#43. CIR vs. Pineda, 21 SCRA 105
L-18330, July 31, 1963
GR No. L-22734, September 15, 1967
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that
the estate was divided among and awarded to the heirs. Atty. Pineda's share
amounted to about P2,500.00. After the estate proceedings were closed, the BIR
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and
1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns
for the estate issued an assessment and charged the full amount to the inheritance due
to Atty. Pineda who argued that he is liable only to extent of his proportional share in
the inheritance.
ISSUE:
Can the BIR collect the full amount of estate taxes from an heir's inheritance?
HELD:
YES. The Government can require Atty. Pineda to pay the full amount of the taxes
assessed.
The reason is that the Government has a lien on the P2,500.00 received by him from
the estate as his share in the inheritance, for unpaid income taxes for which said
estate is liable. By virtue of such lien, the Government has the right to subject the
property in Pineda's possession to satisfy the income tax assessment. After such
payment, Pineda will have a right of contribution from his co-heirs, to achieve an
adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received; and second, is by subjecting said property
of the estate which is in the hands of an heir or transferee to the payment of the tax
due. This second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given, in instances like the
case at bar, the necessary discretion to avail itself of the most expeditious way to
collect the tax as may be envisioned in the particular provision of the Tax Code
above quoted, because taxes are the lifeblood of government and their prompt and
certain availability is an imperious need.
#44 Borja vs. Gella
G.R. No.
FACTS:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958
for properties located in the City of Manila and Pasay City and has offered to pay
them with two negotiable certificates of indebtedness in the amounts of P793.40 and
P717.69, respectively. Borja ,was, however, a mere assignee of the aforesaid
negotiable certificates. The said negotiable certificates were from Rafael Vizcaya and
Pablo Batario Luna were the applicants for backpay rights covered by the
instrument.
The offer to pay the real estate tax through the instrument in question were rejected
by the City Treasurers of both Manila and Pasay. They based it on the ground of the
instrument’s limited negotiability under Section 2, Republic Act No. 304, as
amended by Republic Act 800
Furthermore, the City Treasurer of Manila: rejected it on the ground that he was
ordered not to accept them by the city mayor.
Borja was prompted to bring the question before the Treasurer of the Philippines.
The Treasurer of the Philippines opined that the negotiable certificates cannot be
accepted as payment of real estate taxes inasmuch as the law provides for their
acceptance from their backpay holder only or the original applicant himself, but not
his assignee.
Frustrated, Borja filed an action., against the treasurers of both the City of Manila
and Pasay City, and the Treasurer of the Philippines, to impel them to execute an act
which the law allegedly requires them to perform which is to accept the above-
mentioned certificates of indebtedness considering that they were already due and
redeemable so as not to deprive him illegally of his privilege to pay his obligation to
the government thru such means.
Trial Court: Treasurer of the Philippines, and the treasurers of the City of Manila
and Pasay City are ordered to accept petitioner's Negotiable Certificates of
Indebtedness in the sums of P793.40 and P717.39 in payment of real estate taxes of
his properties in the City of Manila and Pasay City, respectively, without costs.
ISSUE:
Whether Borja has the right to apply to the payment of his real estate taxes to the
government of Manila and Pasay through the certificates of indebtedness he holds
while appellants have the correlative legal duty to accept the certificates in payment
of said taxes
RULING:
No. The appellants are not duty bound bound to accept the negotiable certificates of
indebtedness held by appellee in payment of his real estate taxes for the simple
reason that they were not obligations subsisting at the time of the approval of
Republic Act No. 304 which took effect on June 18, 1948.
It should be noted that the real estate taxes in question have reference to those due in
1958 and subsequent years. The law is explicit that in order that a certificate may be
used in payment of an obligation the same must be subsisting at the time of its
approval even if we hold that a tax partakes of this character, neither can it be
contended that appellee can compel the government to accept the alleged certificates
of indebtedness in payment of his real estate taxes under Section 2 of RA 304, also
for the reason that in order that such payment may be allowed the tax must be owed
by the applicant himself. This is the correct implication that may be drawn from the
use by the law of the words "his taxes". Verily, the right to use the backpay
certificate in settlement of taxes is given only to the applicant and not to any holder
of any negotiable certificate to whom the law only gives the right to have it
discounted by a Filipino citizen or corporation under certain limitations.
Here appellee is not himself the applicant of the certificate. in question. He is merely
an assignee thereof, Or a subsequent holder whose right is at most to have it
discounted upon maturity—or to negotiate it in the meantime. A fortiori, it may be
included that, not having the right to use said certificates to pay his taxes, appellee
cannot compel appellants to accept them as he requests in the present petition for
mandamus.
As a consequence, we cannot but hold that mandamus does not lie against appellants
because they have in no way neglected to perform an act enjoined upon them by law
as a duty, nor have they unlawfully excluded appellee from the use or enjoyment of a
right to which he is entitled.
#45 CIR vs. Cebu Portland Cement
G.R. No. L-29059, December 15, 1987
FACTS:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as
modified on appeal by the Supreme Court on February 27, 1965, the Commissioner
of Internal Revenue was ordered to refund to the Cebu Portland Cement Company
the amount of P359,408.98, representing overpayments of ad valorem taxes on
cement produced and sold by it after October 1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the
petitioner and the private respondent, the latter moved for a writ of execution to
enforce the said judgment.
The motion was opposed by the petitioner on the ground that the private respondent
had an outstanding sales tax liability to which the judgment debt had already been
credited. In fact, it was stressed, there was still a balance owing on the sales taxes in
the amount of P 4,789,279.85 plus 28% surcharge.
On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the
alleged sales tax liability of the private respondent was still being questioned and
therefore could not be set-off against the refund.
ISSUE:
Whether or not the judgment debt can be enforced against private respondent's sales
tax liability, the latter still being questioned
RULING:
The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of
the government." If the payment of taxes could be postponed by simply questioning
their validity, the machinery of the state would grind to a halt and all government
functions would be paralyzed.
The Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. - No court shall have
authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment
is already being questioned in a court of justice but more so if, as in the instant case,
the challenge to the assessment is still-and only-on the administrative level. There is
all the more reason to apply the rule here because it appears that even after crediting
of the refund against the tax deficiency, a balance of more than P 4 million is still
due from the private respondent.
#46 Republic vs. Mambulao
G.R. No. L-17725, February 28, 1962
FACTS:
Mambulao Lumber Company paid the Government a total of P 9,127.50 as
reforestation charges for the years 1947 to 1956. It is the company’s contention that
said sum of 9,127.50, not having been used in the reforestation of the area covered
by its license, the same is refundable to it or may be applied in compensation of P
4,802.37 due from it as forest charges.
Court of First Instance of Manila ordered the company to pay the government the
sum of P 4,802.37 with 6% interest thereon from date of the filing of the complaint
until fully paid, plus costs. Thus, the present appeal.
ISSUE:
Whether the set-off or compensation is proper
RULING:
No. There is nothing in the law which requires that the amount collected as
reforestation charges should be used exclusively for the reforestation of the area
covered by the license of a licensee or concessionaire, and that if not so used, the
same shall be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation
charges is in the nature of a tax which forms part of the Forestation Fund, payable by
him irrespective of whether the area covered by his license is reforested or not.
Said fund, as the law expressly provides, shall be expended in carrying out the
purposes provided for thereunder, namely, the reforestation or afforestation, among
others, of denuded areas needing reforestation or afforestation.
The weight of authority is to the effect that internal revenue taxes, such as the forest
charges in question is not subject to set-off or compensation. Taxes are not in the
nature of contracts between the parties but grow out of a duty to, and are positive
acts of the government, to the making and enforcing of which, the personal consent
of the individual taxpayers is not required.
With respect to the forest charges which the company has paid to the government,
they are in the coffers of the government as tax collected, and the government does
not owe anything. It is crystal clear that the Republic of the Philippines and the
Mambulao Lumber Company are not creditors and debtors of each other, because
compensation refers to mutual debts.
#47 Francia vs. IAC
G.R. No. L-67649, June 28, 1988
FACTS:
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00. From 1963
to 1977, Francia failed to pay his real estate taxes. Thus, his property was sold at
public auction in order to satisfy a tax delinquency of P2,400.00. Private respondent
Ho was the highest bidder for the property. Francia filed a complaint to annul the
auction sale. Francia contends that his tax delinquency of P2,400.00 has been
extinguished by legal compensation. He claims that the government owed him
P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence,
his tax obligation had been set-off by operation of law as of October 15, 1977.
ISSUE:
W/N his tax obligation is automatically set-off by the compensation from its
expropriated property.
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 to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government.
This is because the government and taxpayer are not mutually creditors and debtors
of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set-off.
#48 Philex Mining vs. CIR, 294 SCRA 687
DOCTRINE: Taxes cannot be the subject of legal compensation or set-off because
the government and the taxpayer are not mutually creditors and debtors of each
other. Obligations in the nature of debts are due to the government in its corporate
capacity, while taxes are due to the government in its sovereign capacity.

FACTS:
On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities
for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in
the total amount of P123,821,982.52.
Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax
credit/refund should be applied against the tax liabilities, citing our ruling in
Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.
BIR rejected the claim for set off and said since these pending claims have not yet
been established or determined with certainty, it follows that no legal compensation
can take place. Hence, BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter.
Philex thus raised the issue to the Court of Tax Appeals. In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount
of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52 effectively lowered the latter’s tax obligation
of P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still ordered
Philex to pay the remaining balance of P110,677,688.52 plus interest because for
legal compensation to take place, both obligations must be liquidated and
demandable.CTA said liquidated debts are those where the exact amount has already
been determined. Since the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined, the liquidated debt of the Petitioner to the
government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favour. Moreover, the Court of Tax Appeals ruled
that taxes cannot be subject to set-off on compensation since claim for taxes is not a
debt or contract.
Philex brought the case to the COURT OF APPEALS who affirmed the CTA ruling.
An MR filed by Philex was also denied. But prior to that, 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.
Philex’s Contentions:
1. In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities since both had already become
due and demandable, as well as fully liquidated; hence, legal compensation can
properly take place.
2. Also, Philex asserts that the imposition of surcharge and interest for the non-
payment of the excise taxes within the time prescribed was unjustified. Philex posits
the theory that it had no 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.
3. Finally, Philex asserts that the BIR violated Section 106(e) [30] of the National
Internal Revenue Code of 1977, which requires the refund of input taxes within 60
days,[31] when it took five years for the latter to grant its tax claim for VAT input
credit/refund.
ISSUES & RULING:
1. Can the VAT input credit/refund be set-off against the tax liabilities of
petitioner?
◦ 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. 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.
◦ In Francia v. Intermediate Appellate Court, we categorically held
that taxes cannot be subject to set-off or compensation:
We have consistently ruled that there can be no off-setting of
taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a
lawsuit against the government.
◦ Philex’s reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled 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. When the National Internal
Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted.
2. Can the petitioner be charged for surcharge and interest for the non-
payment of the excise taxes while its claim for refund is pending?
◦ No. It is a basic principle in tax law that taxes are the lifeblood of
the government and so should be collected without unnecessary
hindrance. Evidently, to countenance Philexs whimsical reason
would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence. To be sure, we cannot
allow Philex to refuse the payment of its tax liabilities on the ground
that it has a pending tax claim for refund or credit against the
government which has not yet been granted.
 ◦ A distinguishing feature of a tax is that it is compulsory rather
than a matter of bargain. Hence, a tax does not depend upon the
consent of the taxpayer. If any payer can defer the payment of
taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government
revenue system. A taxpayer cannot refuse to pay his taxes when
they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the
result of the lawsuit it filed against the government.
◦ Philex's theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to
confusion and abuse, depriving the government of authority over the
manner by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and
the BIR is not vested with any authority to waive the collection
thereof.[28] The same cannot be condoned for flimsy reasons,
[29]
similar to the one advanced by Philex in justifying its non-
payment of its tax liabilities.
3. Is the BIR liable for not granting the tax claim for VAT input
credit/refund within 60 days and if so, should the petitioner’s liability be
extinguished by reason thereof?
◦ No. Once a claimant has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful
dispatch. After all, since taxpayers owe honesty to government it is
but just that government render fair service to the taxpayers.
◦ In the instant case, the VAT input taxes were paid between 1989 to
1991 but the refund of these erroneously paid taxes was only granted
in 1996. Obviously, had the BIR been more diligent and judicious
with their duty, it could have granted the refund earlier.
◦ Simple justice requires the speedy refund of wrongly-held
taxes. Fair dealing and nothing less, is expected by the taxpayer
from the BIR in the latter's discharge of its function. 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 the order to maintain the general public's
trust and confidence in the Government this power must be used
justly and not treacherously.
◦ But it is a settled rule that in the performance of governmental
function, the State is not bound by the neglect of its agents and
officers. Nowhere is this more true than in the field of
taxation. Again, while we understand Philex's predicament, it
must be stressed that the same is not valid reason for the non-
payment of its tax liabilities.
◦ This, however, does not mean that the taxpayer is devoid of remedy
against public servants or employees especially BIR examiners who,
in investigating tax claims are seen to drag their feet needlessly. First,
if the BIR takes time in acting upon the taxpayer's claims for refund,
the latter can seek judicial remedy before the Court of Tax Appeals in
the manner prescribed by law. Second, if the inaction can be
characterized as wilful neglect of duty, then recourse under the Civil
Code and the Tax Code can also be availed of.
◦ Article 27 of the Civil Code provides:"Art. 27. Any person suffering
material or moral loss because a public servant or employee refuses
or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without p
rejudice to any disciplinary action that may be taken."
◦ More importantly, Section 269 (c) of the National Internal Revenue
Act of 1997 states:"xxx xxx (c) wilfully neglecting to give receipts,
as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoined by law."
#49 Domingo vs. Garlitos, 8 SCRA 443
DOCTRINE: The exception to the general rule regarding set-off is where both the
claims of the government and the taxpayer against each other have already become
due, demandable, and liquidated. Thus a taxpayer assessed municipal taxes may
assign in favor of the municipality a final judgment obtained by him against the said
municipality to cover the assessment.
FACTS:
The Supreme Court declared as final and executory the order of the Court of First
Instance of Leyte for the payment of estate and inheritance taxes, charges and
penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The
petition for execution filed by the fiscal, however, was denied by the lower court.
The Court held that the execution is unjustified as the Government itself is indebted
to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted
from the Government’s indebtedness to the Estate.

ISSUE:
Whether a tax and a debt may be compensated.

RULING:
As a general rule, NO. A tax and a debt may not be compensated. This case,
however, falls under the exception. The court having jurisdiction of the Estate had
found that the claim of the Estate against the Government has been recognized and
an amount of P262,200 has already been appropriated by a corresponding law (RA
2700). Under the circumstances, both the claim of the Government for inheritance
taxes and the claim of the intestate for services rendered have already become
overdue and demandable as well as fully liquidated. Compensation, therefore, takes
place by operation of law, in accordance with Article 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount.