COMMISSIONER OF INTERNAL REVENUE vs.

COURT OF APPEALS
G.R. No. 119761 August 29, 1996

FACTS:
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different
brands of cigarettes. The Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. The initial position of the CIR was
to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco
Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to
'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand
category.
RA No. 7654, was enacted and became effective on 03 July 1993. It amended Section 142(c)(1)
of the NIRC. About a month after the enactment and two (2) days before the effectivity of RA 7654,
Revenue Memorandum Circular No. 37-93 ("RMC 37-93") Reclassification of Cigarettes Subject to Excise
Tax, was issued by the BIR. Fortune Tobacco requested for a review, reconsideration and recall of RMC
37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed
Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. The CTA upheld the
position of Fortune Tobacco and adjudged RMC No. 37-93 as defective.

ISSUE:
Whether or not there is a violation of the due process of law.
RULING:
A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure or merely as
construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made
in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.
In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasilegislativeauthority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored. The Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.

COMMISSIONER OF INTERNAL REVENUE vs.

CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS
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 respondents 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.
THE PROVINCE OF MISAMIS ORIENTAL represented by its PROVINCIAL TREASURER v.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY
G.R. No. L-45355. January 12, 1990

FACTS
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June
17, 1961 under Republic Act 3247. It was amended by Republic Act 3570 and Republic Act 6020. On
June 28, 1973, the Local Tax Code was promulgated which provides that the province may impose a tax
on businesses enjoying franchise. Pursuant thereto, the Province of Misamis enacted Provincial Revenue
Ordinance No. 19. It demanded payment. CEPALCO refused to pay, alleging that it is exempt from all
taxes except the franchise tax required by Republic Act 6020. The provincial fiscal upheld the ordinance.
CEPALCO paid under protest. On appeal to the Secretary of Justice, ruled in favor of CEPALCO. The
province filed a petition with the trial court but was dismissed. Thus, the petition.

ISSUE
Whether CEPALCO is exempt from paying the provincial franchise tax.

RULING

Yes. First off, there is no provision in PD No. 231 expressly or impliedly amending or repealing
sec. 3 of RA 6020 which exempts CEPALCO. The rule is that a special and local statute applicable to a
particular case is not repealed by a later statute which is general in its terms, provisions and application
even if the terms of the general act are broad enough to include the cases in the special law unless there
is manifest intent to repeal or alter the special law.
The franchise of CEPALCO expressly exempts it from payment of all taxes of whatever
authority except 3% tax on its gross earnings. Such exemption is part of the inducement for the
acceptance of the franchise and the rendition of public service by the grantee.
Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it
crystal clear that the franchise tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be
imposed on companies with franchises that do not contain the exempting clause in-lieu-of-all-taxes.
MACTAN CEBU INTERNATIONAL AIRPORT VS. MARCOS
G.R. No. 120082. September 11, 1996
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, x x x and such other airports as may be established in the Province of Cebu x x x
(Sec. 3, RA 6958).
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment
of realty taxes in accordance with Section 14 of its Charter
On October 11, 1994, 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.
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.
ISSUE:
Can the City of Cebu demand payment of realty taxes on several parcels of land belonging to the
petitioner?
RULING:
Yes. 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, except as provided in the said section, 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.

COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P.

TODA, JR
G.R. No. 147188 September 14, 2004
FACTS:

CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its
issued and outstanding capital stock, to sell the Cibeles Building and the two parcels
of land on which the building stands for an amount of not less than P90 million and
subsequently sold the property for P100 million to Rafael A. Altonaga, who, in turn,
sold the same property on the same day to Royal Match Inc. (RMI) for P200 million.
The BIR sent an assessment noticeand demand letter to the CIC for deficiency
income tax for the year 1989 in the amount of P79,099,999.22. The new CIC asked
for a reconsideration, asserting that the assessment should be directed against the
old CIC, and not against the new CIC, which is owned by an entirely different set of
stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings
and the CIC free from all tax liabilities for the fiscal years 1987-1989.
The CTA held that the Commissioner failed to prove that CIC committed fraud
to deprive the government of the taxes due it. The Court of Appeals affirmed the
decision of the CTA, reasoning that the CTA, being more advantageously situated
and having the necessary expertise in matters of taxation, is "better situated to
determine the correctness, propriety, and legality of the income tax assessments
assailed by the Toda Estate."
ISSUE:
Whether or not respondent committed fraud with intent to evade the tax on
the sale of the properties of Cibeles Insurance Corporation.
HELD:
YES.
Tax evasion connotes the integration of three 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. 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. Altonagas 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.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in
1989. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC
of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is
inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR
must be upheld.

LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY

G.R. No. 144104 June 29, 2004
FACTS:

The petitioner, a non-stock and non-profit entity is the registered owner of a

parcel of land where erected in the middle of the aforesaid lot is a hospital known as
the Lung Center of the Philippines. 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. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
On June 7, 1993, both the land and the hospital building of the petitioner
were assessed for real property taxes in the amount of P4, 554,860 by the City
Assessor of Quezon City but the former filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its claim that it is a charitable
institution.

ISSUE:

Whether or not the petitioners real properties are exempted from realty tax
exemptions.
HELD:

Even if the 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.
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.
Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken. Under Section 2 of
Presidential Decree No. 1823, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2. Accordingly, the portions
occupied by the hospital used for its patients are exempt from real property taxes
while those leased to private entities are not exempt from such taxes.
COMMISSIONER OF INTERNAL REVENUE, petitionervs. PHILIPPINE GLOBAL COMMUNICATIONS,
INC., respondent. G.R. no. 144696, August 16, 2006; Carpio, J.
This case revolves around the issue on the business tax liability of a franchise grantee during the
time that the enforcement of the VAT law is suspended.
It must be recalled that R.A. No. 7716 (EVAT) was enacted in 1993 to take effect fifteen (15) days
after its complete publication in the Official Gazette or in at least two (2) newspaper of general circulation
whichever comes earlier. Having been published earlier in the Malaya and the Journal on May 28, 1994.
This law placed all franchise grantees (except water, gas and electric utilities) within the coverage of the
VAT. However, the SC issued a TRO on June 30, 1994, enjoining the enforcement and/or implementation
of the said law due to consolidated cases filed assailing its constitutionality.(Tolentino, et al. vs. Secretary
of Finance).The TRO was only lifted on October 30, 1995 and the EVAT law was implemented beginning
January 1, 1996.
During the time that the implementation of the EVAT was suspended, respondent continued to
pay the franchise tax. Later it filed a claim for refund of these franchise taxes paid (from 2 nd quarter of
1994 to 4th quarter of 1995) amounting to P70, 795,150.51.
It was the respondents position that the passage of the EVAT law removed them from the ambit
of the franchise tax and that the TRO issued in Tolentino et. al. enjoining the enforcement of the said law
did not have the effect of extending the obligation to pay the 3% franchise tax since the exemption from or
removal of liability for said 3% franchise tax under the EVAT law was not an issue in those cases. For
failure of the BIR to act on the claim for refund, it was elevated to the CTA. The CTA granted the claim
and was affirmed by the CA.
Issue:When the franchise tax is replaced by the VAT but the latters enforcement is temporarily
enjoined, will this exempt the franchise grantee from any business tax liability?
The SC ruled that the abolition of the 3% franchise tax on telecommunication companies, and its
replacement by the 10% VAT, was effective and implemented only on January 1, 1996. This means that
the abolition and replacement must take place at the same time. Thus, respondents claim for refund must
fail.

It was further pointed out by the SC that To grant a refund of the franchise it paid prior to the
effectivity and implementation of the VAT would create a vacuum and thereby deprive the government
from collecting either the VAT or the franchise tax.
Exemption from taxes is never presumed. It must be based on positive grant by the legislature in
language too clear to be mistaken and too categorical to be misinterpreted. To uphold the right of the
government to impose the tax is based on the principlethat taxes are the lifeblood of the Government
and their prompt and certain availability are an imperious need. (Commissioner vs. Pineda, 21
SCRA 105)

G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.
Petitioner is the eldest son of the late President Marcos who questions the assessment of the CIR and
collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies
upon the estate and properties of his father, despite the pendency of the proceedings on probate of the
will of the late president. Marcos filed a petition for certiorari and Prohibition with an application for writ of
preliminary injunction and/or temporary restraining order before the CA against the issuance of CIR of the
notice of Levy on Real Property and sale by public auction of the said properties. CA ruled the deficiency
assessments for estate and income tax of the late President already become final and unappealable, and
may thus be enforced by the summary remedy of levying upon the properties, hence this petition. Marcos
contended that the pending probate proceeding puts the properties in custodia legis of the probate court
to the exclusion of all other courts and administrative agencies. BIR argued that the sates authority to
collect internal revenue taxes is paramount.
Issue: Whether or not the State can collect taxes on the estate of the deceased despite the pending
probate proceeding
Ruling: The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52
Phil 803), relied upon by the petitioner-appellant is good authority on the proposition that the court having
control over the administration proceedings has jurisdiction to entertain the claim presented by the
government for taxes due and to order the administrator to pay the tax should it find that the assessment
was proper, and that the tax was legal, due and collectible.
Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment of claims for taxes
charged against the estate of the decedent. Such taxes, we said, were exempted from the application of
the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the
maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae taxes are the
sinews of the state.
It has been repeatedly observed, and not without merit, that 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. [Marcos II vs. Court of Appeals, 273 SCRA 47(1997)]
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition.

1. High Court stops BIRs new tax scheme vs. lawyers

April 22, 2014 10:04 pm

by Jomar Canlas

Tweet
Good news for lawyers, bad news for the Bureau of Internal Revenue (BIR).
The Supreme Court (SC) on Tuesday granted a petition of the Integrated Bar of the Philippines (IBP) to stop
the implementation of a regulation issued by the BIR and the Department of Finance (DOF) requiring lawyers
to submit affidavits of fixed service rates.
In their Baguio City summer session, the SC en banc issued a temporary restraining order (TRO) against
Finance Secretary Cesar Purisima and BIR Commissioner Kim Jacinto-Henares.
The TRO covered only lawyers who were the main petitioners in the case. Excluded were doctors and other
professionals who were not covered by the petition.
The IBP, through its counsel, Dean Pacifico Agabin, particularly asked the High Court to declare as null and
void the revenue regulation for being unconstitutional.
Under Section 2 of the regulation, all self-employed professionals are required to submit an affidavit indicating
the rates, manner of billings and the factors they consider in determining their service fees upon registration
every year thereafter on or before January 31; register the books of accounts and official appointment books of
their practice of profession which shall contain the names of the client and date or time of the meeting; to issue
a BIR-registered receipt showing a 100 percent discount in cases when no professional fees are charged.
But the IBP said the respondents acted with grave abuse of discretion in issuing the revenue regulation as it
encroaches upon the courts exclusive authority and jurisdiction to regulate and prescribe rules for the
protection and enforcement of Constitution rights, legal practice and the legal profession.

It maintained that the regulation had violated the doctrine of separation of powers.
The IBP also argued that the assailed policy does not conform with ethical standards set by the High Court for
the legal profession.
Both the Code of Professional Responsibility and Rules of Court say the relationship between a lawyer and his
client should be strictly personal, fiduciary and highly confidential.
The IBP said under Rule 130, Section 24 (b) of the Rules of Court, lawyers are prohibited from testifying on
any communication received from a client.
It added that the submission of a notarized list of services with corresponding rates makes it appear that the law
profession is a mere trade or money-making endeavor, instead of being devoted to public service.
The IBP said implementing the revenue regulation will lead to illegal restriction on the practice of law, as it
unduly limits a lawyers liberty to ascertain the fair and reasonable value of his services according to standards
defined by the Supreme Court.

10

TAX EVASION has always been a major problem in any taxing jurisdiction. With the rising
expenses to maintain the order of things in our society, the taxman cannot allow revenue to
slip because of tax evasion. Hence, like its counterparts abroad, our Department of Finance
issues from time to time measures intended to ensure effective tax enforcement and prevent
and curtail tax evasion.
On March 20, pursuant to the power granted by Section 244 of the National Internal Revenue Code
(Tax Code), the Secretary of Finance, upon the recommendation of the Commissioner of the Bureau
of Internal Revenue (BIR), issued Revenue Regulation (RR) 4-2014 which became effective on April
5, after its publication. Its avowed objective is to promote transparency and to eradicate tax evasion
among self-employed professionals. RR 4-2014 requires self-employed professionals to: (a.) submit
an affidavit of fixed service rates and fees; (b.) register their books of accounts and official
appointment books containing the names of clients and the date and time of meetings; (c.) issue BIR
registered receipts even when no professional fees are collected. Non- compliance with the
regulation may subject professionals to penal sanctions under the Tax Code.
The covered professionals, especially those coming from the legal and medical professions, have
denounced the measure as unconstitutional. In fact, the Integrated Bar of the Philippines (IBP)
spearheaded opposition by filing a petition (IBP v. Secretary Purisima, G.R. 211772) with the
Supreme Court on April 8, asking for the nullification of the regulation. The IBP prayed for the
issuance of a temporary restraining order pending the decision of the High Court which was granted
on April 22, permanent injunction and nullification of the measure, after due hearing. For the IBP, the
unconstitutionality of RR 4-2014 springs from the fact that: (a.) the regulation is in violation of
separation of powers as the Executive encroaches upon the prerogative of the Supreme Court; (b.)
the means prescribed by the regulation has no reasonable connection to its objective of eliminating
tax evasion and promote transparency; (c.) the regulation is not covered by the rule-making power of
the Secretary of Finance; and (d.) the regulation is an intrusion into privacy rights.
While it is now for the Supreme Court to pronounce whether RR 4-2014 is unconstitutional, it is
nevertheless especially apt to elucidate tax evasion and its consequences.
Tax evasion is a scheme used outside of lawful means to avoid the payment of taxes, and when
employed, it subjects the taxpayer to civil or criminal liabilities. Tax evasion connotes the integration
of three 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, willful, or deliberate
and not accidental; and (3.) a course of action or failure of action which is unlawful. (See
Commissioner v. Estate of Toda, Jr., G.R. No. 147188, 14 September 2004)

11

It is easily discernible based on the foregoing parameters that proving tax evasion is a tedious and
difficult task. In the case of Republic v. Ker, G.R. L-21609 (1966) the Supreme Court held that fraud
is a serious charge and to be sustained, it must be supported by clear and convincing evidence. This
evidence is just a little lower than proof beyond reasonable doubt but higher than a mere
preponderance of evidence. In case, however, of criminal prosecution for tax evasion the quantum of
evidence remains the same, that is -- proof beyond reasonable doubt. But one may wonder how
does tax evasion arise? To illustrate, in the case of Republic v. Gonzales, G.R. L-17962 (1962) the
Court found that failure of the taxpayer to declare for taxation purposes his true and actual income
derived from his furniture business for two consecutive years is equivalent to tax fraud.
But is there any quantifiable indicator to tell us that there is an apparent tax evasion? As applied to
the case of professionals, there is under Section 248 of the Tax Code. This Section provides that a
return is prima facie fraudulent if there is substantial underdeclaration of sales, receipts or income, or
substantial overstatement of deductions. There is substantial underdeclaration if there is failure to
report sales, receipts or income exceeding 30% of that declared per return; and there is substantial
overstatement of deductions if the taxpayer claims deductions in an amount exceeding 30% of
actual deductions.
However, this provision does not exclude other cases because this provision only gives a rule of
presumption. As long as all its elements are proven, then certainly tax evasion exists.
Tax evasion has the following legal consequences on a professional taxpayer on top of his basic tax
liabilities: (1.) the period to assess the taxpayer is 10 years from the discovery of fraud; (2.) a
surcharge of 50% of the tax or of the deficiency tax; (3.) 20% per annum interest; and (4.) jail term in
case of conviction plus fine.
The BIR, given its resources and capabilities, can deal with the problem of tax evasion. The law as
explained above has already laid down the consequences for evading taxes which the BIR may
simply enforce. There is no need to sacrifice other rights in the name of revenue collection. Maybe
our revenue bureau should just push some more to improve internal control. While it is still a matter
of tax administration to require certain disclosures, privacy rights and certain confidences in dealings
are still worth in a society like ours. After all, I believe that ours is still a government of laws and not
of men.
Nevertheless, the BIRs efforts to increase revenue collection and curb tax evasion are highly
laudable. But it must be within the bounds of the law because certain rights are not just worth
compromising despite clear intentions.
(The author is an Associate of the Angara Abello

12

13

[G.R. No. 120721. February 23, 2005]

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V.
CRUZ, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
assailing the decision of the Court of Appeals in CA G.R. SP No. 27134, entitled Comissioner of
Internal Revenue v. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V. Cruz
and Court of Tax Appeals, which reversed and set aside the decision of the Court of Tax Appeals
(CTA), ordering the Commissioner of Internal Revenue (Commissioner) to withdraw his letters
dated April 21, 1988 and August 4, 1988 assessing donors taxes and to desist from collecting
donors taxes from petitioners.

14

During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the
campaign funds of Senator Edgardo Angara, then running for the Senate. In letters dated April
21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the petitioners P263,032.66
for their contributions. On August 2, 1988, petitioners questioned the assessment through a
letter to the BIR. They claimed that political or electoral contributions are not considered gifts
under the National Internal Revenue Code (NIRC), and that, therefore, they are not liable for
donors tax. The claim for exemption was denied by the Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the CTA, which was
decided on October 7, 1991 in favor of the petitioners. As aforestated, the CTA ordered the
Commissioner to desist from collecting donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20, 1994.
The appellate Court ordered the petitioners to pay donors tax amounting to P263,032.66
each, reasoning as follows:
[3]

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid upon the transfer by
any person, resident, or non-resident, of the property by gift, a tax, computed as provided in Section 92.
(b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in
trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal,
tangible or intangible, is subject to donors or gift tax.
A gift is generally defined as a voluntary transfer of property by one to another without any consideration
or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the form of money from private
respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition
of donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the
character of the fund transfers as donation or gift. There was thereby no retention of control over the
disposition of the contributions. There was simply an indication of the purpose for which they were to be
used. For as long as the contributions were used for the purpose for which they were intended, Sen.
Angara had complete and absolute power to dispose of the contributions. He was fully entitled to the
economic benefits of the contributions.

15

Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the transfer of property by
gift.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:
Political Contributions. For internal revenue purposes, political contributions in the Philippines are
considered taxable gift rather than taxable income. This is so, because a political contribution is
indubitably not intended by the giver or contributor as a return of value or made because of any intent to
repay another what is his due, but bestowed only because of motives of philanthropy or charity. His
purpose is to give and to bolster the morals, the winning chance of the candidate and/or his party, and not
to employ or buy. On the other hand, the recipient-donee does not regard himself as exchanging his
services or his product for the money contributed. But more importantly he receives financial advantages
gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the taxability of political
contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the Philippine
Congress then had intended to consider or treat political contributions as non-taxable gifts when it
adopted the said gift tax law. Moreover, well-settled is the rule that the Philippines need not necessarily
adopt the present rule or construction in the United States on the matter. Generally, statutes of different
states relating to the same class of persons or things or having the same purposes are not considered to be
in pari materia because it cannot be justifiably presumed that the legislature had them in mind when
enacting the provision being construed. (5206, Sutherland, Statutory Construction, p. 546.)Accordingly,
in the absence of an express exempting provision of law, political contributions in the Philippines are
subject to the donors gift tax. (cited in National Internal Revenue Code Annotated by Hector S. de Leon,
1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents
to Sen. Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to
tax was made concrete by the above-quoted BIR ruling. Hence, there is no doubt that political
contributions are taxable gifts.[4]
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its
resolution of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following
issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
16

3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO

CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN
JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE
TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE
MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY
AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER
AND STRICLTY AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION?[6]
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident, of the property by gift, a tax, computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states:
In matters which are governed by the Code of Commerce and special laws, their deficiency shall be
supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of said
Code defines donation as:
17

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the
increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus
donandi.[7]
The present case falls squarely within the definition of a donation. Petitioners, the late
Manuel G. Abello[8], Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each
gaveP882,661.31 to the campaign funds of Senator Edgardo Angara, without any material
consideration. All three elements of a donation are present. The patrimony of the four petitioners
were reduced by P882,661.31 each. Senator Edgardo Angaras patrimony correspondingly
increased by P3,530,645.24[9]. There was intent to do an act of liberality or animus donandi was
present since each of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear
and unambiguous, thereby leaving no room for construction. In Rizal Commercial Banking
Corporation v. Intermediate Appellate Court[10] the Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear
and free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our
consistent ruling, where the law speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24
SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has
no choice but to see to it that its mandate is obeyed (Chartered Bank Employees Association v. Ople,138
SCRA 273 [1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent.
Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way,
or of referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or
more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions,
which is to interpret the law according to its true intent.
Second Issue
Since animus donandi or the intention to do an act of liberality is an essential element of a
donation, petitioners argue that it is important to look into the intention of the giver to determine
if a political contribution is a gift. Petitioners argument is not tenable. First of all, donative intent
is a creature of the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present when one gives
a part of ones patrimony to another without consideration. Second, donative intent is not
negated when the person donating has other intentions, motives or purposes which do not
18

contradict donative intent. This Court is not convinced that since the purpose of the contribution
was to help elect a candidate, there was no donative intent. Petitioners contribution of money
without any material consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the presence of donative
intent.
Third Issue
Petitioners maintain that the definition of an electoral contribution under the Omnibus
Election Code is essential to appreciate how a political contribution differs from a taxable gift.
[11]
Section 94(a) of the said Code defines electoral contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or
anything of value, or a contract, promise or agreement to contribute, whether or not legally enforceable,
made for the purpose of influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in behalf of a candidate or
political party. It shall also include the use of facilities voluntarily donated by other persons, the money
value of which can be assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the election,
petitioners again claim that donative intent is not present. Petitioners attempt to place the barrier
of mutual exclusivity between donative intent and the purpose of political contributions. This
Court reiterates that donative intent is not negated by the presence of other intentions, motives
or purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration
for a gift is the liberality of the donor, while the consideration for a political contribution is the
desire of the giver to influence the result of an election by supporting candidates who, in the
perception of the giver, would influence the shaping of government policies that would promote
the general welfare and economic well-being of the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit
from the election of the candidate to whom they contribute, in no way amounts to a valuable
material consideration so as to remove political contributions from the purview of a donation.
Senator Angara was under no obligation to benefit the petitioners. The proper performance of
his duties as a legislator is his obligation as an elected public servant of the Filipino people and
not a consideration for the political contributions he received. In fact, as a public servant, he
may even be called to enact laws that are contrary to the interests of his benefactors, for the
benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the
campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation.
Fourth Issue
19

Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988
the BIR never attempted to subject political contributions to donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government agency charged with the
execution of a statute, acquiesced in and relied upon by all concerned over an appreciable period of time,
is an authoritative interpretation thereof, entitled to great weight and the highest respect. . . . [12]
This Court holds that the BIR is not precluded from making a new interpretation of the law,
especially when the old interpretation was flawed. It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do not block subsequent correct
application of the statute (PLDT v. Collector of Internal Revenue, 90 Phil. 676), and that the Government
is never estopped by mistake or error on the part of its agents (Pineda v. Court of First Instance of
Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724). [13]
Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based on a BIR ruling,
namely BIR Ruling No. 88-344, which was issued after the petitioners were assessed for donors
tax. This Court does not need to delve into this issue. It is immaterial whether or not the Court of
Appeals based its decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented by the definition of
a donation found in Article 725 of the Civil Code, is clear and unambiguous, and needs no
further elucidation.
Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and
strictly against the government. This rule of construction, however, does not benefit petitioners
because, as stated, there is here no room for construction since the law is clear and
unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this
case, Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section
13 thereof that political/electoral contributions, duly reported to the Commission on Elections,
are not subject to the payment of any gift tax. This all the more shows that the political
contributions herein made are subject to the payment of gift taxes, since the same were made
prior to the exempting legislation, and Republic Act No. 7166 provides no retroactive effect on
this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
No costs.
20

SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, and Carpio, JJ., concur.
Ynares-Santiago, J., no part.

21