether or not, in instances where real property is sold due to delinquent real property taxes,
deposit is necessary before its validity may be assailed.
Ruling:
1. NO. The petitioners may not invoke Section 181 of the Local Government Code of 1991 to validate
their alleged title. The law authorizes the local government unit to purchase the auctioned property only in
instances where "there is no bidder" or "the highest bid is xxx insufficient." A disqualified bidder is not
among the authorized grounds. The local government also never undertook steps to purchase the property
under Section 181 of the Local Government Code of 1991, presumably because it knew the invoked provision
does not apply.
2. NO. The Court cannot agree with the petitioners’ stance that the respondents’ defense — the
petitioners’ defective title — must fail for want of deposit to the court the amount required by Section 267 of
the Local Government Code. A simple reading of the title readily reveals that the provision relates to actions
for annulment of tax sales. The section likewise makes use of terms "entertain" and "institution" to mean that
the deposit requirement applies only to initiatory actions assailing the validity of tax sales. The suit filed by
the petitioners was an action for injunction and damages; the issue of nullity of the auction was raised by the
respondents themselves merely as a defense and in no way converted the action to an action for annulment of
a tax sale.
______________________________________________________________________________________________________________________________
NATIONAL HOUSING AUTHORITY v. ILOILO CITY, as represented by its Mayor, HON. JERRY TREAS,
ILOILO CITY TREASURER, CATHERINE TINGSON, and ROSALINA FRANCISCO
G.R. No. 172267, August 20, 2008, Tinga, J.
The requirement of deposit under Section 267, of R.A. No. 6170 is not applicable if the plaintiff is the
government or any of its agencies as it is presumed to be solvent, and more so where the tax exempt status of
such plaintiff as basis of the suit is acknowledged.
Facts:
For nonpayment of realty taxes, defendants auctioned off NHA’s Lot No. 1150-A covered by TCT No.
T-76179. Such auction sale was allegedly done without notice to plaintiff NHA as the registered owner
thereof, in addition to the fact that the latter is a tax-exempt agency of the government. There being no
private individual who offered to bid for the property, the defendant City of Iloilo bought the same per
Certificate of Sale under its name. After the one-year redemption period expired, such defendant executed a
Final Bill of Sale in its favor. Subsequently, defendant Rosalina Francisco purchased the land. As a result,
NHA’s TCT was cancelled, and a new TCT No. T-107295 was issued in the name of defendant Francisco. NHA
filed a Complaint for Annulment of the Auction Sale and the Subsequent Certificate of Re-Purchase Executed
in Favor of a Third Party against Iloilo City, as represented by its Mayor Jerry Treas, Iloilo City Treasurer
Catherine Tingson and Rosalina Francisco.Defendants filed separate Motions to Dismiss based on the same
grounds, particularly: lack of jurisdiction and forum shopping. According to them, the lower court did not
acquire jurisdiction for failure of plaintiff to comply with the deposit mandated under Section 267, R.A. 7160.
Issue:
Whether or not NHA’s tax-exempt status vests it with immunity as well from the deposit requirement
under Section 267 of R.A. No. 6170.
Ruling:
YES. As expressed in Section 267 itself, the amount deposited shall be paid to the purchaser at the
auction sale if the deed is declared invalid; otherwise, it shall be returned to the depositor. The deposit x x x is
essentially meant to reimburse the purchaser of the amount he had paid at the auction sale should the court
declare the sale invalid.
Clearly, the deposit precondition is an ingenious legal device to guarantee the satisfaction of the tax
delinquency, with the local government unit keeping the payment on the bid price no matter the final
outcome of the suit to nullify the tax sale. Thus, the requirement is not applicable if the plaintiff is the
government or any of its agencies as it ispresumed to be solvent, and more so where the tax exempt status of
such plaintiff as basis of the suit is acknowledged. In this case, NHA is indisputably a tax-exempt entity whose
exemption covers real property taxes and so its property should not even be subjected to any delinquency
sale. Perforce, the bond mandated in Section 267, whose purpose it is to ensure the collection of the tax
delinquency should not be required of NHA before it can bring suit assailing the validity of the auction sale.
______________________________________________________________________________________________________________________________
VALLEY TRADING CO., INC. v. COURT OF FIRST INSTANCE OF ISABELA, BRANCH II; DR. CARLOS UY (in
his capacity as Mayor of Cauayan, Isabela); MOISES BALMACEDA (in his capacity as Municipal
Treasurer of Cauayan, Isabela); and SANGGUNIANG BAYAN OF CAUAYAN ISABELA
G.R. No. L-49529, March 31, 1989, Regalado, J.
The issuance of a writ of preliminary injunction in the present case, as in any other case, is addressed to
the sound discretion of the court, conditioned on the existence of a clear and positive right of the movant which
should be protected.
Facts:
Petitioner filed a Complaint seeking a declaration of the supposed nullity of a tax ordinance, which
imposed a graduated tax on retailers, wholesalers and distributors that in effect imposes a sales tax in
contravention of a provision in the Local Tax Code. It also prayed for the issuance of a writ of preliminary
prohibitory injunction to enjoin the collection of said tax. The trial court denied the prayer for a preliminary
writ on the ground that “the collection of taxes cannot be enjoined.” Petitioner moved for the reconsideration
of the order, contending that a hearing is mandatory before action may be taken on the motion for the
issuance of a writ of preliminary injunction, but the court below denied said motion and reiterated its
previous order.
Issues:
1. Whether or not hearing on the merits is mandatory before action may be taken on the motion for a
writ of preliminary injunction may be denied.
2. Whether or not the writ of injunction should have been issued.
Ruling:
1. NO. The reliance of the petitioner on Section 7 of Rule 58 that "(a)fter hearing on the merits the
court may grant or refuse, continue, modify or dissolve the injunction as justice may require" is misplaced.
This section merely specifies the actions that the court may take on the application for the writ if there is a
hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite therefor.
Otherwise, we may have a situation where courts will be forced to conduct a hearing even if from a
consideration of the pleadings alone it can readily be ascertained that the movant is not entitled to the writ.
In fine, it will thereby entail a useless exercise and unnecessary waste of judicial time.
2. NO. The issuance of a writ of preliminary injunction in the present case, as in any other case, is
addressed to the sound discretion of the court, conditioned on the existence of a clear and positive right of the
movant which should be protected. It is an extraordinary peremptory remedy available only on the grounds
expressly provided by law, specifically Section 3 of Rule 58 of the Rules of Court. A court should issue a writ
of preliminary injunction only when the petitioner assailing a statute has made out a case of
unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of
validity, aside from a showing of a clear legal right to the remedy sought. The case before Us, however,
presents no features sufficient to overcome such presumption. This must have been evident to the trial court
from the answer of the respondents and the well reasoned ruling of the Acting Secretary of Finance. The
mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to have its
enforcement enjoined.
______________________________________________________________________________________________________________________________
MANILA ELECTRIC COMPANY v. NELIA BARLIS, in her capacity as Officer-in-Charge/Acting Municipal

Treasurer of Muntinlupa, EDUARDO ALON, former Municipal Treasurer of Muntinlupa, Metro Manila
G.R. No. 114231, June 29, 2004, Callejo, Sr. J.
Payment under protest is required only when there has in fact been a tax assessment, the validity of
which is being questioned.
Facts:
MERALCO received three notices from the Municipal Treasurer requesting to pay the full amount of
their claimed deficiency, but, MERALCO did not pay, nor takesteps to question the tax assessed.Accordingly,
the Municipal Treasurer issued Warrants of Garnishmentordering the attachment of MERALCO's bank
deposits with its depository banks to the extent of itsunpaid real property taxes.MERALCO filed before the
RTC of Makati a Petition for Prohibitionwith Prayer for Writ of Preliminary Mandatory Injunction and/or
Temporary Restraining Order (TRO)praying, among others, that a TRO be issued to enjoin the Municipal
Treasurer of Muntinlupa fromenforcing the warrants of garnishment. The Municipal Treasurer filed a Motion
to Dismiss for lack of jurisdiction since under Section 64 of the Real Property Tax Code, courts are prohibited
from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall have
paid, under protest, the tax assessed against him. The case eventually reached the Supreme Court where it
issued a Resolution stating that the petitioner was not furnished with any notice of assessment; that the
notices sent by the respondent to the petitioner were merely collection letters and not notices of assessment,
thus Section 64 finds no applicability.
Issue:
Whether or not the notices received by MERALCO are mere collection letters, as contended by
petitioner, and not tax assessments, as contended by respondent.
Ruling:
YES. Upon a careful review of the records of this case and the applicable jurisprudence, we find that
it is the contention of the petitioner and the ruling of this Court in its February 1, 2002 Resolution which is
correct.The September 3, 1986 and October 31, 1989 notices do not contain the essential information that a
notice of assessment must specify, namely, the value of a specific property or proportion thereof which is
being taxed, nor does it state the discovery, listing, classification and appraisal of the property subject to
taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to
the taxpayer that the failure to pay the taxes shall authorize the government to auction off the properties
subject to taxes.Whether or not a tax assessment had been made and sent to the petitioner prior to the
collection of back taxes by respondent Municipal Treasurer is of vital importance in determining the
applicability of Section 64 of the Real Property Tax Code inasmuch as payment under protest is required only
when there has in fact been a tax assessment, the validity of which is being questioned.Consequently then,
Sections 30 and 64 of P.D. No. 464 had no application in the case before the trial court. The petitioners’ action
for prohibition was not premature. Hence, the Court of Appeals erred in rendering judgment granting the
petition for certiorari of the respondent.
______________________________________________________________________________________________________________________________
DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC. v. THE PROVINCE OF DAVAO ORIENTAL

G.R. No. 170901, January 20, 2009, Puno, C.J.
The taxpayer must first pay under protest the tax assessed against him before he could seek recourse
from the courts to assail its validity.
Facts:
Due to the failure of petitioner to declare the value of its properties, the Office of the Provincial
Assessor assessed its properties and sent the Notice of Assessment to petitioner which duly received it.In May
1990, respondent filed a complaint for collection of delinquent real property taxes against petitioner for the
years 1984 until 1989, amounting to P1, 825, 928.12. Petitioner contends that it was exempt from the
payment of real estate taxes from 1984 to 1989 because the restoration of tax exemptions under FIRB
Resolution No. 24-87 retroacts to the date of withdrawal of said exemptions. Further, petitioner questions the
classification made by respondent of some of its properties as real properties when it believes them to be
personal properties, hence, not subject to realty tax.
Issue:
Whether or not the petitioner could be made to pay taxes based on a wide-sweeping and erroneous
assessment of its real properties.
Ruling:
YES. Petitioner contests the assessment by respondent of its properties. It claims that the tax
declarations covering its properties were issued without prior consultation, and without its knowledge and
consent. In addition, it argues that respondent classified its poles, towers and fixtures, overhead conductors
and devices, station equipment, line transformers, etc. as real properties when by [their] nature, use, purpose,
and destination and by substantive law and jurisprudence, they are personal properties. Petitioner does not
deny having duly received the two Notices of Assessment dated October 8, 1985 on October 10, 1985. It also
admits that it did not file a protest before the Board of Assessment Appeals to question the
assessment.Having failed to appeal the assessment of its properties to the Board of Assessment Appeals,
petitioner cannot now assail the validity of the tax assessment against it before the courts. Petitioner failed to
exhaust its administrative remedies, and the consequence for such failure is clear the tax assessment, as
computed and issued by the Office of the Provincial Assessor, became final. Petitioner is deemed to have
admitted the correctness of the assessment of its properties. In addition, Section 64 of PD No. 464 requires
that the taxpayer must first pay under protest the tax assessed against him before he could seek recourse
from the courts to assail its validity.
______________________________________________________________________________________________________________________________
FELS ENERGY, INC. v. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR
OF BATANGAS
NATIONAL POWER CORPORATION v. LOCAL BOARD OF ASSESSMENTAPPEALS OF BATANGAS, LAURO
C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor
G.R. No. 168557, February 16, 2007, Callejo, Sr. J.
If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due
with respect to the taxpayer’s property becomes absolute upon the expiration of the period to appeal.
Facts:
Polar Energy, Inc. leased its power barges moored at Balayan Bay, Batangas to NPC for a period of
five years. NPC was made to shoulder any tax expenses related to the power barge then Polar assigned its
rights to FELS. Subsequently, Polar Energy assigned its rights under the Agreement to Fels Energy, Inc. FELS
received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya
of Batangas City. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay
all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding
the real property assessment of the Provincial Assessor. NPC sought reconsideration of the provincial
assessor’s decision to assess the power barges but the same was denied. This prompted NPC to file a petition
with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the
declaration of the barges as non-taxable items.
Issue:
Whether or not the appeal to the LBAA was filed out of time.
Ruling:
YES. We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7,
1995, contained the following statement: “If you are not satisfied with this assessment, you may, within sixty
(60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing
a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration
and such affidavits or documents submitted in support of the appeal.” Instead of appealing to the Board of
Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial
Assessor’s decision, a remedy not sanctioned by law.The remedy of appeal to the LBAA is available from an
adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It
follows then that the determination made by the respondent Provincial Assessor with regard to the taxability
of the subject real properties falls within its power to assess properties for taxation purposes subject to
appeal before the LBAA.
If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due
with respect to the taxpayer’s property becomes absolute upon the expiration of the period to appeal.It also
bears stressing that the taxpayer’s failure to question the assessment in the LBAA renders the assessment of
the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that would reopen the question of its liability on
the merits.
TARIFF AND CUSTOMS CODE OF 1978, as amended
GENERAL RULE: ALL IMPORTED ARTICLES ARE SUBJECT TO DUTY
CHEVRON PHILIPPINES, INC. v. COMMISSIONER OF THEBUREAU OF CUSTOMS,

G.R. No. 178759, August 11, 2008, CORONA, J.
The failure to file the required entries within a non-extendible period of thirty days from date of
discharge of the last package from the carrying vessel constituted implied abandonment of its oil importations.
Thereafter, the abandoned shipments were deemed the property of the government. Therefore, when petitioner
withdrew the oil shipments for consumption, it appropriated for itself properties which already belonged to the
government. Accordingly, it became liable for the total dutiable value of the shipments of imported crude oil.
Facts:
Petitioner Chevron Philippines, Inc. is engaged in the business of importing, distributing and
marketing of petroleum products in the Philippines. The shipments were unloaded from the carrying vessels
onto petitioners oil tanks and subsequently, the import entry declarations (IEDs) were filed and 90% of the
total customs duties were paid. The said shipments were appraised at a duty rate of 3%.
However, pursuant to a letter received by the Finance Secretary EdgardoEspiritu denouncing the
deliberate concealment, manipulation and scheme employed by petitioner and Pilipinas Shell in the
importation of crude oil, the District Collector of Customs of the Port of Batangas sent to the petitioner a
demand letter requiring the immediate settlement of the deficiency customs duties representing the
difference between the 10% and 3% tariff rates on the shipments.The Commissioner also upheld the payment
of such, prompting the petitioner to file a petition for review in the Court of Tax Appeals. But the latter
affirmed the decision of the Commissioner and ruled that the import entries were filed beyond the 30-day
non-extendible period prescribed under Section 1301 of the TCC. Therefore, the importations were already
considered abandoned in favor of the government. Hence, this petition.
Issue:
Whether the importations can be considered abandoned under Section 1801.
Ruling:
Yes, petitioners failure to file the required entries within a non-extendible period of thirty days from
date of discharge of the last package from the carrying vessel constituted implied abandonment of its oil
importations. This means that from the precise moment that the non-extendible thirty-day period lapsed, the
abandoned shipments were deemed the property of the government. Therefore, when petitioner withdrew
the oil shipments for consumption, it appropriated for itself properties which already belonged to the
government. Accordingly, it became liable for the total dutiable value of the shipments of imported crude oil.
Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting a significant
portion of the public revenue which enables the government to carry out the functions it has been ordained to
perform for the welfare of its constituents. Hence, their prompt and certain availability is an imperative need
and they must be collected without unnecessary hindrance. Clearly, and perhaps for that reason alone, the
submission of the IEIRD cannot be left to the exclusive discretion or whim of the importer.
______________________________________________________________________________________________________________________________
COMMISSIONER OF CUSTOMS v. CARIDADCAPISTRANO

G.R. No. L-11075, June 30, 1960, PARAS, C.J.
The Philippine peso bills when attempted to be exported, as in the present case, may be deemed to have
been taken out of domestic circulation as legal tender and treated as commodity. Hence, they may be forfeited
pursuant to Central Bank Circular No. 37 in relation to Section 1363 (f) of the Revised Administrative Code.
Facts:
Caridad Capistrano was subjected to the customary search by a woman agent of the Bureau of
Customs immediately before the plane she was to board took off. There were found in her person 156 pieces
of Philippine 50-peso bills, 17 pieces of U.S. 20-dollar bills and one piece of U.S. 10-dollar bill, although her
license from the Central Bank allowed her to carry only $200, broken down into $50.00 in cash and $150.00
in traveler's check. Consequently, the bills were seized for alleged violation of Central Bank Circulars Nos. 42
and 55, in relation to Section 1363 (f) of the Revised Administrative Code.
The Collector of Customs ordered the forfeiture in favor of the Government of the bills in question,
such decision was affirmed by the Commissioner of Customs. The Court of Tax Appeals, however, modified
the decision. It ruled that Section 1363 (f) of the Revised Administrative Code refers to merchandise or
prohibited importation or exportation and since the United States dollar has already ceased to be legal tender
in the Philippines and that it could be bought and sold in the country, the U. S. dollar falls within the term
"merchandise". Therefore, the order of seizure as to the U.S. dollar was affirmed, while the seized Philippine
Peso was ordered to be returned to Caridad Capistrano. Hence, from that portion of the decision, the
Commissioner of Customs has appealed to this Court.
Issue:
Whether the Court of Tax Appeals is correct in ordering the release of the seized Philippine peso bills.
Ruling:
No, Philippine peso bills come within the concept of "merchandise," as this term is understood in
Section 1363(f) of the Revised Administrative Code. As defined by the same Code, merchandise, when used
with reference to importations or exportations, includes goods, wares, and in general anything that may be
the subject of importation or exportation. It cannot be gainsaid that money may be a commodity, an object of
trade.Money in the country where it is current, is both a measure of value and a medium of exchange, while in
other countries it is a commodity bought and sold in the market, and its value fluctuates in the market like
that of other commodities.
In the same manner that in the Philippines the United States dollar bills which have ceased to be legal
tender, are considered merchandise, the Philippine peso bills when attempted to be exported, as in the
present case, may be deemed to have been taken out of domestic circulation as legal tender and treated as
commodity. Hence, they may be forfeited pursuant to Central Bank Circular No. 37 in relation to Section 1363
(f) of the Revised Administrative Code.
CLASSIFICATION OF DUTIES
Other Duties
COMMISSIONER OF CUSTOMS v. COURT OF TAX APPEALS and LITONJUA SHIPPING COMPANY

represented by Granexport Corporation as sub-agent
G.R. Nos. 48886-88, July 21, 1993, MELO, J.
Section 2901 of the Tariff and Customs Code, as amended by Presidential Decree No. 34, mandates that
only vessels berthing at national ports are liable for berthing fees.
Facts:
The MS "Chozan Maru", MS "Samuel S", MS "Ero", MS "Messinia", MS "Pavel Rybin", MS "Caledonia",
and MS "Leonidas" are vessels engaged in foreign trade and represented in the Philippines by private
respondent Litonjua Shipping Company Granexport Corporation as its sub-agent.These vessels were assessed
berthing fees by the Collector of Customs which were paid by the respondent company under protest.
Litonjua Shipping Company Granexport Corporation filed cases before the Bureau of Customs for
refund of the berthing fees paid under protest. The Collector of Customs of the City of Iligan denied the
protest, prompting respondent company to appeal to the Commissioner of Customs. The latter, however,
affirmed the decision of the Collector of Customs. Respondent company then resorted to the Court of Tax
Appeals, to which it reversed the decision. Hence, the present recourse by the Commissioner of Customs.
Issue:
Whether a vessel engaged in foreign trade, which berths at a privately owned wharf or pier, is liable
to the payment of the berthing charge under Section 2901 of the Tariff and Customs Code.
Ruling:
No, Section 2901 of the Tariff and Customs Code, as amended by Presidential Decree No. 34,
mandates that only vessels berthing at national ports are liable for berthing fees. The subject vessels, not
having berthed at a national port but at the Port of Kiwalan, which was constructed, operated, and continues
to be maintained by Iligan Express Corporation, are not subject to berthing charges. Therefore, the petitioner
should refund the berthing fees paid by the respondent company.
The berthing fees imposed upon vessels berthing at national ports are applied by the national
government for the maintenance and repair of said ports. The national government does not maintain
municipal ports which are solely maintained by the municipalities or private entities which constructed them,
as in the case at bar. Thus, no berthing charges may be collected from vessels moored at municipal ports nor
may berthing charges be imposed by a municipal council.
REMEDIES
Government
Administrative/extrajudicial
Search, Seizure, Forfeiture, Arrest
KURT NILSEN, DAGPIN LUNOGREN, HELGE HELGSESEN, in their capacity as crew members of the S/S
"FERNSIDE" and MACONDRAY& COMPANY, INC., in its capacity agent of the S/S "FERNSIDE" v.
COMMISSIONER OF CUSTOMS
G.R. No. L-27149, March 14, 1979, FERNANDO, J.
Cargo has been construed to include all goods, wares, and merchandise aboard ship which do not form
part of the ships stores.
Facts:
On July 10, 1962, 108 cartons of cigarettes were discovered inside the cabin of three crew members
of S/S FERNSIDE, a foreign vessel, during a search conducted by a team of customs agent in the Port of
Manila. Seizure proceedings were conducted for violation of Section 2530 (g) of the Tariff and Customs Code
and after due hearing the Acting Collector of Customs rendered a decision decreeing the forfeiture of the
seized cigarettes, which decision, on appeal to the Commissioner of Customs and to the Court of Tax Appeals
was affirmed. Hence, this petition. The main contention of the petitioners is that the cigarettes in question are
not subject to forfeiture inasmuch as they do not constitute cargo of the vessel but are part of the sea stores
or provision of the ship that need no manifest.
Issue:
Whether the articles in question are subject to forfeiture for violation of Section 2530(g) of the Tariff
and Customs Code, in relation to Section 1005 of the same Code.
Ruling:
Yes, the articles in question are subject to forfeiture. Cargo has been construed to include all goods,
wares, and merchandise aboard ship which do not form part of the ships stores It has been said that word
‘cargo’ refers to the ‘entire lading of the ship which carries it’ and includes all goods, wares and merchandise,
effects, and indeed everything of every kind or description, found on board, except such things as are used or
intended for use in connection with the management or direction of the vessel, are not intended for delivery
at any port of call, and except also, perhaps, passengers of immigrants and their baggage.
However, in this case the cigarettes were not found in the slope chest where generally they are kept
but in the crew’s cabin, apparently concealed, and were not in the list of sea stores, they are in fact
unmanifested cargoes as they did not appear in the sea stores list, and no claims have been made that they
were in the passenger baggage manifest or crew’s declaration.
______________________________________________________________________________________________________________________________
SABINO RIGOR, RODOLFO AQUINO and SIMEON ANTICAMARA, Collector of Customs, Legal Officer and
Chief of the Port and Water Patrol Division, Respectively, Bureau of Customs, Port of Davao, Davao
City v. SPOUSES EDUARDOROSALES AND FLORA ROSALES and HONORABLE ALFREDO I. GONZALES
(Presiding Judge, Branch II, Court of First Instance of Davao (Sitting at Davao City)
G.R. No. L-33756, October 23, 1982, GUTIERREZ, JR., J.
The judicial recourse of the owner of a personal property which has been the subject of a seizure and
forfeiture proceedings before the Collector of Customs is not in the Court of First Instance but in the Court of Tax
Appeals, and only after exhausting administrative remedies in the Bureau of Customs.
Facts:
Collector Sabino Rigor issued a Warrant of Seizure and Detention in accordance with the Tariff and
Customs Code of the Philippines, against the vessel and its cargo, owned by the respondents and which is
consisting of 103 pieces of logs, for failure to present a manifest for the said logs within the period prescribed
by the Code. The Collector of Customs ordered the seized logs forfeited in favor of the government and
imposed a P10,000.00 fine against the vessel. Instead of appealing the Collector's decision to the
Commissioner of Customs, the private respondents filed an original petition for certiorari with the Court of
First Instance of Davao.The respondent court reversed the decision of the Collector of Customs and directed
the withdrawal of the proceeds of the sale of the 103 pieces of seized logs from the Philippine National Bank
for delivery to the private respondents. Hence, this petition.
Issue:
Whether the CFI of Davao can review the decision of a Collector of Customs in seizure and detention
proceedings.
Ruling:
No, the collector's decision may be appealed to the commissioner of customs, whose decision, inter
alia, in cases involving seizure, detention or release of property affected, may in turn be reviewed only by the
Court of Tax Appeals under the exclusive appellate jurisdiction conferred on said court under section 7 of
Republic Act 1125.(See Señeres v. Frias39 SCRA 5361971)
The law affords the Collector of Customs sufficient latitude in determining whether or not a certain
article is subject to seizure or forfeiture and his decision on the matter is appealable to the Commissioner of
Customs and then to the Court of Tax Appeals, not to the Court of First Instance. The fundamental reason is
that the Collector of Customs constitutes a tribunal when sitting in forfeiture proceedingsbeyond the
interference of the Court of First Instance.
Moreover, on grounds of public policy, it is more reasonable to conclude that the legislators intended
to divest the Court of First Instance of the prerogative to replevin a property which is a subject of a seizure
and forfeiture proceedings for violation of the Tariff and Customs Code. Otherwise, actions for forfeiture of
property for violation of Customs laws could easily be undermined by the simple device of replevin. The
judicial recourse of the owner of a personal property which has been the subject of a seizure and forfeiture
proceedings before the Collector of Customs is not in the Court of First Instance but in the Court of Tax
Appeals, and only after exhausting administrative remedies in the Bureau of Customs. (See Hadji
MohamadDaud v. Collector of Customs of the Port of Zamboanga City 68 SCRA 1571975).
______________________________________________________________________________________________________________________________
ANGEL NASIAD and ERNESTO LOZADA v. THE COURT OF TAX APPEALS

GR. No. L-29318, November 29, 1974, FERNANDO, J.
The legality of a seizure can be contested only by the party whose rights have been impaired thereby,
and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third
parties.
Facts:
The combined team of NBI, PC, RASAC and City Police of Davao raided the vessel owned by a certain
Jose G. Lopez and seized therein copra and coffee beans which were illegally smuggled from Indonesia. It was
followed thereafter in the afternoon by the seizure of certain documents found in the hotel room of the
charterer, one Tomas Velasco.In the forfeiture proceeding, the Collector of Customs of Davao declared that
the seized items forfeited in favor of the Government. The said decision was appealed by the petitioners, who
were claimants of the seized copra and coffee beans. But the forfeiture decree was affirmed by the
Commissioner and the Court of Tax Appeals.Hence, this petitioner. The petitioners, in seeking a reversal of a
decision of the Court of Tax Appeals, affirming the forfeiture decreed by the Commissioner of Customs of
smuggled copra and coffee, would concentrate on the alleged violation of the constitutional guarantee against
illegal searches and seizures.
Issue:
Whetherthe petitioners may invoke their right against illegal searches and seizure in their appeal
from the decision of the court.
Ruling:
No, the petitioners have no personality to contest the searches and seizures complained of, since at
the time the searches and seizures were allegedly conducted, the vessel belonged to Jose G. Lopez and was
chartered by Tomas Velasco, and the hotel room was occupied by said Velasco and his wife. Thus, the
petitioners not being parties-in-interest, they may not invoke the Constitutional right against unlawful search
and seizure. The legality of a seizure can be contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of
by third parties. (See Stonehill vs Diokno20 SCRA 383 1967)
It is one thing to assure that constitutional rights remain inviolate; it is an entirely different matter,
one devoid of justification in law, no less than in morals, one moreover at war with the valid state policy
against the evils of smuggling, if a constitutional right, personal in character, could be seized upon by a third
party engaged in an illegal activity. That would be to demean a constitutional mandate. For even a cursory
perusal of what did transpire yields no other conclusion except that the forfeited cargo of copra and coffee
was smuggled.
______________________________________________________________________________________________________________________________
HONORABLE ARSENIO N. ROLDAN, JR., in his capacity as Acting Commissioner, Philippine Fisheries
Commission, and THE PHILIPPINE NAVY v. HONORABLE FRANCISCO ARCA, as Presiding Judge of the
Court of First Instance of Manila (Branch 1) and MORABE, DE GUZMAN & COMPANY
G.R. No. L-25434, July 25, 1975, MAKASIAR, J.
Search and seizure without search warrant of vessels and air crafts for violations of the customs laws
have been the traditional exception to the constitutional requirement of a search warrant, because the vessel can
be quickly moved out of the locality or jurisdiction in which the search warrant must be sought before such
warrant could be secured; hence it is not practicable to require a search warrant before such search or seizure
can be constitutionally effected.
Facts:
The Philippine Navy, acting on the request of the Fisheries Commissioner, seized vessels owned by
Morabe, De Guzman & Company for illegal fishing with dynamite. Criminal charges were, thereafter, filed
against the owner and crew members of the vessels before the Court of First Instance of Palawan. The CFI of
Palawan ordered the Philippine Navy to take the boats in custody. However, the respondent company filed
with the Court of First Instance of Manila a civil casewith application for preliminary mandatory injunction
against Fisheries Commissioner Arsenio N. Roldan, Jr., for the recovery of its fishing vessels. The CFI of Manila
ordered the release of the vessels and requiring the respondent company to file a bond. Hence, this petition.
Issue:
Whether or not the respondent Judge is correct in ordering the release of the vessels upon filing of
bond by the respondent company.
Ruling:
No, the respondent Judge of the Manila Court of First Instance acted without jurisdiction and with
grave abuse of discretion when he ordered the release of the vessels. The said vessels were seized while
engaging in prohibited fishing within the territorial waters of Palawan and hence within the jurisdiction of
the Court of First Instance of Palawan. Only the Palawan court can order the release of the two vessels.
Moreover, the petitioners can validly direct and/or effect the seizure of the vessels of private
respondent for illegal fishing by the use of dynamite and without the requisite licenses.Section 4 of Republic
Act No. 3512 empowers the Fisheries Commissioner to make searches and seizures personally or through his
duly authorized representatives in accordance with the Rules of Court. On the other hand, Section 2210 of the
Tariff and Customs Code, as amended by PD No. 34 authorized any official or person exercising police
authority under the provisions of the Code, to search and seize any vessel or air craft as well as any trunk,
package, bag or envelope on board and to search any person on board for any breach or violation of the
customs and tariff laws.
Therefore, when the Philippine Navy, upon request of the Fisheries Commissioner, apprehended the
fishing boats, these vessels were found to be without the necessary license in violation of Section 903 of the
Tariff and Customs Code and therefore subject to seizure under Section 2210 of the same Code, and illegally
fishing with explosives and without fishing license required by Sections 17 and 18 of the Fisheries Law.
Search and seizure without search warrant of vessels and air crafts for violations of the customs laws
have been the traditional exception to the constitutional requirement of a search warrant, because the vessel
can be quickly moved out of the locality or jurisdiction in which the search warrant must be sought before
such warrant could be secured; hence it is not practicable to require a search warrant before such search or
seizure can be constitutionally effected.The same exception should apply to seizures of fishing vessels
breaching our fishery laws. They are usually equipped with powerful motors that enable them to elude
pursuing ships of the Philippine Navy or Coast Guard.
______________________________________________________________________________________________________________________________
C. F. SHARP & COMPANY, INC. v.COMMISSIONER OF CUSTOMS

G.R. No. L-23803, February 26, 1968, BENGZON, J.P., J.
Section 2313 of the Tariff and Customs Code does not require the Commissioner of Customs to hold a
formal hearing. His duty is to approve, modify or reverse the decision of the Collector of Customs on the basis of
the records, papers and evidence presented before the latter.
Facts:
The water patrol of Bureau of Customs seized the vessel M/L Cheton,which was loaded with 1,865
cartons of untaxed blue seal cigarettes,on the ground that it violatedSection 2530(a) of the Tariff and Customs
Code and immediately thereafter was subjected to forfeiture proceedings. The Collector of Customs of the
Port of Manila rendered a decision imposing a fine of P10,000 instead of P1,000 as recommended by the Law
Division, in order to give force and effect to the socio-economic program of the then President
DiosdadoMacapagal. It appealed to the Commissioner of Customs who modified the decision by ordering the
forfeiture of the vessel instead of imposing only a fine in the amount of P10,000. The Court of Tax Appeals
affirmed such decision.
Issue:
Whether or not M/L Cheton is subject to forfeiture in favor of the government in accordance with
paragraph a., Section 2530 of the Tariff and Customs Code.
Ruling:
Yes, there is no question that M/L Cheton was apprehended carrying untaxed cigarettes of foreign
origin without the necessary papers showing that they were entered lawfully through a port of entry. There is
no question also that said cigarettes were liable for forfeiture pursuant toParagraph a. of Section 2530 of the
Tariff and Customs Code.
On the basis of the aforestated facts, the conclusion is inevitable that the M/L Cheton was used in
connection with unlawful importation of said cigarettes. The burden was therefore shifted to the boat's
owner to show that the carriage by M/L Cheton of the smuggled cigarettes was lawful. No such showing was
made. Hence, the Court of Tax Appeals committed no error in ordering the forfeiture of the launch in
question. It would be absurd to require the Government to prove that a vessel was engaged in smuggling,
after it has already been caught red-handed, that is, loaded with smuggled goods. Furthermore, Section 2313
of the Tariff and Customs Code does not require the Commissioner of Customs to hold a formal hearing. His
duty is to approve, modify or reverse the decision of the Collector of Customs on the basis of the records,
papers and evidence presented before the latter. Moreover, the proceedings had before the Court of Tax
Appeals was a trial de novo and if petitioner desired to present evidence in addition to those already
presented before the Collector of Customs, it could have done so.
______________________________________________________________________________________________________________________________
LEONORA T. ROXAS v. ISAAC SAYOC, as Collector of Customs of Manila

G.R. No. L-8502, November 29, 1956, ENDENCIA, J.
The expiration of law could not have abrogated the power of the Commissioner of Customs to review
the decision of the Collector of Customs. Once the Commissioner of Custom has acquired jurisdiction, it subsists
until the case is completely decided.
Facts:
Leonora T. Roxas was issued Import Control License No. 11591 for the importation of cotton
counterpanes and by virtue of such license she imported from Japan fourteen (14) bales of cotton
counterpanes. However, the cotton counterpanes were seized by the Collector of Customs of Manila on the
ground that the license issued in favor of her was in violation of Executive Order No. 471 of the President
which was an implementation of Republic Act No. 650, otherwise known as the Import Control Law. She filed
a petition with the Cabinet, but the latter denied it. The Collector of Customs of Manila declared the seized
goods in question forfeited in favor of the Government. Roxas appealed to such decision to the Commissioner
of Customs, but the latter affirmed the Collector.Roxas filed no appeal from the decision of the Commissioner
of Customs and neither did she present a petition for its review by the Board of Tax Appeals on the belief that
said decision was void, it having been rendered fourteen (14) days after the expiration of Republic Act No.
650.Instead, she filed a mandamus proceedings in the Court of First Instance of Manila, but it was denied.
Hence, this appeal.
Issue:
Whetherthe expiration of Republic Act No. 650, said decision of the Collector of Customs and its
confirmation by the Commissioner of Customs were abated.
Ruling:
No, the jurisdiction of the Commissioner of Customs to act on the appeal was not lost by the
expiration of Republic Act No. 650, for the expiration of this law could not have abrogated the power of the
Commissioner of Customs to review the decision of the Collector of Customs as provided for in Section 1380
of the Revised Administrative Code, for such jurisdiction, once acquired, subsists until the case is completely
decided.
In this case, that Roxas did not secure a revocation of the decision of the Commissioner and neither
did she appeal from that of the Commissioner of Customs which confirmed it. The Court then holds that the
decision of the Collector of Customs has become executory and unassailable.
______________________________________________________________________________________________________________________________
COMMISSIONER OF CUSTOMS v. COURT OF TAX APPEALS and JOSE PASCUAL

G.R. No. L-31733, September 20, 1985, J. Makasiar
Forfeiture proceedings are in the nature of proceedings in rem and are directed against the res. The
imposition of the penalty of forfeiture in cases of unlawful importation of foreign articles regardless of whether
such importation occurred with or without the knowledge of the owner of the vessel.
Facts:
The motorboat M/B "Maria Victoria-P, owned by Jose Pascualwas apprehended by the Philippine
Navy for carrying untaxed 105 cases and 90 parks of Salem cigarettes and 414 cases of Union cigarettes. The
authorities turned over the vessel, its crew and its cargo of blue seal cigarettes to the Small Craft Unit of the
Philippine Navy for disposition. Thereafter, Seizure case against the vessel and the cargo of blue seal
cigarettes, respectively, were instituted before the Collector of Customs. For failure of anybody to claim
ownership over the cigarettes, the same were forfeited in favor of the Government.
The Collector of Customs rendered a decision declaring the vessel forfeited in favor of the
Government. CTA ruled that the vessel was used in the illegal importation of blue seal cigarettes; hence,
subject to penalty imposed by Section 2530 of the Tariff and Customs Code.
Issue:
Whether or not the motor boat M/B "Maria Victoria-P" is subject to forfeiture under the Tariff and
Customs Code.
Ruling:
Yes. Pursuant toSection 2530 of the Tariff and Customs Code, the vessel is clearly subject to forfeiture
in favor of the Government. Forfeiture proceedings are in the nature of proceedings in rem and are directed
against the res. The fact that Pascual has allegedly no actual knowledge that M/B "Maria Victoria-P" was used
illegally does not render the vessel immune from forfeiture. This is so because the forfeiture proceedings in
this case was instituted against the vessel itself. Private respondent's defense that he has no actual knowledge
that the vessel was used illegally is personal to him but cannot absolve the vessel from liability of forfeiture.
Moreover, the aforesaid section prescribes in an unequivocal term the imposition of the penalty of
forfeiture in cases of unlawful importation of foreign articles regardless of whether such importation
occurred with or without the knowledge of the owner of the vessel.
Judicial/Jurisdiction
THE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS v. HON. PEDRO C. NAVARRO,
Judge of the Court of First Instance of Rizal, Branch II (Pasig, Rizal), and JUANITO S. FLORES, doing
business under the name and style of JS. F. ENTERPRISES and ASIATIC INCORPORATED, represented
by EUGENIO VILLANUEVA
G.R. No. L-33146 May 31, 1977, J. Fernando
The question of seizure and forfeiture is for the administrative in the first instance and then the
Commissioner of Customs. Thereafter an appeal may be taken to the CTA. A court of first instance is thus devoid
of competence to act on the matter.
Facts:
The Commissioner of Customs and the Collector of Customs sought to nullify and set aside order of
Judge Pedro C. Navarro issuing a writ of preliminary injunction as prayed for by JuanitoFlores and Asiatic
Incorporated the importers of 1,350 cartons of fresh fruits, restraining petitioners from proceeding with the
auction sale of such perishable goods.
Classified as non-essential consumer commodities, they were banned by Central Bank Circulars Nos.
289, 294 and 295 as prohibited importation or importation contrary to law and thus made subject to
forfeiture proceedings by Collector of Customs pursuant to the Tariff and Customs Code.Petitioners pointed
out how violative was the assumption of jurisdiction by Judge Navarro over an incident of a pending seizure
and forfeiture proceeding which, was a matter falling within the exclusive competence of the customs
authorities.
Issue:
Whether or not the CFI/RTC has jurisdiction over a seizure and forfeiture proceeding.
Ruling:
NO. The question of seizure and forfeiture is for the administrative in the first instance and then the
Commissioner of Customs. This is a field where the doctrine of primary jurisdiction controls. Thereafter an
appeal may be taken to the CTA. A court of first instance is thus devoid of competence to act on the matter.
There is further judicial review, but only by the Supreme Court in the exercise of its certiorari jurisdiction.It is
the settled law and jurisprudence in this jurisdiction that the customs authorities acquire exclusive
jurisdiction over goods sought to be imported into the Philippines, for the purpose of enforcement of
Philippine customs laws, from the moment the goods are actually under their possession and control, even if
no warrant for seizure or detention thereof has previously been issued by the port collector of customs.
______________________________________________________________________________________________________________________________
HON. SALVADOR M. MISON, Commissioner of Customs, and CARLOS L. RAZO, Collector of Customs of
the Subport of Clarkv. HON. ELI G.C. NATIVIDAD, Presiding Judge of the Regional Trial Court, Branch
XLVIII, San Fernando, Pampanga, and CESAR SONNY CARLOS/CVC TRADING
G.R. No. 82586. September 11, 1992, J. Davide, Jr.
By express provision of law, amply supported by well-settled jurisprudence, the Collector of Customs has
exclusive jurisdiction over seizure and forfeiture proceedings and regular courts cannot interfere with his
exercise thereof or stifle or put it to naught.
Facts:
The Commissioner of Customs was informed the of the existence of both "assembled and
disassembled" knocked-down vehicles, particularly Toyota Lite Aces. A team composed of National Customs
Police (NCP) and Customs Intelligence and Investigation Division (CIID) members took possession and
control of the motor vehicles by cordoning off the enclosure. Thereafter, 2 members of the team were
designated to secure a warrant of seizure and detention from the Collector of Customs. The latter instituted
seizure proceedings against the abovementioned vehicles.
However, when the team was about to haul the motor vehicles away, RTC sheriffs arrived with a TRO
issued by JudgeNatividad in connection with civil case against the Bureau of Customs. The latter filed a
Motion to Dismiss alleging therein (a) the lack of jurisdiction of the RTC over the subject vehicles in view of
the exclusive jurisdiction of the Collector of Customs over seizure and forfeiture cases. Judge Natividad
denied the motion to dismiss the granted the writ of preliminary injunction.
Issue:
Whether or not RTC has jurisdiction over the seizure and forfeiture proceedings.
Ruling:
NO. The court a quo has no jurisdiction over the res subject of the warrant of seizure and detention.
The JudgeNatividad, therefore, acted arbitrarily and despotically in issuing the temporary restraining order,
granting the writ of preliminary injunction and denying the motion to dismiss, thereby removing the res from
the control of the Collector of Customs and depriving him of his exclusive original jurisdiction over the
controversy. Respondent Judge exercised a power he never had and encroached upon the exclusive original
jurisdiction of the Collector of Customs. By express provision of law, amply supported by well-settled
jurisprudence, the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and
regular courts cannot interfere with his exercise thereof or stifle or put it to naught.
______________________________________________________________________________________________________________________________
JOSELITO RALLOS, JOSEFINA RALLOS VALLAR, SIMON RALLOS representing his deceased father
CARLOS RALLOS, TERESITA RALLOS YAP, and JOSELITO RALLOS v. Judge IRENEO LEE GAKO JR., RTC,
Branch 5, Cebu City and Executive Secretary RONALDO B. ZAMORA v. Judge IRENEO LEE GAKO JR., RTC,
Branch 5, Cebu City
A.M. No.RTJ-99-1484, October 24, 2000, J. Panganiban
The rule that RTCs have no review powers over seizure and forfeiture proceedings is anchored upon the
policy of placing no unnecessary hindrance on the government’s drive, to prevent smuggling and other frauds
upon Customs, and to render effective and efficient the collection of import and export duties due the State.
Facts:
The two consolidated administrative cases were filed against Judge Ireneo Lee Gako Jr. of the RTC of
Cebu City. The Economic Intelligence and Investigation Bureau (EIIB) of the Bureau of Customs (BOC), the
Philippine Coast Guard, and the PNP at the Port of Cebu withheld, for investigation, an estimated 25,000 sacks
of rice marked as ‘Snowman’ on board the vessel, M/V Alberto. Likewise seized on the same date were nine
cargo trucks to be used for carrying the subject sacks of rice.The Bureau of Customs issued a Warrant of
Seizure and Detention against then aforementioned. Claimants Mark Montelibano and Elson Ogariofiled a
complaint for injunction with prayer for TRO and writ of preliminary injunction. The Bureau of Customs filed
a motion to dismiss, alleging that the trial court hadno jurisdiction . However, JudgeGako denied motion to
dismiss and granted complainants’ prayer for writ of preliminary injunction.
Issue:
Whether or not the RTC Judge has jurisdiction to deny the motion to dismiss and grant the writ of
preliminary injunction.
Ruling:
No. The rule that Regional Trial Courts have no review powers over seizure and forfeiture
proceedings is anchored upon the policy of placing no unnecessary hindrance on the government’s drive, not
only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective and
efficient the collection of import and export duties due the State, which enables the government to carry out
the functions it has been instituted to perform. Even if the seizure by the Collector of Customs were illegal,
which has yet to be proven, such act does not deprive the Bureau of Customs of jurisdiction thereon.
Clearly, respondent had absolutely no jurisdiction to take cognizance of the Complaint for Injunction
filed by Ogario and Montelibano. Administrative Circular No. 07-99, cautioning lower court judges in their
issuance of temporary restraining orders and writs of preliminary injunctions, emphasized this lack of
jurisdiction of trial courts. It stressed, that the Collector of Customs has exclusive jurisdiction over seizure
and forfeiture proceedings.
______________________________________________________________________________________________________________________________
NARCISO O. JAO and BERNARDO M. EMPEYNADO v. COURT OF APPEALS; COMMISSIONER OF CUSTOMS;

COLLECTOR OF CUSTOMS, Port of Manila; Col. SINDULFO R. SEBASTIAN, Director, Enforcement and
Security Services, Bureau of Customs; and Maj. JAIME MAGLIPON, Chief, operations and Intelligence
Staff, Enforcement and Security Services, Bureau of Customs,
NARCISO O. JAO and BERNARDO M. EMPEYNADO, v. THE HONORABLE OMBUDSMAN CONRADO M.

VASQUEZ, and SINDULFO SEBASTIAN, JAIME MAGLIPON; JOSE YUCHONGCO; RICARDO CORONADO;
VICTOR BARROS; DENNIS BANTIGUE; ROY LARA; BENJAMIN SANTOS; RODOLFO GONDA; ADONIS
REJOSO; DANIEL PENAS; NICANOR BONES; ABUNDIO JUMAMOY; ARTEMIO CASTILLO; ANDREOSITO
ABAYON; RUBEN TAGUBA; JAIME JAVIER; HERBERT DOLLANO, all with the Bureau of Customs; JOVY
GUTIERREZ of the Makati police, and ‘JOHN DOES,’
G.R. No. 104604 and G.R. No. 111223, October 6, 1995, J. Romero
Even if the seizure by the Collector of Customs were illegal, which has yet to be proven, such act does not
deprive the Bureau of Customs of jurisdiction thereon.
Facts:
The Bureau of Customs, received information regarding the presence of allegedly untaxed vehicles
and parts in the premises owned by a certain Pat Haoin Makati. District Collector of Customs Titus Villanueva
issued the warrants of seizure and detention. Customs personnel started hauling the articles pursuant to the
warrants. This prompted NarcisoJao and Bernardo Empeynado to file a case for Injunction and Damages, with
prayer for Restraining Order and Preliminary Injunction before the RTC of Makati against respondents. On
the same date, the trial court issued a TRO. Respondents filed a Motion to Dismiss on the ground that the RTC
has no jurisdiction over the subject matter of the complaint, claiming that it was the Bureau of Customs that
had exclusive jurisdiction over it. The trial court denied respondents’ motion to dismiss and granted the
petitioner’s application for preliminary prohibitory and mandatory injunction.
Issue:
Whether or not the RTC is justified in denying the motion to dismiss and granting the prohibitory and
mandatory injunction in the seizure and forfeiture proceedings.
Ruling:
NO. The RTCs are devoid of any competence to pass upon the validity or regularity of seizure and
forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these
proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction
to hear and determine all questions touching on the seizure and forfeiture of dutiable goods.’
The Regional Trial courts are precluded from assuming cognizance over such matters even through
petitions of certiorari, prohibition or mandamus. Even if the seizure by the Collector of Customs were illegal,
which has yet to be proven, such act does not deprive the Bureau of Customs of jurisdiction thereon. The
allegations of petitioners regarding the propriety of the seizure should properly be ventilated before the
Collector of Customs. If the private respondents believe that the seizure was made outside the territorial
jurisdiction of the Philippines, it should raise the same as a defense before the Collector of Customs and if not
satisfied, follow the correct appellate procedures. A separate action before the Court of First Instance is not
the remedy.
JUDICIAL REMEDIES (RA 1125, as amended, and the Revised Rules of the CTA)
CTA PROCEEDINGS
RENATO RAYMUNDO v. HONORABLE ALBERTO R. DE JOYA, and HONORABLE PEDRO PACIS, in their
capacity as Commissioner of Customs and Acting Collector of Customs, respectively
G.R. No. L-27733, December 3, 1980, C. J. Fernando
The findings of facts by the Court of Tax Appeals is not to be disturbed. Only by a showing that there was
no substantial evidence could a due process question be raised which element is not present in the case at bar.
Facts:
Rafael Cavanna, to escape the payment of duties and taxes on the car he bought in 1959, registered
the same in his name at the Motor Vehicles Office by using an import entry showing payment thereof but
which actually pertained to another importation. In 1963, after discovery of the fraud, he executed a deed of
sale in favor of his wife, paying the taxes thereon in the amount much less than what should have been
collected in 1959. As there was some anomaly in the informal entry number for such car, a warrant of seizure
and detention was subsequently issued. The Collector of Customs ordered the payment of deficiency taxes
due the government. During the pendency of the case, Paz Alcantara sold the car to petitioner-appellant
RenatoRaymundo who filed with the Court of Tax Appeals a petition for review of the order for the payment
of deficiency taxes. CTA held that there was fraud and ruled in favour of the respondents.
Issue:
Whether or not the CTA’s findings should be affirmed.
Ruling:
YES.The language used by the Court of Tax Appeals as to the existence of fraud must be given its due
weight and force. It found such nefarious intent on the part of the vendor from whom petitioner obtained this
vehicle not merely proved by preponderance of evidence but "without any shadow of doubt." Time and again,
the Supreme Court had made clear in categorical language that the findings of facts of the Court of Tax
Appeals is entitled to the highest respect. So it has been since Sanchez v. Commissioner of Customs (102 Phil.
37 [1957]). The latest case in point is Nilsen where, in addition to Sanchez, sixteen other decision were cited,
starting from Commissioner v. Priscila Estate, 120 Phil. 125 (1964) and ending with Commission of Internal
Revenue v. Ayala Securities Corp. (L-29485, March 31, 1976).
The findings of facts by the Court of Tax Appeals is not to be disturbed. Only by a showing that there
was no substantial evidence could a due process question be raised which element is not present in the case
at bar.
______________________________________________________________________________________________________________________________
BPI-FAMILY SAVINGS BANK, Inc. v. COURT OF APPEALS, COURT OF TAX APPEALS and the
G.R. No. 122480, April 12, 2000, J. Panganiban
The law creating the Court of Tax Appeals specifically provides that proceedings before it "shall not be
governed strictly by the technical rules of evidence."
Facts:
In its 1989 ITR, that BPI-Family Savings Bank had a total refundable amount of P297,492 inclusive of
the P112,491.00 being claimed as tax refund in the present case. However, BPI declared that the said total
refundable amount of P297,492.00 will be applied as tax creditto the succeeding taxable year. BPI filed a
written claim for refund in the amount of P112,491.00 with CIR alleging that it did not apply the 1989
refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual ITR or other tax liabilities due
to the alleged business losses it incurred for the same year.Without waiting for CIR to act on the claim for
refund, BPI filed a petition for review with CTA. CTA denied BPI’s claim for refund on the ground that it failed
to present as evidence its Corporate Annual ITR for 1990 which would have shown that the amount in
dispute was not applied as a tax credit.CA affirmed. Hence, this Petition
Issue:
Whether or not CTA decision is governed strictly by technical rules of evidence.

Ruling:
NO.True, strict procedural rules generally frown upon the submission of the Return after the trial.
The law creating the CTA, however, specifically provides that proceedings before it "shall not be governed
strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth.
Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from
considering undisputed facts to arrive at a just determination of a controversy.
In the present case, the Return attached to the MR clearly showed that BPI suffered a net loss in
1990. Contrary to the holding of the CA and the CTA, BPI could not have applied the amount as a tax credit. In
failing to consider the said Return, as well as the other documentary evidence presented during the trial, the
CA committed a reversible error.
JURISDICTION OF THE COURT OF TAX APPEALS
Exclusive appellate jurisdiction over civil tax cases
Cases with jurisdiction of the court in divisions
PHILIPPINE NATIONAL OIL COMPANY v. THE HON. COURT OF APPEALS, THE COMMISSIONER OF
INTERNAL REVENUE and TIRSO SAVELLANO
PHILIPPINE NATIONAL BANK v. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B.
SAVELLANO and COMMISSIONER OF INTERNAL REVENUE
G.R. No. 109976, G.R. No. 112800, April 26, 2005, J. Chico-Nazario
Disputes, claims and controversies, falling under the jurisdiction of CTA by virtue of R.A. 1125, even
though solely among government offices, agencies, and instrumentalities, including government-owned and
controlled corporations, remain in the exclusive appellate jurisdiction of the CTA.
Facts:
TirsoSavellano informed the BIR that PNB failed to withhold the 15% final tax on interest earnings
and/or yields from the money placements of PNOC with the said bank, in violation of P.D. No. 1931. BIR sent a
demand letter to PNB, as withholding agent, for the payment the aforesaid tax. PNOC in its reply first
proposed to settle its tax liability through the set-off of the said tax liability against NAPOCORS pending claim
for tax refund/credit and eventually propose a compromise. BIR, through Commissioner Tanaccepted the
compromise. Savellano filed a Petition for Review ad cautelam with the CTA claiming that Commissioner Tan
acted with grave abuse of discretion in entering into a compromise agreement. PNOC and PNB filed separate
Motions to Dismiss, both arguing that the CTA lacked jurisdiction on the ground that the BIR demand letter,
should be considered as a new assessment which gave rise to a new controversy solely between the BIR and
PNB that should be administratively settled or adjudicated. CTA assumed jurisdiction and held that the
compromise agreement was void. CA affirmed.
Issue:
Whether or not CTA correctly assumed jurisdiction over the case.
Ruling:
YES. The BIR demand letter, was not a new assessment but merely a development in the continuing
effort of the BIR to collect the tax assessed against PNOC and PNB way back. Thus CTA correctly retained
jurisdiction over the case by virtue of R.A. No. 1125, the act which created it. Section 7 Rep. Act No. 1125,
provides the following to be under the jurisdiction of the CTA among others: “other matters arising under the
NIRC or other law or part of law administered by the BIR.”Disputes, claims and controversies, falling under
said section, even though solely among government offices, agencies, and instrumentalities, including
government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE v.JOSEFINA LEAL

G.R. No. 113459. November 18, 2002, J. Sandoval-Gutierrez
The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal decisions of
the Collector of Internal Revenue in matters arising under the National Internal Revenue Code or other law or
part of the law administered by the Bureau of Internal Revenue.
Facts:
Josefina Leal, owner and operator of Josefinas Pawnshop, asked for a reconsideration of Revenue
Memorandum Order (RMO) No. 15-91 imposing 5% lending investors tax on pawnshops based on their gross
income and Revenue Memorandum Circular (RMC) No. 43-91 subjecting the pawn ticket to the documentary
stamp tax, but the same was denied with finality by CIR in its BIR Ruling. Leal filed with the RTC a petition for
prohibition from implementing the revenue orders.CIR filed a motion to dismissthe on the ground that the
RTC has no jurisdiction for it falls under the exclusive jurisdiction of CTA. RTC denied the motion to dismiss.
The CA sustained.
Issue:
Whether or not CTA has jurisdiction over Leal’s action of assailing the revenue orders.
Ruling:
Yes. The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops. As such, it comes within the
purview of Republic Act No. 1125, Section 7 of which provides that the Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal x xx decisions of the Collector of Internal Revenue in x xx
matters arising under the National Internal Revenue Code or other law or part of the law administered by the
Bureau of Internal Revenue.
Josefina Leal, being a pawnshop owner, is assailing the revenue orders imposing 5% lending
investors tax on pawnshops issued by CIR. Thus, she should have filed her petition with the CTA, not the RTC.
______________________________________________________________________________________________________________________________
JIMMY O. YAOKASIN v. THE COMMISSIONER OF CUSTOMS, SALVADOR M. MISON and the DISTRICT
COLLECTOR OF THE PORT OF TACLOBAN, VICENTE D. YUTANGCO
G.R. No. 84111, December 22, 1989, J. Griño-Aquino
Where a decision of a Collector of Customs in such seizure and protest cases is adverse to the
government, it shall automatically be reviewed by the Commissioner of Customs which, if affirmed, shall
automatically be elevated for final review by the Secretary of Finance.
Facts:
The Philippine Coast Guard seized 9000 bags/ sacks of refined sugar, which were being unloaded
from the M/V Tacloban, and turned them over to the custody of the Bureau of Customs.
Yaokasin presented a sales invoice from the Jordan Trading of Iloilo to prove that the sugar was
purchased locally. The District Collector of Customs, however, proceeded with the seizure of the bags of
sugar. After show-cause hearings were conducted it ordered the release of the sugar. However, without
modifying his decision, it afterwards ordered the warehouse, wherein the bags of sugar were stored, to be
sealed. Yaokasinapplied for and secured a writ of replevin from the RTC of Leyte. The District Collector and
the Commissioner of Customs filed in the CA a Petition for certiorari and Prohibition against the order of the
RTC, which the CA granted. In the instant case Yaokasin claims that the decision of the District Collector of
Customs has become final and executory for no appeal was taken therefrom. On the other hand, respondents
argue that the case should go to the Commissioner of Customs on automatic review, since it was adverse to
the government.
Issue:
Whether or not the Commisioner on Customs has jurisdiction over the case in automatic review.
Ruling:
Yes. Section 12 Integrated Reorganization Plan provides that “where a decision of a Collector of
Customs in such seizure and protest cases is adverse to the government, it shall automatically be reviewed by
the Commissioner of Customs which, if affirmed, shall automatically be elevated for final review by the
Secretary of Finance; provided, further that if within thirty days from receipt of the records of the case by the
Commissioner of Customs or the Secretary of Finance, no decision is rendered by the Commissioner of
Customs or the Secretary of Finance, the decision under review shall become final and executory.”
Taxes being the lifeblood of the Government, Section 12 is intended to protect the interest of the
Government in the collection of taxes and customs duties in those seizure and protest cases which, without
the automatic review provided therein, neither the Commissioner of Customs nor the Secretary of Finance
would probably ever know about.
______________________________________________________________________________________________________________________________
THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in
her capacity as the City Treasurer of Manila, Petitioners,
vs. HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court,
Branch 112, Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER;
SUPERVALUE, INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS.,
INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING CORPORATION and SIGNATURE LINES,
Respondents.
G.R. No. 175723, February 4, 2014, PERALTA, J.
The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final
orders and decisions of the RTC, in order to have complete supervision over the acts of the latter.
Facts:
SM et al filed a refund of allegedly illegal collection of local business tax by the City of Manila. SM
alleges that the provisions of the Revised Revenue Code of Manila were violative of the limitations of the Local
Government Code on double taxation. The RTC granted SM’s application for a writ of preliminary injunction.
The City of Manila then filed a special civil action for certiorari with the CA. The CA ruled that since appellate
jurisdiction over private respondents' complaint for tax refund, which was filed with the RTC, is vested in the
Court of Tax Appeals, pursuant to its expanded jurisdiction, it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the CTA.
Issue:
Whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an
interlocutory order issued by the RTC in a local tax case.
Ruling:
Yes. In order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax
cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is deemed
necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the
transfer should only be considered as partial, not total.
Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over private
respondents' complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the same court. To
rule otherwise would lead to an absurd situation where one court decides an appeal in the main case while
another court rules on an incident in the very same case. Hence, it can be reasonably concluded that the
authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by
the RTC in a local tax case is included in the powers granted by the Constitution as well as inherent in the
exercise of its appellate jurisdiction.
______________________________________________________________________________________________________________________________
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner, vs. THE SECRETARY
OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
G.R. No. 210987, November 24, 2014, VELASCO, JR., J.
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary
of Finance under the adverted NIRC provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as
amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA
petition as "other matters" arising under the NIRC or other laws administered by the BIR.
Facts:
Philamlife’s shareholdings in PhilamCare were sold to STI Investments. After the sale was completed
and the necessary documentary stamp and capital gains taxes were paid, Philamlife filed an application for a
certificate authorizing registration/tax clearance with the Bureau of Internal Revenue to facilitate the
transfer of the shares. Months later, petitioner was informed that it needed to secure a BIR ruling in
connection with its application due to potential donor’s tax liability. The Commissioner on Internal Revenue
denied Philamlife’s request because the selling price of the shares thus sold was lower than their book value –
it held that donor’s tax became imposable on the price difference. Aggrieved, petitioner requested respondent
Secretary of Finance to review BIR Ruling, but to no avail. Upon appeal to the CA, the CA held that it is the CTA
that has jurisdiction over the issues raised.
Issue:
Where does one seek immediate recourse from the adverse ruling of the Secretary of Finance in its
exercise of its power of review?
Ruling:
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec. 7(a)(1)
of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with
jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws administered by the
BIR. As stated:
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.
Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the Secretary’s review under Sec. 4 of the NIRC.Indeed,
to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this situation, we imply from the purpose of RA 1125 and its
amendatory laws that the CTA is the proper forum with which to institute the appeal. This is not, and should
not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that
matters calling for technical knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency mandated to adjudicate tax,
customs, and assessment cases, there can be no other court of appellate jurisdiction that can decide the issues
raised in the CA petition, which involves the tax treatment of the shares of stocks sold.
______________________________________________________________________________________________________________________________
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,

Respondent.
G.R. No. 168498, April 24, 2007, YNARES-SANTIAGO, J.
The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax
Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such
decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner
to act on the disputed assessments.
Facts:
RCBC reiterates its claim that its former counsel’s failure to file petition for review with the Court of
Tax Appeals within the period set by Section 228 of the National Internal Revenue Code was excusable. It
alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not aware of its issuance
and that it had become final and executory. It also argues that, in the interest of substantial justice, the instant
case should be re-opened considering that it was allegedly not accorded its day in court when the Court of
Tax Appeals dismissed its petition for review for late filing.
Issue:
Should the CTA entertain the petition?
Ruling:
No. The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such
matters as are clearly within its jurisdiction. The jurisdiction of the Court of Tax Appeals has been expanded
to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals
with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision
or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to
act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and failure
to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain
and determine the correctness of the assessments. Such period is not merely directory but mandatory and it
is beyond the power of the courts to extend the same.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from
date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after
the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing.
Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment
became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as
it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner
can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and
appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioner’s inaction.
______________________________________________________________________________________________________________________________
LASCONA LAND CO., INC., Petitioner, v COMMISSIONER OF INTERNAL REVENUE, Respondent.

G.R. No. 171251, March 5, 2012, PERALTA, J.
A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested
assessment.
Facts:
Lascona protested the deficiency assessment notice issued by the BIR. Upon denial of the protest, it
appealed before the CTA. The CIR maintained that Lascona's failure to timely file an appeal with the CTA after
the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue
Code resulted to the finality of the assessment.
Issue:
Whether the subject assessment has become final, executory and demandable due to the failure of
petitioner to file an appeal before the CTA within 30 days from the lapse of the (180)-day period pursuant to
Section 228 of the NIRC.
Ruling:
No. When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit
it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A
taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested
assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR
will decide on the protested assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment,
while we reiterate − the taxpayer has two options, either: (1) file a petition for review with the CTA within 30
days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the
disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of
such decision, these options are mutually exclusive and resort to one bars the application of the other.
Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the
protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for
review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the
180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments.
Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of the Letter dated
March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of
the copy of the decision.
Administrative Decision on a Disputed Assessment
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA CULTURAL

CORPORATION, respondent.
G.R. No. 135210, July 11, 2001, PANGANIBAN, J.
A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate
payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayers request for
reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the
Court of Tax Appeals (CTA).
Facts:
The Commissioner, in an investigation, had a preliminary finding that Isabela Cultural Corporation
incurred a tax deficiency of more than nine million pesos. Isabela received an assessment letter from the
Commissioner demanding payment. Isabela filed a protest, however, it received a Final Notice Before Seizure.
Isabela considered said final notice of seizure as the Commissioner's final decision. It then filed a petition for
review to the CTA. Commissioner maintains that this Final Notice was a mere reiteration of the delinquent
taxpayers obligation to pay the taxes due. It was supposedly a mere demand that should not have been
mistaken for a decision on a protested assessment. Such decision, the commissioner contends, must
unequivocably indicate that it is the resolution of the taxpayers request for reconsideration and must likewise
state the reason therefor.
Issue:
Whether or not the Final Notice Before Seizure against Isabela constitutes the final decision of the
CIR appealable to the CTA.
Ruling:
Yes. The wording of the “Final Notice Before Seizure” sent by the BIR to respondent indicates that the
the latter was being given a last opportunity to pay; otherwise, its properties would be subjected to distraint
and levy. How then could it have been made to believe that its request for reconsideration was still pending
determination, despite the actual threat of seizure of its properties?A final demand letter from the Bureau of
Internal Revenue, reiterating to the taxpayer the immediate payment of a tax deficiency assessment
previously made, is tantamount to a denial of the taxpayers request for reconsideration. Such letter amounts
to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals (CTA).
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. AYALA SECURITIES CORPORATION and THE
HONORABLE COURT OF TAX APPEALS, respondents.
G.R. No. L-29485, March 31, 1976, Esguerra J.
The letter of February 18, 1963, in the view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the assessment made by the petitioner, considering
that the said letter is in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of
the assessment already made, and for the immediate payment of the sum of P758, 687.04 in spite of the
vehement protest of the respondent corporation on April 21, 1961.
Facts:
The Commissioner of Internal Revenue advised Ayala Securities of the assessment of P758.687.04 on
its accumulated surplus reflected on its income tax return. Ayala received a letter dated February 18, 1963,
calling its attention to its outstanding and unpaid tax and thereby requesting for the payment of the said
amount within five (5) days from receipt of the said letter. Believing the aforesaid letter to be a denial of its
protest, the herein respondent corporation filed with the Court of Tax Appeals a Petition for Review of the
assessment.
Issue:
Whether or not the letter is tantamount to a denial of the protest.
Ruling:
The letter of February 18, 1963, in the view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the assessment made by the petitioner,
considering that the said letter is in itself a reiteration of the demand by the Bureau of Internal Revenue for
the settlement of the assessment already made, and for the immediate payment of the sum of P758, 687.04 in
spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear
indication of the firm stand of petitioner against the reconsideration of the disputed assessment in view of the
continued refusal of the respondent corporation to execute the waiver of the period of limitation upon the
assessment in question.
______________________________________________________________________________________________________________________________
SURIGAO ELECTRIC CO., INC., petitioner, vs. THE HONORABLE COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. L-25289, June 28, 1974, CASTRO, J.
The tenor of the letter, specifically, the statement regarding the resort to legal remedies, unmistakably
indicates the final nature of the determination made by the Commissioner of the petitioner's deficiency franchise
tax liability.
Facts:
Surigao Electric Co. received a warrant of distraint and levy to enforce the collection of a deficiency
franchise tax.The controversy culminated in a revised assessment dated April 29, 1963 in the amount of
P11,533.53, representing the petitioner's deficiency franchise-tax. The petitioner then requested a
recomputation of the revised assessment in a letter to the Commissioner. The Commissioner, however, in a
letter dated June 28, denied the request for recomputation. On August 1, 1963 the petitioner appealed to the
Court of Tax Appeals. The tax court dismissed the appeal on October 1, 1965 on the ground that the appeal
was filed beyond the thirty-day period of appeal. The parties disagree on which letter of the Commissioner
embodies the decision or ruling appealable to the tax court.
Issue:
Whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred.
Ruling:
Yes. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by
the Commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter,
the Commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave
warning that in the event it failed to pay, the said Commissioner would be constrained to enforce the
collection thereof by means of the remedies provided by law. The tenor of the letter, specifically, the
statement regarding the resort to legal remedies, unmistakably indicates the final nature of the determination
made by the Commissioner of the petitioner's deficiency franchise tax liability.To sustain the petitioner's
contention that the Commissioner's letter of June 28, 1963 denying its request for further amendment of the
revised assessment constitutes the ruling appealable to the tax court and that the thirty-day period should,
therefore, be counted from July 16, 1963, the day it received the June 28, 1963 letter, would, in effect, leave
solely to the petitioner's will the determination of the commencement of the statutory thirty-day period, and
place the petitioner — and for that matter, any taxpayer — in a position, to delay at will and on convenience
the finality of a tax assessment. This absurd interpretation espoused by the petitioner would result in grave
detriment to the interests of the Government, considering that taxes constitute its life-blood and their prompt
and certain availability is an imperative need.
The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be counted
from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8, 1963 to June 7, 1963
(the day the petitioner, by registered mail, sent to the Commissioner its letter of June 6, 1963 requesting for
further recomputation of the amount demanded from it) saw the lapse of thirty days. The June 6, 1963
request for further recomputation, partaking of a motion for reconsideration, tolled the running of the thirty-
day period from June 7, 1963 (the day the petitioner sent its letter by registered mail) to July 16, 1963 (the
day the petitioner received the letter of the Commissioner dated June 28, 1963 turning down its request). The
prescriptive period commenced to run again on July 16, 1963. The petitioner filed its petition for review with
the tax court on August 1, 1963 — after the lapse of an additional sixteen days. The petition for review having
been filed beyond the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.
______________________________________________________________________________________________________________________________
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNION SHIPPING CORPORATION and THE
COURT OF TAX APPEALS, respondents.
G.R. No. L-66160, May 21, 1990, PARAS, J.
The Commissioner of Internal Revenue, not having clearly signified his final action on the disputed
assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent
received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period
to appeal commenced to run.
Facts:
CIR assessed Union Shipping of deficiency income taxes. Union Shipping protested the assessment.
CIR, without ruling on the protest, issued a Warrant of Distraint and Levy. Again, without acting on the
request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, CIR filed a collection
suit. Union Shipping appealed to the CTA
Issue:
Whether or not the Court of Tax Appeals has jurisdiction over this case
Ruling:
Yes. As a rule, the reviewable decision of the Bureau of Internal Revenue is that contained in the
letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the
Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133
SCRA 769 [1984] emphasis supplied). It was likewise stressed that the procedure enunciated is demanded by
the pressing need for fair play, regularity and orderliness in administrative action.
Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final
action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only
when private respondent received the summons on the civil suit for collection of deficiency income on
December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and
reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of
deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of
Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal
pursuant to Section 11 of R.A. 1125.
______________________________________________________________________________________________________________________________
OCEANIC WIRELESS NETWORK,INC., Petitioner, vs COMMISSIONER OF INTERNAL REVENUE, THE

COURT OFTAX APPEALS, and THE COURTOF APPEALS,
G.R. No. 148380, December 9, 2005, Azcuna, J.
The demand letter received by petitioner verily signified a character of finality. Therefore, it was
tantamount to a rejection of the request for reconsideration.
Facts:
Oceanic Wireless received from the BIR a deficiency tax assessment. Oceanic filed a protest. Acting in
behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Severino
Buot, reiterated the tax assessments while denying petitioners request for reinvestigation in a letter. Said
letter likewise requested petitioner to pay the total amount of P8,644,998.71 within ten days from receipt
thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office
for the issuance of a warrant of distraint and levy without further notice. Upon petitioners failure to pay the
subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for
the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and
garnishment. Oceanic filed a Petition for Review with CTA to contest the issuance of the warrants to enforce
the collection of the tax assessments. The CTA dismissed the petition because it was filed beyond the 30 day
period.
Issue:
Whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate
officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and
subject to an appeal to the Court of Tax Appeals.
Ruling:
Yes. In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final
action taken by the Bureau of Internal Revenue on petitioners request for reconsideration when it reiterated
the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result
in the issuance of a warrant of distraint and levy to enforce its collection without further notice. In addition,
the letter contained a notation indicating that petitioners request for reconsideration had been denied for
lack of supporting documents.
The demand letter received by petitioner verily signified a character of finality. Therefore, it was
tantamount to a rejection of the request for reconsideration. As correctly held by the Court of Tax Appeals,
while the denial of the protest was in the form of a demand letter, the notation in the said letter making
reference to the protest filed by petitioner clearly shows the intention of the respondent to make it as [his]
final decision.
The fact that the demand letter was issued and signed by the Chief of the Accounts Receivable and
Billing Division instead of the BIR Commissioner is not fatal, becausethe authority to make tax assessments
may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the
Commissioner himself, if not reviewed or revised by the latter such as in this case.
Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the
reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and
denying its request for reconsideration which constituted the final determination by the Bureau of Internal
Revenue on petitioners protest. Being a final disposition by said agency, the same would have been a proper
subject for appeal to the Court of Tax Appeals.
_____________________________________________________________________________________________________________________________
Allied Banking Corporation vs Commissioner of Internal Revenue

G.R. No. 175097, February 5, 2010, DEL CASTILLO, J.
What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices
which was not administratively protested by the petitioner can be considered a final decision of the CIR
appealable to the CTA because the words used, specifically the words final decision and appeal, taken together
led 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.
Facts:
The BIR issued a Preliminary Assessment Notice to Allied Bank for deficiency Documentary Stamp
Tax and Gross Receipts Tax to which Allied filed a protest. BIR wrote a Formal Letter of Demand with
Assessment Notices to petitioner, which partly reads 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.
Allied bank filed a Petition for Review with the CTA. CIR filed a Motion to Dismiss on the ground that
Allied failed to file an administrative protest on the Formal Letter of Demand with Assessment Notices.
Issue:
Whether the Formal Letter of Demand can be construed as a final decision of the CIR appealable to
the CTA.
Ruling:
Yes. In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto,
the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the
proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30
days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a
Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review
by the CTA was proper. However, a careful reading of the Formal Letter of Demand with Assessment Notices
leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of
administrative remedies, i.e., estoppel on the part of the administrative agency concerned.
Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word appeal instead of protest, reinvestigation, or reconsideration. Although there was
no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word
appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out
by petitioner, under Section 228 of the NIRC, the terms protest, reinvestigation and reconsideration refer to
the administrative remedies a taxpayer may take before the CIR, while the term appeal refers to the remedy
available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section 11 of RA 1125, likewise
uses the term appeal when referring to the action a taxpayer must take when adversely affected by a decision,
ruling, or inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with
Assessment Notices to the CTA merely took the cue from respondent. Besides, any doubt in the interpretation
or use of the word appeal in the Formal Letter of Demand with Assessment Notices should be resolved in
favor of petitioner, and not the respondent who caused the confusion.
What we are saying in this particular case is that, the Formal Letter of Demand with Assessment
Notices which was not administratively protested by the petitioner can be considered a final decision of the
CIR appealable to the CTA because the words used, specifically the words final decision and appeal, taken
together led 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.
Exclusive jurisdiction over criminal cases
Commissioner of Customs v. Marina Sales, Inc.

G.R. No. 183868, November 22, 2010,MENDOZA, J.
Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under
its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or
moved for a new trial with the concerned CTA division.
Facts:
Marina's importation was initially classified under Tariff Harmonized System Heading H.S. 2106.90
10 at 1% import duty rate. However, the BOC examiners contested the tariff classification of Marinas Import
and moved to reclassify Marinas importation as Tariff Heading H.S. 2106.90 50 (covering composite
concentrates for simple dilution with water to make beverages) with a corresponding 7% import duty rate.
Upon appeal, the CTA division ruled in favor of Marina. The Commissioner disagreed and elevated the case to
the CTA-En Banc. The CTA En Banc dismissed the petition. It held that the Commissioner failed to file before
the Second Division the required Motion for Reconsideration before elevating his case to the CTA En Banc.
Issue:
Whether the dismissal by the Court of Tax Appeals en banc of petitioner's petition based on mere
technicality will result in injustice and unfairness to petitioner.
Ruling:
No. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it
sought prior reconsideration or moved for a new trial with the concerned CTA division. Procedural rules are
not to be trifled with or be excused simply because their non-compliance may have resulted in prejudicing a
party's substantive rights. Rules are meant to be followed. They may be relaxed only for very exigent and
persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of
the prescribed rules.
TAXPAYER’S SUIT IMPUGNING THE VALIDITY OF TAX MEASURES OR ACTS OF TAXING AUTHORITY
Requisites for challenging the constitutionality of a tax measure or act of taxing authority
RAMON A. GONZALES v. IMELDA R. MARCOS, as Chairman of the Cultural Center of the Philippines,
Father HORACIO DE LA COSTA, I. P. SOLIONGCO, ERNESTO RUFINO, ANTONIO MADRIGAL, and ANDRES
SORIANO, as Members thereof
G.R. No. L-31685, July 31, 1975, FERNANDO, J.
A valid reason why such an outcome was unavoidable was that the funds administered by the President
came from donations and contributions not by taxation. There was that absence of the requisite pecuniary or
monetary interest.
Facts:
Ramon Gonzales questioned the validity of the creation in E.O. 30 of a trust for the Cultural Center of
the Philippines (CCP). It was likewise alleged that the Board of Trustees did accept donations from the private
sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National
Investment & Development Corporation as well as $3.5 million received from President Johnson of the United
States in the concept of war damage funds, all intended for the construction of the Cultural Center building
estimated to cost P48 million. The trial court dismissed Gonzales’ suit for prohibition on the ground that the
funds administered by the Center came from donations and contributions, with not a single centavo raised by
taxation, and that there was an absence of any pecuniary or monetary interest of Gonzales that could in any
wise be prejudiced distinct from those of the general public.
Issue:
Whether or not the trial court’s dismissal of Gonzales’ petition was proper.
Ruling:
Yes.Avalid reason why such an outcome (in the failing of the petition) was unavoidable was that the
funds administered by the President came from donations and contributions not by taxation. There was that
absence of the requisite pecuniary or monetary interest.Hence, Gonzales has not satisfied the elemental
requisite for a taxpayer's suit. Assuming that public funds raised by taxation were involved, it does not
necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be
passed upon. This Court is not devoid of discretion as to whether or not it should be entertained.
______________________________________________________________________________________________________________________________
PLARIDEL M. ABAYAv. HON. SECRETARY HERMOGENES E. EBDANE, JR., in his capacity as Secretary of
the DEPARTMENT OF PUBLIC WORKS and HIGHWAYS
G.R. No. 167919 February 14, 2007 J. Callejo Sr.
The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the
national government or government- owned or controlled corporations allegedly in contravention of law. A
taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is
being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of
an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its
validity.
Facts:
The petitioners, Plaridel M. Abaya who claims that he filed the instant petition as a taxpayer, former
lawmaker, and a Filipino citizen, and Plaridel C. Garcia likewise claiming that he filed the suit as a taxpayer,
former military officer, and a Filipino citizen, mainly seek to nullify a DPWH resolution which recommended
the award to private respondent China Road & Bridge Corporation of the contract for the implementation of
the civil works known as Contract Package No. I (CP I). They also seek to annul the contract of agreement
subsequently entered into by and between the DPWH and private respondent China Road & Bridge
Corporation pursuant to the said resolution.
Issue:
Whether or not petitioners has the legal standing to file the instant case against the government.
Ruling:
Yes. Petitioners, as taxpayers, possess locus standi to file the present suit. Briefly stated, locus standi
is a right of appearance in a court of justice on a given question. More particularly, it is a party’s personal and
substantial interest in a case such that he has sustained or will sustain direct injury as a result of the
governmental act being challenged. Locus standi, however, is merely a matter of procedure and it has been
recognized that in some cases, suits are not brought by parties who have been personally injured by the
operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest. Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance
on locus standi, including those cases involving taxpayers.
The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by
the national government or government- owned or controlled corporations allegedly in contravention of law.
A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public
money is being deflected to any improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract
to challenge its validity.
______________________________________________________________________________________________________________________________
GUALBERTO DELA LLANA vs. THE CHAIRPERSON, COMMISSION ON AUDIT, et al.

G.R. No. 180989, February 7, 2012, J. Sereno
The conduct of a pre-audit is not a mandatory duty that the Supreme Court may compel the Commission
on Audit (COA) to perform. This discretion on its part is in line with the constitutional pronouncement that the
COA has the exclusive authority to define the scope of its audit and examination. When the language of the law is
clear and explicit, there is no room for interpretation, only application.Neither can the scope of the provision be
unduly enlarged by the SC.
Facts:
The COA issued a circular lifting the system of pre-audit of government financial transactions, albeit
with certain exceptions. After the 1986 revolution, grave irregularities and anomalies in the government’s
financial transactions were uncovered, prompting the COA to reinstate the pre-audit of selected government
transactions. This was again lifted upon normalization of the political system. The imposition and lifting
pattern continued until such a time when it was finally lifted due to developments of heightened vigilance
among government agencies. Gualberto Dela Llana wrote the COA regarding the recommendation of the
senate committee on agriculture and food that that Department of Agriculture set-up an internal pre-audit
service. When the COA denied the request, Dela Llana filed a petition for certiorari before the SC.
Issue:
WON the constitutional duty of the COA includes the duty to conduct pre-audit.
Ruling:
No. A pre-audit is an examination of financial transactions before their consumption or payment. It

seeks to determine whether the following conditions are present: (1) the proposed expenditure complies
with an appropriation law or other specific statutory authority; (2) sufficient funds are available for the
purpose; (3) the proposed expenditure is not unreasonable or extravagant, and the unexpended balance of
appropriations to which it will be charged is sufficient to cover the entire amount of the expenditure; and (4)
the transaction is approved by the proper authority and the claim is duly supported by authentic underlying
evidence. It could, among others, identify government agency transactions that are suspicious on their face
prior to their implementation and prior to the disbursement of funds.
Dela Llana anchors his argument on Section 2 of Article IX-D of the 1987 Constitution. He claims that
under the first paragraph quoted above, government transactions must undergo a pre-audit, which is a COA
duty that cannot be lifted by a mere circular. However, these allegations find no support in the aforequoted
Constitutional provision. There is nothing in the said provision that requires the COA to conduct a pre-audit
of all government transactions and for all government agencies. The only clear reference to a pre-audit
requirement is found in Section 2, paragraph 1, which provides that a post-audit is mandated for certain
government or private entities with state subsidy or equity and only when the internal control system of an
audited entity is inadequate. In such a situation, the COA may adopt measures, including a temporary or
special pre-audit, to correct the deficiencies.

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SY 2015-2016 Case Syllabus TAXATION LAW

DEAN’S CIRCLE 2016

THEORIES AND BASIS OF TAXATION

NATIONAL INTERNAL REVENUE CODE (NIRC) OF 1997, AS AMENDED

LOCAL GOVERNMENT CODE OF 1991, AS AMENDED

LOCAL GOVERNMENT TAXATION

TARIFF AND CUSTOMS CODE OF 1978, AS AMENDED

CTA PROCEEDINGS ....................................................................................................................................................................... 301

THEORIES AND BASIS OF TAXATION

COMMISSIONER OF INTERNAL REVENUE vs. DASH ENGINEERING PHILIPPINES

Whether or not DEPI’s judicial claim for refund should be granted?

FIRST LEPANTO TAISHO INSURANCE CORP. vs. COMMISSIONER OF INTERNAL REVENUE

COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION

Taxes are the lifeblood of the nation.

COMMISSIONER OF INTERNAL REVENUE v. BANK OF THE PHILIPPINE ISLANDS

Whether or not BPI is liable for the said taxes.

COMMISSIONER OF INTERNAL REVENUE v. MANUEL B. PINEDA, as one of the heirs of deceased

COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, CITYTRUST BANKING CORPORATION

DAVAO GULF LUMBER CORPORATION v. COMMISSIONER OF INTERNAL REVENUE and COURT OF

FERDINAND R. MARCOS II v. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL

PHILIPPINE BANK OF COMMUNICATIONS v. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX

PHILEX MINING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and

NORTH CAMARINES LUMBER CO., INC. v. COLLECTOR OF INTERNAL REVENUE

Whether or not the appeal was filed out of time.

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

Jurisdiction over Subject and Objects

COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF APPEALS and ALHAMBRA

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.

Whether or not the imposition of MCIT is violative of due process of law.

It is subject to limitations and restrictions

Whether or not the imposition of MCIT is violative of due process of law.

REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF FINANCE, THE

NATIONAL TELECOMMUNICATIONS COMMISSION v. HONORABLE COURT OF APPEALS and PHILIPPINE

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. v. MUNICIPALITY OF TANAUAN, LEYTE,

COMMISSIONER OF INTERNAL REVENUE v.FORTUNE TOBACCOCORPORATION

NATIONAL POWER CORPORATION v.THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

Whether the IRR of the EPIRA is a tax.

CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.) v. BASES CONVERSION

Whether the said imposition is a tax.

Whether the amount of fees imposed is lawful.

PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION

Whether the imposition is unconstitutional.

Whether the Decree is constitutional.

SCOPE AND LIMITATIONS OF TAXATION

Power of taxation is inherently legislative in character

NATIONAL POWER CORPORATION v. THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R.

Whether or not NAPOCOR is tax exempt.

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. v. MUNICIPALITY OF TANAUAN, LEYTE,

Whether there was undue delegation of the taxing power.

Taxation is for a public purpose

PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION

Whether the imposition is unconstitutional.

ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL

Taxation is subject to international comity

COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED

Whether private respondents is exempt from tax?