Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-24624 November 27, 1968 SINFOROSA ALCA, petitioner, vs. HONORABLE COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL REVENUE, respondents. Wenceslao T. Felix for petitioner. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitors General Feliciano R. Rosete, and Antonio G. Ibarra and Special Attorney Antonio H. Garces for respondents. REYES J.B.L., J.: Petition for review of the decision of the Court of Tax Appeals (in CTA Case No. 1043), sustaining the assessment by the Commissioner of Internal Revenue of specific tax on the rubbing alcohol manufactured by the Pacific Industrial Manufacturing (Phil.) and removed from the establishment for the period between June 6, 1953 and August 24, 1960. It appears from the record that following the promulgation of the decision of this Court in the case of Commissioner of Internal Revenue vs. Central Azucarera Don Pedro , G.R. No. L-14015, on May 31, 1960,1 the Commissioner of Internal Revenue, by letter of September 12, 1960, assessed Sinforosa Alca, as owner and operator of the Pacific Industrial Manufacturing (Phil.), of the sum of P43,359.40, by way of specific tax on the rubbing alcohol produced in and removed from the factory between June 6, 1953 and August 24, 1960, plus compromise penalty of P1,000.00. The taxpayer protested against the assessment, on various grounds, among them prescription. And when the protest was denied by the Commissioner of Internal Revenue, she filed a petition in the Court of Tax Appeals (CTA Case No. 1043), claiming that the specially denatured alcohol used in the manufacture of rubbing alcohol is exempt from specific tax under Section 128 of the National Internal Revenue Code; that the rubbing alcohol manufactured from specially denatured alcohol is not distilled spirits; that the specific tax on denatured alcohol should properly be imposed on the producer of such denatured alcohol and that assuming that petitioner taxpayer was liable for payment of specific tax on the denatured alcohol, the assessment of the tax on September 12, 1960 was made beyond the 5-year period prescribed in Section 331 of the Tax Code. On December 29, 1964, deciding the case on the sole issue of prescription, the Court of Tax Appeals sustained the decision of the Commissioner of Internal Revenue. The taxpayer's contention that the applicable prescriptive period is that provided in Section 331 of the Tax Code was overruled, the Court of Tax Appeals holding that the official transcript sheets submitted by petitioner to the deputy provincial treasurer of the municipality where the manufactory is situated, 2 are not returns for purposes of the prescriptive law; hence, this being a case where no return is filed, assessment of the tax may be made within 10 years, in accordance with Section 332(a) of the Tax Code. From this decision, the taxpayer appealed to this Court, raising only the question of prescription. It is not here denied that petitioner did not file any return for purposes of paying the specific tax due on the manufactured products with denatured alcohol as chief ingredient. And perhaps aware of the pronouncement of this Court that ... [W]hen there is no explicit provision imposing the duty to file a return, and penalizing non-compliance therewith, duty to file a return but the tax is such that its amount cannot be ascertained without data pertinent thereto, the Collector of Internal Revenue may by appropriate regulations require the filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes

to avail himself of the benefits of section 331. If, this notwithstanding, he does not file a return, then an assessment may be made within the time stated in section 332(a). (Bisaya Land Transportation Co., Inc. vs. Collector, L-12100 & L-11812, May 29, 1959)., it is now insisted that the transcript sheets (BIR form 2.41) submitted to the treasurer of the province where the manufactory is located, should be considered as returns. Thus, according to petitioner, on September 12, 1960, the government's right to assess and collect the specific tax on her manufactured products has already prescribed. There is no merit in this contention. Even assuming to be correct petitioner's pretense that the transcript sheets3 furnish sufficient data upon which the assessment of specific tax may be based 4 the assessment in question would still be valid. For while it is true that the demand for payment of the specific tax accruing from June 6, 1953 to August 24, 1960 was only made on September 12, 1960 and, therefore, as far as the taxes due from June 6, 1953 to September 11, 1955 are concerned, the demand therefor had been made beyond the required 5-year period, it appears that on December 9, 1959, petitioner taxpayer had signed a waiver to the running of the prescriptive period beginning January 20, 1956 ... but not after December 31, 1966." (Exit. 7, p. 57, BIR rec.) This waiver made timely the assessment of taxes supposedly due for the entire period as mentioned in the Commissioner's letter-demand. But then, it is argued that for a written agreement extending the prescriptive period to be valid, it is necessary that the same be made before the period to be extended has expired. The rule would not apply in this case. Note that petitioner's waiver was of the period of prescription beginning January 20, 1956. It is not just an extension, therefore, of the period of limitation, but a renunciation of her right to invoke the defense of prescription which was then already available to her. There is nothing unlawful nor immoral about this kind of waiver; just like any other right, the right to avail of the defense of prescription is waivable (Sambrano vs. Court of Tax Appeals, [1957] 101 Phil. 1; Republic vs. Arcache, L-15547, Feb. 29, 1964). The Court of Tax Appeals fully upheld the assessment demand of the respondent Internal Revenue Commissioner that, as already stated, covers the period of from June 6, 1953 to August 24, 1960. After the Tax Court's decision, however, this Court, in the case of Abad vs. Court of Tax Appeals,5 ruled that for the period between the enactment of Republic Act 592 (which took effect on January 1, 1951) and that of Republic Act 1608 (effective August 23, 1956), the specific tax on denatured alcohol was payable by the producer of the taxable finished product; but that upon the entering into effect of the amendment to section 133 of the Tax Code, 6 i.e., starting August 23, 1956, it is the manufacturer, producer, owner or possessor of the distilled spirits who becomes liable for payment of such tax. Following the foregoing ruling of this Court, petitioner Alca, as producer of rubbing alcohol, can not be held liable for the payment of the specific tax on the denatured alcohol that she may have purchased from the distillers and used in the manufacture of rubbing alcohol after August 23, 1956. Upon the other hand, as regards the specific tax imposable on the denatured alcohol used between June 6, 1953 and August 22, 1956, there is reason for us to modify the decision of the Commissioner of Internal Revenue, as affirmed by the Court of Tax Appeals. Petitioner alleged, and this was never disproved by respondents, that she had regularly and faithfully paid the percentage sales tax on the manufactured products involved here, pursuant to the regulations and requirements of the revenue office then in force; 7 and that it was only after the promulgation of our 1960 decision in the Central Azucarera Don Pedro case (L-14015) that the revenue authorities realized they had been collecting the wrong tax and Alca was required to pay the specific tax on the same good for which the percentage tax had already been imposed and paid.8 Under the circumstances, and allowing for the fact that errors of the revenue officials will not estop the Government from collecting the correct taxes due it, still elementary principles of equity dictate that in the computation of the corresponding specific taxes that may still be due and owing from petitioner taxpayer, she should be credited with the amounts she had previously paid to the government by way of percentage tax. After all, goods subject to specific tax, by express provision of the Tax Code,9 are made exempt from further payment of percentage tax; and viceversa.10

FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby set aside, and the records are ordered remanded for a re-hearing and recomputation of petitioner Alca's tax liability, conformably to this opinion. No costs. Concepcion, C.J., Dizon, Makatintal, Zaldivar, Sanchez, Castro, Fernando and Capistrano, JJ., concur. Footnotes
1

It was held in this case that the liability for the payment of specific tax on the denatured alcohol manufactured by the Central between March 23, 1953 and August 13, 1954, and purchased and used by the Pacific Industrial Manufacturing in the manufacture of rubbing alcohol, devolves upon the latter, and not on the Central.
2

This is required under Regulations No. 3 of the Department of Finance (Exh. 9, p. 70, BIR records).
3

These sheets indicate the kind and quantity (in terms of gallon liter and proof liter) of the articles produced or manufactured from the raw materials (spirits) delivered to the factory in a given period.
4

As enforced by the Internal Revenue Office, the specific tax on distilled spirits is based on the "proof-liter" contents of the particular spirit measured (p. 70, BIR rec.).
5 6

G.R. Nos. L-20834 & L-20903, Oct. 19, 1966, 18 SCRA 375.

Under Section 133 as amended by Republic Act 1608, the specific tax on distilled spirits attaches to this substance "as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits, or be immediately or at any subsequent time transformed into any other substances either in process of original production or by any subsequent process." (Emphasis supplied.)
7 8

See Exh. 8, pp. 59-67, BIR records.

There is no allegation that the payments made by petitioner Alca were not the correct amounts due, if percentage tax were indeed proper.
9

Section 188.

10

Central Azucarera Don Pedro vs. Court of Tax Appeals, L-21139, April 30, 1966; 16 SCRA 889. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11527 November 25, 1958 THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. SUYOC CONSOLIDATED MINING COMPANY, ET AL., respondents. Office of the Solicitor General Ambrosio Padilla and Solicitor Sumilang V. Bernardo for petitioner. Ohnick, Velilla and Balongkita for respondents. BAUTISTA ANGELO, J.: Suyoc Consolidated Mining Company, a mining corporation operating before the war, was unable to file in 1942 its income tax return for the year 1941 due to the last war. After liberation, Congress enacted Commonwealth Act No. 722 which extended the filing of tax returns for 1941 up to December 31, 1945. Its records having been lost or destroyed, the company requested the Collector of Internal Revenue to grant it an extension of time to file its return, which was granted until February 15, 1946, and the company was authorized to file its return for 1941 on the basis of

the best evidence obtainable. The company filed three income tax returns for the calendar year ending December 31, 1941. On February 12, 1946, it filed a tentative return as it had not yet completely reconstructed its records. On November 28, 1946, it filed a second final return on the basis of the records it has been able to reconstruct at that time. On February 6, 1947, it filed its third amended final return on the basis of the available records which to that date it had been able to reconstruct. On the basis of the second final return filed by the company on November 28, 1946, the Collector assessed against it the sum of P28,289.96 as income tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,894.80 as 1 per cent monthly interest from March 1, 1946 to February 28, 1947, or a total of P33,099.26. The assessment was made on February 11, 1947. On February 21, 1947, the company asked for an extension of at least one year from February 28, 1947 within which to pay the amount assessed, reserving its right to question the correctness of the assessment. The Collector granted an extension of only three months from March 20, 1947. The company failed to pay the tax within the period granted to it and so the Collector sent to it a letter on November 28, 1950 demanding payment of the tax due as assessed, plus surcharge and interest up to December 31, 1950. On April 6, 1951, the company asked for a reconsideration and reinvestigation of the assessment, which was granted, the case being assigned to another examiner, but the Collector made another assessment against the company in the sum of P33,829.66. This new assessment was made on March 7, 1952. On April 18, 1952, the Collector revised this last assessment and required the company to pay the sum of P28,289.96 as income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30, 1952 and P40 as compromise. After several other negotiations conducted at the request of respondent, including an appeal to the Conference Staff created to act on such matters in the Bureau of Internal Revenue, the assessment was finally reduced by the Collector to P24,438.96, without surcharge and interest, and of this new assessment the company was notified on July 28, 1955. Within the reglementary period, the company filed with the Court of Tax Appeals a petition for review of this assessment made on July 26, 1955 on the main ground that the right of the Government to collect the tax has already prescribed. After the case was heard, the court rendered its decision upholding this defense and, accordingly, it set aside the ruling of the Collector of Internal Revenue. The Collector interposed the present petition for review. Under the law, an internal revenue tax shall be assessed within five years after the return is filed by the taxpayer and no proceeding in court for its collection shall be begun after the expiration of such period (Section 331, National Internal Revenue Code). The law also provides that where an assessment of internal revenue tax is made within the above period, such tax may be collected by distraint or levy or by a proceeding in court but only if the same is begun (1) within five years after assessment or (2) within the period that may be agreed upon in writing between the Collector and the taxpayer before the expiration of the 5-year period [Section 332 (c), Idem.]. It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed although it reserved its right to question the correctness of the assessment before actual payment. Petitioner granted an extension of only three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed. It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy

or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income, tax liability to the prejudice of the Government invoking the technical ground of prescription. While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government. This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is fundamental and unquestioned. 'He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect "this is your own act, and therefore you are not damnified." ' "(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588]. The following authorities cited in the brief of the Solicitor General are in point: The petitioner makes the point that by the Revenue Act of May 29, 1928 (chap. 852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26, sec. 2609), a credit against a liability in respect of any taxable year shall be "void" if it has been made against a liability barred by limitation. The aim of that provision, as we view it, was to invalidate such a credit if made by the Commissioner of his own motion without the taxpayer's approval or with approval failing short of inducement or request. Cf. Stange vs. United States, 282 U. S. 270, 75 L. ed. 335, 51 S. Ct. 145, supra; Revenue Act of 1928, sec. 506 (b) (c), chap. 852, 45 Stat. at L. 791, 870, 871, U.S.C. title 26, see. 1062a. If nothing more than this appeared, there was to be no exercise in invitum of governmental power. But the aim of the statute suggests a restraint upon its meaning. To know whether liability has been barred by limitation it will not do to refer to the flight of time alone. The limitation may have been postponed by force of a simple waiver, which must then be made in adherence to the statutory forms, or so we now assume. It may have been postponed by deliberate persuasion to withhold official action. We think it an unreasonable construction that would view the prohibition of the statute as over-riding the doctrine of estoppel (Randon vs. Tobey, 11 How. 493, 519, 13 L. ed. 784, 795) and invalidating a credit made at the taxpayer's request. Here at the time of the request, the liability was still alive, unaffected as yet by any statutory bar. The request in its fair meaning reached forward into the future and prayed for the postponement of collection till the audits for later years had been completed in the usual course. This having been done, the suspended collection might be effected by credit or by distraint or by other methods prescribed by law. Congress surely did not mean that a credit was to be void if made by the Government in response to such prayer. The applicable principle is fundamental and unquestioned. "He who prevents a thing from being done may not avail himself of the nonperformance which he has himself

occasioned, for the law says to him in effect "this is your own act, and therefore you are not damnified," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44 N.E. 167, and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263, quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng. Reprint, 940, 949. Sometimes the resulting disability has been characterized as an estoppel, sometimes as a waiver. The label counts for little. Enough for present purposes that the disability has its roots in a principle more nearly ultimate than either waiver or estoppel, the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong. Imperator Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A suit may not be built on an omission induced by him who sues. Swain vs. Seamens, 9 Wall. 254, 274, 19 L. ed. 554, 560; United States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs. Poor, 147 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. Stearns Co. vs. U.S., supra; Emphasis supplied.) . . . It is admitted that these assessments were timely made in August 1923. Upon the making of the assessment the Commissioner sought to make collection, which likewise was at a time when the statute had not ran on collection, but the authorized representative of the Lattimores strenuously objected to the collection and urged the Commissioner to withhold collection, pending adjustment of the controversy between them and the Commissioner. The Commissioner yielded to their request and postponed collection until August 19, 1926, which was after the statute had run on collection. In the meantime, further claims for refund and protests were filed, conferences were held and consideration was given to the settlement of the controversy, and the matter was not finally disposed of until 1926, when the statute had run on collection. The procedure carried out was that requested by plaintiffs, and they cannot now be heard to say that the collection was not timely. R. H. Stearns Company vs. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore vs. U.S., 12 F. Supp. 895, 91.) Wherefore, the decision appealed from is reversed. The decision of the Collector of Internal Revenue rendered on July 26, 1955 is hereby affirmed. No costs. Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur. Separate Opinions MONTEMAYOR, J., dissenting: As stated in the majority opinion, the respondent Suyoc Consolidated Mining Company was unable to file in 1942 its income tax return for the year 1941, because of the last war. Acting upon an extension granted by Commonwealth Act 722 and by the Collector of Internal Revenue, it finally filed the first income tax return (tentative) on February 12, 1946. For purposes of reference I am listing below in chronological order, the dates which are material and relevant for purposes of computation of the period of prescription. February 12, 1946 November 28, 1946 February 6, 1947 February 11, 1947 February 14, 1947 February 21, 1947 Respondent filed its "tentative return". Respondent filed its "final return". Respondent filed its amended final return". Notice of 1st assessment (Based on the final return sent to the respondent) (Amount of assessment P33,099.26). Receipt of respondent said assessment. Respondent asked for extension of time (one year) to pay the assessment, but reserving right to question its validity.

He was given only three months from March 20, 1957. November 28, 1950 April 6, 1951 March 7, 1952 April 18, 1952 July 26, 1955 Petitioner demanded payment of tax assessed. Respondent asked for reconsideration and reinvestigation of the assessment. Notice of 2nd assessment (Based on the amended final return) was sent to respondent. (Amount P33,289.96). Petitioner revised the assessment made on March 7, 1952 (Now it is P50,697.03) Petitioner reduced the assessment of April 18, 1952 after various negotiations. (Now it is P24,438.96)

It will be noticed that petitioner Collector made his first assessment based on the final return submitted by Suyoc on November 28, 1946, on February 11, 1947. The assessment was in the amount of P33,099.26. Suyoc asked for an extension of time of one year within which to make payment, at the same time reserving its right to question the validity of the assessment, but it was granted only three months from March 20, 1947, that is to say, up to June 20, 1947. After said deadline, the Collector should immediately have demanded payment or resorted to the administrative remedy of distraint and levy, but strange to say, the Collector did not act and allowed more than three years to pass (from June 20, 1947 to November 28, 1950). It was only on November 28, 1950 that the Collector demanded payment on the basis of his assessment. On April 6, 1951, Suyoc asked for reconsideration and reinvestigation. After about a year, that is, on March 7, 1952, the Collector made a second assessment of P33,829.66, which was larger than his first assessment by about P800. Then on April 18, 1952, the Collector made a revised third assessment of P28,289.96 as income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30, 1952, and P40.00 as compromise, which all added up to the staggering amount of P50,679.03, far different from and much larger than the first and second assessment by almost P17,000. After several negotiations, including appeal to the conference staff created to act on such matters in the Bureau of Internal Revenue, the assessment was finally reduced on July 26, 1955 to only P24,438.96, without surcharge, without interest and without any amount as compromise. It is this last assessment which Suyoc appealed to the Court of Tax Appeals. For purposes of reference, I am reproducing the pertinent sections of the National Internal Revenue Code: SEC. 331. Period of limitation upon assessment and collection . Except as provided in the succeeding section, 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; Provided, that this limitation shall not apply to cases already investigated prior to the approval of this Code. SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes . . ... (c) Where the assessment of any internal revenue tax has been made within the period of limitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. SEC. 333. Suspension of running of statute. The running of the statute of limitations

provided in section three hundred thirty-one or three hundred thirty-two on the making of "assessments and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Collector of Internal Revenue is prohibited from making the assessment or beginning distraint or levy or a proceeding in court, and for sixty days thereafter. To me, the best argument against the contention of the Collector, and the ruling contained in the majority opinion that the right of the Collector to collect the tax assessed by it has not prescribed, and that the petitions or petitions filed by Suyoc for investigation and revision of the assessment extended the period of prescription, is the well written and reasoned decision (Resolution) of the Court of Tax Appeals, through Judge Roman M. Umali to which I agree. I am reproducing with approval the pertinent portions of said decision: Petitioner filed the instant petition for review on the grounds that certain losses were improperly disallowed by respondent as deductions from its gross income, and that the right of the Government to collect the tax, if any is due, has prescribed. When this case was called for hearing counsel for petitioner asked that the question of prescription be first resolved before hearing the case on the question involving the correctness of the assessment. The sole issue raised at this time for resolution of this Court is, therefore, confined to the question of prescription. Upon the evidence submitted and admitted by the parties, it appears that the last and final assessment made by respondent covering the income tax due from petitioner for the year 1941 was made on July 26, 1955, more than five years from the date the "amended return" was filed on November 28, 1946, or from the date the amended final return' was filed on February 6, 1947. The right of respondent to assess the tax has, therefore, prescribed pursuant to Section 331 of the National Internal Revenue which requires that the assessment be made within five years from the date the return was filed. Even granting that the first assessment made on February 11, 1947, is the one to be considered in determining whether or not the assessment was made within the statutory period it follows that it must have to be considered also as the starting point from which the period within which the right to collect should be computed. Accordingly, on the theory that the assessment in this case was made within five years from the date the return was filed, the right of the Government to collect the tax assessed has prescribed, respondent having failed at any time from February 14, 1947 up to the time the instant petition for review was filed on September 19, 1955, a period of more than 8 years, to institute appropriate proceedings, judicially or otherwise, for the collection of the tax. (See Sec. 332 [c], National Internal Revenue Code.) From whatever angle the case is viewed, we find that the right of the Government to collect the income tax assessed against petitioner for the year 1941 has prescribed. But it is insisted that the requests of petitioner for reconsideration of the assessment, and while the same were pending consideration by respondent, had the effect of suspending the running of the statute of limitations. The statute of limitations upon assessment and collection of national internal revenue taxes provided in Sections 331 and 332 of the Revenue Code may be suspended only "for the period during which the Collector of Internal Revenue is prohibited from making the assessment or beginning destraint or levy or a proceeding in court, and sixty day thereafter." (Sec. 333, Revenue Code.) Nowhere does the law recognize that a simple request for reconsideration of an assessment, unaccompanied by any positive indication that the taxpayer is waiving his right to assert the defense of prescription, has the effect of suspending the running of the statute of limitations. That a request for re-examination or reconsideration of an assessment does not suspend the running of the statute of limitations seems to be the prevailing opinion in the Bureau of Internal Revenue. This may he inferred from the fact that General Circular No. V-182 dated January 17, 1955 had to be promulgated. Paragraph 6 of said circular provides:

6. Within thirty (30) days from the receipt of the deficiency tax assessment notice, the taxpayer may request reinvestigation or re-examination of the assessment, subject to the following requirements prescribed in paragraph 3 of Department Order No. 213: "(a) The taxpayer shall put the specific grounds of his protest in writing and under oath, accompanied by such additional documents and evidence supporting his protest; (b) He shall pay one-half (1/2) of the total assessment and file a bond to guarantee the payment of the balance together with the penalties that shall have accrued at the time of final payment; and (c) He shall sign a statement that he is waiving the periods of prescription involved in the assessment and collection of the deficiency tax in question." (Emphasis supplied.) If a simple request for reinvestigation or re-examination of an assessment suspends the running of the statute of limitations, as alleged by respondent, there is no necessity for the requirement that a taxpayer must sign a statement that he is waiving the periods of prescription' as a condition for the granting of the request for reinvestigation or reexamination. General Circular No. V-182 obviously in line with Section 332 (c) of the Revenue Code which provides that the waiver of the taxpayer must be contained in an agreement in writing extending the five year period of limitation upon the right of the respondent to collect internal revenue taxes. FOR THE FOREGOING CONSIDERATIONS We are of the opinion that the right of the Government to collect from petitioner the sum of P24,438.96 as income tax for the year 1941 has prescribed. Accordingly, the decision appealed from is hereby set aside, without pronouncement as to costs. I fully agree with the Court of Tax Appeals that whether we consider February 11, 1947 or July 26, 1955, as the date of the assessment, the right of the Collector, either to make collection within five years from February 11, 1947 or to make assessment within five years from February 6, 1947, has prescribed. I do not believe that a mere petition for revision or reinvestigation can be regarded as an agreement of the taxpayer to extend the period of prescription. The very law clearly so states. Section 333 says that the running of the statute of limitations provided in Sections 331 and 332 shall be suspended only when the Collector is prohibited from making the assessment or beginning the distraint. No such prohibition or inability to make assessment or begin the distraint is claimed for the Collector. And Section 332 (c) says that the period for collection may be extended only by express agreement in writing by the taxpayer and the Collector. Evidently, nothing short of such express written agreement to extend will suspend the running of the period. It will be observed that Suyoc made only one petition for extension, that is, for one year within which to pay the assessment, but reserving its right to question the validity thereof. It was given only three months. Thereafter, it never asked for any other extension. True, it asked for revision and reconsideration of the different assessments made by the Collector, but this in no way can be regarded as an express agreement to extend the period; and the Collector was well aware of the fact that a mere petition to amend, modify, revise or revive the assessment or reinvestigate the case cannot extend the period of prescription, as evidenced by the very General Circular No. V182, promulgated for the guidance of the Bureau of Internal Revenue. Said circular among other things provides that in order that there be an extension of the period of prescription and presumably, for the protection of the Government, the taxpayer must sign a statement that he is waiving the period of prescription involved in the collection of the tax. The trouble with the actuations of the Collector in this case is that he would appear to have unduly delayed definite and affirmative action on the assessment and collection as shown by the wide gaps first, a period of more than three years from February 14, 1947, when Suyoc received notice of the first assessment (extended by the Collector to June 20, 1947) to November 28, 1950, when the Collector demanded payment; then another period of about two years from November 28, 1950 to March 7, 1952 when he made the second assessment. Not only was there undue delay on the part of the Collector, but his actuations would seem to

have been characterized by indecision and uncertainty. First, he made an assessment in the amount of P33,099.26. Then he increased this to P33,829.66. Then on April 18, 1952, he again increased this assessment to P50,678.03, until on July 26, 1955, this sum of over P50,000 was reduced to P24,438.96, without surcharge, without interest and without any amount as compromise. Why all this difference or differences in the amounts of the assessment? One could well imagine and understand that a first assessment more or less hastily prepared may be revised within a reasonable time, say a few months or even a year, either increasing it or decreasing it. But when the Collector over a period of more than eight years kept changing his assessment, increasing the same by substantial amounts and then decreasing the same substantially, and at the same time utterly forgetting the period of prescription set by the law and also forgetting to protect the interest of the Government by requiring the taxpayer to agree expressly and in writing to extend the period of such prescription; and equally important, forgetting and failing up to the present time to institute proceedings, administrative by distraint and levy or judicial by court action, to collect, the Government has no one to blame but itself and its officials, certainly not the taxpayer who did nothing but ask for revision of the assessment to obtain a correct figure while it finally got but too late, after a wait of over eight years. The majority opinion places much reliance on the case of R. H. Stearns Company vs. U.S., 291 U.S., 54, and makes extensive quotation therefrom. After reading said case, I agree with counsel for Suyoc that it not applicable, for the reason that in that case, the taxpayer signed two waivers of the period of limitation; that although the second waiver was not signed by the Commissioner, nevertheless, the taxpayer on several ocassions had requested him to withhold collection. Naturally, the United States Supreme Court was constrained to hold that when the taxpayer not only signed waivers but had deliberately asked and persuaded the Commissioner to postpone collection, he cannot invoke the benefit of prescription to the running of which he has contributed. Our law expressly and clearly provides that in order to suspend the period of prescription or to extend it, the taxpayer and the Collector must sign an agreement to that effect. Nothing short of this will effect said extension or suspension of the period of limitation. Mere petitions for revision or reinvestigation by the taxpayer cannot suspend the running of the period of prescription. The taxpayer may make as many requests for revision or examination as he wishes, but the Collector need not act upon them to the prejudice of the Government; and even if he does act upon said petitions, he should always keep an eye on the running of the period, on the dead line, so that for the protection of the Government, he could enforce collection before it is too late. Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the Government and taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government which needs said taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment which he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court, either by filing an action for the refund, if already paid, under the old law, or appeal the disputed assessment to the Court of Tax Appeals under the present law creating the Tax Court. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the assessment and the collection because by the time that the collecting agency finally gets around to making the assessment or making the collection, the taxpayer may then have lost his papers and books to support his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer eventually has to pay. In connection with this extension of the period of prescription or limitation for the Government to collect taxes, it will be noticed from Section 332(c) of the Internal Revenue Code that even If the taxpayer and the Collector agree to extend the period of limitation, said period has to be specific or fixed, and if said period of extension is to be further extended, another agreement has to be made again specifying the period of said further extension. From all this, it is evident that to extend the period of limitation or prescription, an express agreement in writing to that effect, signed by the Collector and the taxpayer is necessary. Naturally, a mere petition by the taxpayer

for revision or re-examination of the assessment cannot and will not automatically extend the period of limitation. However, under the theory espoused by the majority, let the taxpayer just ask, not for an extension of the time to pay or the Government to collect, but for a mere reexamination or revision of the assessment, and lo, and behold, all the carefully prepared provisions of the tax law about prescription and statutory limitation are laid aside, and the collecting agency of the Government may then postpone and delay the collection indefinitely, until such time as it is good and ready to resume proceedings from where it left off, and if the taxpayer complains of the delay or invokes prescription, he is instantly met with and silenced by the done of estoppel. I believe that is not what the law and the Legislature contemplated. To me, this matter of the extension of the period of limitation is quite clear, but assuming for a moment that there were any doubt about it, then we have the time honored and well settled rule of statutory construction that tax laws should be interpreted liberally in favor of the taxpayer and strictly against the Government, except in the matter of tax exemptions, in which case the rule is reversed. In the case of Manila Railroad Co. vs. Collector of Customs, 52 Phil. 952, this Tribunal said: . . . . It is the general rule in the interpretation of statutes levying taxes or duties not to extend their provisions beyond the clear import of the language used. In every case of doubt, such statutes are construed most strongly against the Government and in favor of the citizen, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import. (U. S. vs. Wigglesworth [1842], 2 Story, 369; Froehlich & Kuttner vs. Collector of Customs [1911], 19 Phil., 461.) Years ago, the Supreme Court of the United States, through Chief Justice Marshall, in the case of McCulloch vs. The State of Maryland, 4 Law Ed. 579, said that the power to tax is the power to destroy. Evidently, to moderate this awesome and dangerous taxing power of the Legislature, and in order to temper the rigor of tax laws, this sound and salutary rule of liberal construction of tax laws in favor of the taxpayer has been evolved and laid down. For the foregoing reasons, I dissent. Padilla, J., concurs. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-59758 December 26, 1984 ADVERTISING ASSOCIATES, INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Bito, Misa & Lozada Law Office for petitioner. The Solicitor General for respondents. AQUINO, J.: This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing lessors of personal property. Section 191 defines an independent contractor as including all persons whose activity consists essentially of the sale of all kinds of services for a fee. Section 194(v) of the Tax Code defines a business agent as including persons who conduct advertising agencies.

It should be noted that in Advertising Associates, Inc. vs. Collector of Internal Revenue, 97 Phil. 636, the taxpayer was held liable as a manufacturer for the.90% sales tax on its sales of neontube signs under section 185(k) of the Tax Code as amended. It paid P11,986.18 as sales tax for the 4th quarter of 1948 to 1951. This Court rejected the taxpayer's contention that it was only a contractor of neon-tube signs and that it should pay only the 3% contractor's tax under section 191 of the Tax Code. In the instant case, Advertising Associates alleged that it sold in 1949 its advertising agency business to Philippine Advertising Counsellors, that its business is limited to the making, construction and installation of billboards and electric signs and making and printing of posters, signs, handbills, etc. (101 tsn). It contends that it is a media company, not an advertising company, It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty dealer's tax for leasing billboards and electric signs and 3% contractor's tax for repairing electric signs. The billboards and electric signs manufactured by it are either sold or leased, As already stated, the Commissioner of Internal Revenue subjected to 3% contractor's tax its rental income from billboards and electric signs (p. 10, Appellant's brief ). The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business. Its income tax returns indicate that its business was advertising (Exh. 14 and 15, etc.). It is supposed "to conduct a general advertising business, both as principal and agent, including the preparation and arrangements of advertising devices and novelties; to erect, construct, purchase, lease or otherwise acquire fences, billboards, signboards, buildings and other structures suitable for advertising purposes; to carry on the business of printers, publishers, binders, and decorators in connection with advertising business and to make and carry out contracts of every kind and character that may be necessary or conducive to the accomplishment of any of the purposes of the company; to engage in and carry on a general advertising business by the circulation and distribution and the display of cards, signs, posters, dodgers, handbills, programs, banners and flags to be placed in and on railroad cars, street cars, steam boats, cabs, hacks, omnibuses, stages and any and all kinds of conveyances used for passengers or for any other purposes; to display moveable or changeable signs, cards, pictures, designs, mottoes, etc., operated by clockwork, electricity or any other power; to use, place and display the same in depots, hotels, halls, and other public places, to advertise in the air by airplanes, streamers, skywriting and other similar or dissimilar operation." (Exh. 14-A, pp. 48-49, BIR Records, Vol. I). Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974 (p. 3, Rollo). The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon the taxpayer on April 18 and May 25, 1978. More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint (Annex C of Petition, pp. 31-32, Rollo). He justified the assessments by stating that the rental income of Advertising Associates from billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand;

otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this paragraph: This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. We hold that the petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L-25289, June 28, 1974, 57 SCRA 523). On the merits of the case, the petitioner relies on the Collector's rulings dated September 12, 1960 and June 20, 1967 that it is neither an independent contractor nor a business agent (Exh. G and H). As already stated, it considers itself a media company, like a newspaper or a radio broadcasting company, but not an advertising agency in spite of the purpose stated in its articles of incorporation. It argues that its act of leasing its neon signs and billboards does not make it a business agent or an independent contractor. It stresses that it is a mere lessor of neon signs and billboards and does not perform advertising services. But the undeniable fact is that neon signs and billboards are primarily designed for advertising. We hold that the petitioner is a business agent and an independent contractor as contemplated in sections 191 and 194(v). However, in view of the prior rulings that the taxpayer is not a business agent nor an independent contractor and in view of the controversial nature of the deficiency assessments, the 25% surcharge should be eliminated (C. M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511, 519; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1084). Petitioner's last contention is that the collection of the tax had already prescribed. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code, Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may be collected by distraint or levy or by a judicial proceeding begun 'within five years after the assessment of the tax". The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency assessments herein. The warrants of distraint were served upon it on April 18 and may 25,1978 or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants which were eventually resolved in Commissioner Plana's letter of May 23, 1979. It should be noted that the Commissioner did not institute any judicial proceeding to collect the

tax. He relied on the warrants of distraint to interrupt the running of the statute of limitations. He gave the taxpayer ample opportunity to contest the assessments but at the same time safeguarded the Government's interest by means of the warrants of distraint. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The Commissioner's deficiency assessments are modified by requiring the petitioner to pay the tax proper and eliminating the 25% surcharge, interest and penalty. In case of non-payment, the warrants of distrant should be implemented. The preliminary injunction issued by the Tax Court on August 28, 1979 restraining the enforcement of said warrants is lifted. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-59758 December 26, 1984 ADVERTISING ASSOCIATES, INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Bito, Misa & Lozada Law Office for petitioner. The Solicitor General for respondents. AQUINO, J.: This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing lessors of personal property. Section 191 defines an independent contractor as including all persons whose activity consists essentially of the sale of all kinds of services for a fee. Section 194(v) of the Tax Code defines a business agent as including persons who conduct advertising agencies. It should be noted that in Advertising Associates, Inc. vs. Collector of Internal Revenue, 97 Phil. 636, the taxpayer was held liable as a manufacturer for the.90% sales tax on its sales of neontube signs under section 185(k) of the Tax Code as amended. It paid P11,986.18 as sales tax for the 4th quarter of 1948 to 1951. This Court rejected the taxpayer's contention that it was only a contractor of neon-tube signs and that it should pay only the 3% contractor's tax under section 191 of the Tax Code. In the instant case, Advertising Associates alleged that it sold in 1949 its advertising agency business to Philippine Advertising Counsellors, that its business is limited to the making, construction and installation of billboards and electric signs and making and printing of posters, signs, handbills, etc. (101 tsn). It contends that it is a media company, not an advertising company, It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty dealer's tax for leasing billboards and electric signs and 3% contractor's tax for repairing electric signs. The billboards and electric signs manufactured by it are either sold or leased, As already stated, the Commissioner of Internal Revenue subjected to 3% contractor's tax its rental income from billboards and electric signs (p. 10, Appellant's brief ). The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as

contractor's tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business. Its income tax returns indicate that its business was advertising (Exh. 14 and 15, etc.). It is supposed "to conduct a general advertising business, both as principal and agent, including the preparation and arrangements of advertising devices and novelties; to erect, construct, purchase, lease or otherwise acquire fences, billboards, signboards, buildings and other structures suitable for advertising purposes; to carry on the business of printers, publishers, binders, and decorators in connection with advertising business and to make and carry out contracts of every kind and character that may be necessary or conducive to the accomplishment of any of the purposes of the company; to engage in and carry on a general advertising business by the circulation and distribution and the display of cards, signs, posters, dodgers, handbills, programs, banners and flags to be placed in and on railroad cars, street cars, steam boats, cabs, hacks, omnibuses, stages and any and all kinds of conveyances used for passengers or for any other purposes; to display moveable or changeable signs, cards, pictures, designs, mottoes, etc., operated by clockwork, electricity or any other power; to use, place and display the same in depots, hotels, halls, and other public places, to advertise in the air by airplanes, streamers, skywriting and other similar or dissimilar operation." (Exh. 14-A, pp. 48-49, BIR Records, Vol. I). Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974 (p. 3, Rollo). The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974 (p. 3, Rollo). Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon the taxpayer on April 18 and May 25, 1978. More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint (Annex C of Petition, pp. 31-32, Rollo). He justified the assessments by stating that the rental income of Advertising Associates from billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this paragraph: This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. We hold that the petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School

vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L-25289, June 28, 1974, 57 SCRA 523). On the merits of the case, the petitioner relies on the Collector's rulings dated September 12, 1960 and June 20, 1967 that it is neither an independent contractor nor a business agent (Exh. G and H). As already stated, it considers itself a media company, like a newspaper or a radio broadcasting company, but not an advertising agency in spite of the purpose stated in its articles of incorporation. It argues that its act of leasing its neon signs and billboards does not make it a business agent or an independent contractor. It stresses that it is a mere lessor of neon signs and billboards and does not perform advertising services. But the undeniable fact is that neon signs and billboards are primarily designed for advertising. We hold that the petitioner is a business agent and an independent contractor as contemplated in sections 191 and 194(v). However, in view of the prior rulings that the taxpayer is not a business agent nor an independent contractor and in view of the controversial nature of the deficiency assessments, the 25% surcharge should be eliminated (C. M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511, 519; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1084). Petitioner's last contention is that the collection of the tax had already prescribed. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code, Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may be collected by distraint or levy or by a judicial proceeding begun 'within five years after the assessment of the tax". The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency assessments herein. The warrants of distraint were served upon it on April 18 and may 25,1978 or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants which were eventually resolved in Commissioner Plana's letter of May 23, 1979. It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint to interrupt the running of the statute of limitations. He gave the taxpayer ample opportunity to contest the assessments but at the same time safeguarded the Government's interest by means of the warrants of distraint. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The Commissioner's deficiency assessments are modified by requiring the petitioner to pay the tax proper and eliminating the 25% surcharge, interest and penalty. In case of non-payment, the warrants of distrant should be implemented. The preliminary injunction issued by the Tax Court on August 28, 1979 restraining the enforcement of said warrants is lifted. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 136171 July 2, 2002 REPUBLIC OF THE PHILIPPINES, petitioner,

vs. KER AND COMPANY LIMITED, respondent. RESOLUTION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Republic of the Philippines, represented by the Department of Public Works and Highways, assailing the decision rendered by the Court of Appeals in CA G.R. CV No. 54256 entitled, "Republic of the Philippines v. Ker and Company Limited." The decision in question affirmed the trial court in ordering petitioner to pay herein respondent Ker Company Limited the sum of Six Thousand Pesos (P6,000.00) per square meter as just compensation for the 1,186 square meter lot (Site I) which was expropriated by the government. The factual background: Petitioner filed before the Regional Trial Court (RTC) of Davao City a petition for expropriation of portions of two (2) parcels of land owned by respondent described as follows: Lot No. Site I Site II 2-D-1-A-2 2-D-1-B-1 TCT No. T-212616 T-212617 Total Area 29.583 sq. m. 2,902 sq. m. Affected Area 1,186 sq. m. 1,035 sq. m.

Petitioner needed the parcels of land for the widening of the road component of J.P. LaurelBuhangin Interchange in Davao City. The provisional value of the properties sought to be expropriated was fixed at the aggregate sum of Two Million Two Hundred Twenty One Thousand Pesos (P2,221,000.00) or One Thousand Pesos (P1,000.00) per square meter. Respondent claimed that the value of the properties subject for expropriation is more than Four Thousand Pesos (P4,000.00) per square meter. After study and investigation, the duly appointed commissioners, Ms. Lucia E. Pelayo and Mr. Oliver Morales of Cuervo Appraisers, Inc. gave the following estimates as just compensation for the areas affected: Site I Site II 1,186 sq. m. 1,035 sq. m. = = P 8,788.70/square meter P 5,423.48/square meter

While petitioner found the valuation of respondents property in Site II reasonable, petitioner, in its comment on the Report of the Appraisers found the estimate for Site I excessive, stating that: 1) the provincial Appraisal Committee in a joint Appraisal Report dated January 14, 1993 recommended the market value of Ker and Companys property at P1,000.00 per square meter; 2) the highest valuation of lots within the JP Laurel-Buhangin area adjudicated by the RTC, Davao City in a decision rendered on December 23, 1993 is at P4,000.00 per sq. meter; and, 3) the appraisers did not take into account that the areas in the proceedings are being expropriated for use in a government project vested with public interest. On September 27, 1996, the RTC rendered a decision the dispositive portion of which reads as follows: "With the determination of just compensation, judgment is hereby rendered: 1. Declaring plaintiff to have a lawful right to acquire possession of and title to:

a) 1,186 square meters only of defendant Kers parcel of land covered by Certificate of Title T-212616 described as Site I; b) 1,035 square meters only of defendant Kers parcel of land covered by Certificate of Title T-212617 described as Site II; 2. Condemning portions of the above-described parcels of land including improvements thereon, if there be any, free from all liens and encumbrances; 3. Ordering plaintiff to pay: a) Defendant Ker P6,000.00 per square meter for the P1,186 in Site I; b) Defendant Ker P5,423.48 per square meter for the 1,035 in Site II as fair and just compensation."1 Petitioner appealed to the Court of Appeals alleging that the value fixed by the trial court as just compensation for Site I should be reduced. Petitioner alleged that when the petition for expropriation was filed, the tax declaration of the property indicated its assessed value at only Four Hundred Twenty-Five Pesos (P425.00) per square meter while its market value was only Eight Hundred Forty Nine Pesos (P849.00) per square meter. Petitioner cited the case of Civil Case No. 22-052-93 entitled "Republic v. Laong"2 where the RTC of Davao City (Branch 17) fixed the value of the lots within the area of J.P. Laurel Buhangin at Four Thousand Pesos (P4,000.00) per square meter. The appellate court affirmed the decision of the lower court in toto, ruling that just compensation cannot be measured by the assessed value of the property as stated in the tax declaration and schedule of market values approved by the Provincial Appraisal Committee and that for the purpose of appraisal, the fair market value of the property is taken into account and such value refers to the highest price in terms of money which a property will bring if exposed for sale in the public market. The appellate court brushed aside petitioners reliance on Republic v. Laong. Petitioner in the present petition raises essentially the same issues which were raised before the trial court and the appellate court. In addition however, petitioner avers that since Site I is adjacent to Site II, there are no substantial distinctions to warrant different valuations. The appellate court did not err in not upholding petitioners claim that the valuation for the lot in Site I is excessive and unreasonable since the tax declaration of the property indicated its assessed value at only Four Hundred Twenty-Five Pesos (P425.00) per square meter while its market value was only Eight Hundred Forty-Nine Pesos (P849.00) per square meter based on the revised 1993 schedule of market values. We have declared in Manotok v. National Housing Authority3, that the statements made in tax documents by the assessor may serve as one of the factors to be considered but they cannot exclude or prevail over a court determination after expert commissioners have examined the property and all pertinent circumstances are taken into account and after all the parties have had the opportunity to fully plead their cases before a competent and unbiased tribunal. That the tax declaration of the property in Site I indicated a much lower assessed or market value therefore does not make commissioners valuation of just compensation for the property excessive or unreasonable. The duly appointed commissioners of both parties made a careful study of the properties subject of expropriation. They considered factors such as the location, the most profitable likely use of the remaining area, size, shape, accessibility as well as listings of other properties within the vicinity to arrive at a reasonable estimate of just compensation for both lots due the respondent. Petitioner, in fact, does not question the commissioners appraisal value as just compensation for the area affected in Site II. Petitioner maintains that the assessment of just compensation for the lot in Site I is excessive since the highest valuation made for the properties within the vicinity of J.P. Laurel-Buhangin Road was pegged at Four Thousand Pesos (P4,000.00) in a decision rendered by Branch 17 of the Regional Trial Court of Davao in December 1993. This contention is not plausible. In computing just compensation for expropriation proceedings, it is the value of the land at the time of the taking or at the time of the filing of the complaint not at the time of the rendition of judgment

which should be taken into consideration.4 Section 4, Rule 67 of the 1997 Rules of Civil Procedure provides that just compensation is to be determined as of the date of the taking or the filing of the complaint whichever came first. On this matter, the appellate court is correct in disregarding petitioners claim. Nonetheless, we find merit in petitioners contention that there are no substantial distinctions between the lot in Site I and the lot in Site II to warrant different valuations. The lots subject of expropriation are adjacent to each other. The Appraisal Report even indicated that the remaining area of the lot in Site II has the same problem as in Site I with respect to access. The construction of the service road has created a problem pertaining to ingress or egress to the remaining portions of both Sites.5 Considering that there is no evidence showing substantial distinctions between the lots affected by Site I and Site II and no explanation was given by the commissioners as to why Site I had been given a higher valuation than Site II, we find it just and reasonable that the undisputed sum of Five Thousand Four Hundred Twenty-Three Pesos and Forty-Eight Centavos (P5,423.48) per square meter as just compensation for Site II should likewise apply to Site I. Wherefore, the petition is partially GRANTED. The assailed decision of the appellate court in C.A. G.R. CV No. 54256 is AFFIRMED with MODIFICATION only in so far as the value for the lot in Site I is concerned. Petitioner Republic of the Philippines is ordered to pay respondent Ker Company Limited Five Thousand Four Hundred Twenty-Three Pesos and Forty-Eight Centavos (P5,423.48) per square meter as just compensation for the 1,186 square meter lot expropriated in Site I. No pronouncement as to costs. SO ORDERED. Davide, Jr., Vitug, Kapunan, and Ynares-Santiago, JJ., concur. Footnotes
1 2

Rollo, p. 33.

Entitled "Republic of the Philippines v. Reynaldo Laong," Civil Case No. 22-052-93 in the Transcript of Stenographic Notes, p. 4.
3 4 5

150 SCRA 89, 109 [1987]. Republic v. Philippine National Bank, 1 SCRA 957, 961 [1961]. Records, pp. 106-107. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-23988

January 2, 1968

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LEONARDO S. VILLA and THE COURT OF APPEALS, respondents. Office of the Solicitor General for petitioner. Jesus P. Garcia for respondents. BENGZON, J.P., J.: Jurisdiction over the subject matter is fundamental for a court to act on a given controversy. It is conferred by law, 1 not by consent of the parties. 2 It can be challenged at any stage of the proceedings and for lack of it, a court can dismiss a case ex mero motu. 3 To inquire into the existence of jurisdiction over the subject matter is the primary concern of

a court, for thereon would depend the ability of its entire proceedings. In this case, the parties submitted voluntarily to the jurisdiction of the Court of Tax Appeals, adduced their evidence thereat. Thereafter, they submitted their cause for decision. At no stage of the proceedings have they raised the issue of jurisdiction. However, as aforesaid, the consent of the parties does not confer jurisdiction over the subject matter. Hence, We shall proceed to inquire whether or not the Court of Tax Appeals had jurisdiction to entertain the so-called appeal of the taxpayer in this case. Leonardo S. Villa, a doctor of medicine, and his wife filed joint income tax returns for the years 1951, 1952, 1953, 1954, 1955 and 1956 on April 2, 1952, March 30, 1953, February 26, 1954, March 31, 1955, April 2, 1956 and March 23, 1957, respectively. Subsequently, the Bureau of Internal Revenue determined the income of the Villa spouses by the use of networth method and accordingly issued on February 23, 1961 assessments for deficiency income tax for the years 1951, 1952, 1953, 1954 and 1956 and residence tax for 1951 to 1957. Dr. Villa received the assessments on April 7, 1961. Without contesting the said assessments in the Bureau of Internal Revenue, he filed on May 4, 1961 a petition for review in the Court of Tax Appeals . The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits and rendered the following judgment: IN VIEW OF THE FOREGOING CONSIDERATIONS, with the exception of that portion regarding the additional residence taxes and surcharges for the years 1951 to 1957 in the amount of P244.00, for which we hold petitioner liable, the decision appealed from is hereby reversed. The petitioner is ordered to pay to the Commissioner of Internal Revenue or his representative the sum of P244.00, as additional residence tax and surcharge without pronouncement as to costs. From said judgment, the Commissioner of Internal Revenue has appealed to Us. The law conferring jurisdiction on the Court of Tax Appeals is found in Section 7 of Republic Act 1125, the pertinent part of which states: Sec. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal as herein provided (1) Decisions of the Collector 4of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; The word "decisions" in paragraph 1, Section 7 of Republic Act 1125, quoted above, has been interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself. We quote what this Court said aptly in a previous case: In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent Collector's decision or ruling appealable to it , and that consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment. 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, . . . 5(Emphasis supplied) The same interpretation finds support in Section 11 of Republic Act 1125, which states:1wph1.t Sec. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such

decision or ruling. (Emphasis supplied) Note that the law uses the word "decisions", not "assessments", further indicating the legislative intention to subject to judicial review the decision of the Commissioner on the protest against an assessment but not the assessment itself. 6 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. 7 WHEREFORE, the judgment appealed from is set aside for lack of jurisdiction and the petition for review filed in the Court of Tax Appeals is hereby ordered dismissed. No costs. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Footnotes
1 2

21 Corpus Juris Secundum, 127-128.

Molina v. De la Riva 6 Phil. 12; Fuentebella v. Negros Coal Co., 50 Phil. 69; Vega v. San Carlos Milling Co., 51 Phil. 908.
3 4 5

US v. De la Santa, 9 Phil. 22; Vda. e Hijos de Pedro Rojas v. Rafferty, 37 Phil. 957. Now Commissioner.

St. Stephen's Association and St. Stephen's Chinese Girl's School v. Collector of Internal Revenue, 104 Phil. 314, 317; cited in Baguio Country Club Corporation v. Collector of Internal Revenue, et al., L-11419, April 22, 1959 and Commissioner of Internal Revenue v. Lilia Yusay Gonzales, et al., L-19495, Nov. 24, 1966.
6 7

See Villamin v. Court of Tax Appeals, L-11536, Oct. 31, 1960. Ker & Co., Ltd. v. Court of Tax Appeals, L-12396, Jan. 31, 1962.

PHILIPPINE JURISPRUDENCE FULL TEXT The Lawphil Project - Arellano Law Foundation G.R. No. 159694 & 163581 January 27, 2006 COMMISSIONER OF INTERNAL REVENUE vs. AZUCENA T. REYES / AZUCENA REYES vs. CIR.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 159694 January 27, 2006 COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AZUCENA T. REYES, Respondent. x -- -- -- -- -- -- -- -- -- -- -- -- -- x G.R. No. 163581 January 27, 2006 AZUCENA T. REYES, Petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION PANGANIBAN, CJ.: Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise. The Case Before us are two consolidated Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CAGR SP No. 71392. The dispositive portion of the assailed Decision reads as follows: "WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of the Maria C. Tancinco estates tax liability."4 The Facts The CA narrated the facts as follows: "On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 squaremeter residential lot and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City. "On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority on March 14, 1997. "On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. "On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990. "On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998. "On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it. "On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00. "In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than
1

sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would be published. "On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000. "As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000. "On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest. "Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124. "On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued. "[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion. "During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability. "On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000. "On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6, 2001. "On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing to February 27, 2001. "On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not vitiate the perfected

compromise. "Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application for compromise with the BIR cannot be considered a perfected or consummated compromise. "On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was already a perfected compromise. "On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues: 1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise. 2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires approval by the BIR [NEB]. "Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation Board (or REB), as the case may be. "On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision. "On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads: WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows: xxxxxxxxx [Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended. "In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000. "Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that at the time the questioned assessment notice and letter of demand were issued, the heirs knew very well the law and the facts on which the same were based. It also observed that the petition was not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5 Ruling of the Court of Appeals In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the law on which they were

based; otherwise, they were deemed void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality. The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of the estates tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum rates, the National Evaluation Boards (NEB) prior evaluation and approval were the conditio sine qua non to the perfection and consummation of any compromise.8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or not. 9 Where the law did not distinguish, courts too should not distinguish. Hence, this Petition.10 The Issues In GR No. 159694, petitioner raises the following issues for the Courts consideration: "I. Whether petitioners assessment against the estate is valid. "II. Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which the assessment in question is based, after she had opted to propose several compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of the basic estate tax due." 11 The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the compromise entered into is also valid. The Courts Ruling The Petition is unmeritorious. First Issue: Validity of the Assessment Against the Estate The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides as follows: "Sec. 228. Protesting of Assessment. -xxxxxxxxx "The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void." In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the law, but also of

the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law. To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not at all conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law. The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes. The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes.14 Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights. Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements the law. A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15 While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative. At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in harmony with, and not supplant or modify, the law.16 It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve. Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter. Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails.18 Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. 19 In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the governments claim, there can be no deprivation of property, because no effective protest can be made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxations general provisions that are expected to be known by the taxpayer, is utter chicanery. Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate the very reason for government itself." 21 Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR . Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts.23 Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding. Second Issue: Validity of Compromise It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.

No pronouncement as to costs. SO ORDERED. ARTEMIO V. PANGANIBAN Chief Justice Chairperson, First Division WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice ROMEO J. CALLEJO SR. Associate Justice MINITA V. CHICO-NAZARIO Asscociate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice Footnotes
1

The June 21, 2004 Resolution ordering the consolidation of GR No. 163581 with GR No. 159694 had been issued before the petitioner in the former case filed a Petition for Review. (GR No. 163581; rollo, p. 5.) Afterwards, per Resolution dated August 16, 2004, this Court denied the Petition for Review in GR No. 163581 for failure to comply with the requirements in Rules 46 and 56 of the 1997 Rules of Civil Procedure. Lacking was an affidavit of service of copies on the CA and on the respondent, and a duplicate original or a certified true copy of the assailed Decision and Resolution. (GR No. 163581; rollo, pp. 80-81.) Ultimately, per Resolution dated December 6, 2004, this Court denied with finality petitioners Motion for Reconsideration in GR No. 163581 of the August 16, 2004 Resolution. (GR No. 163581; rollo, unnumbered after p. 105.)
2 3

GR No. 159694, rollo, pp. 8-40; GR No. 163581, rollo, pp. 7-20.

Eighth Division. Penned by Justice Edgardo P. Cruz, with the concurrence of Justices Conrado M. Vasquez Jr. (chair) and Noel G. Tijam (member).
4

CA Decision, p. 14; GR No. 159694; rollo, p. 56. Uppercase and boldface copied verbatim.
5 6 7

Id., pp. 1-7 & 43-49. Uppercase and italics copied. Id., pp. 9 & 51. Id., pp. 10 & 52.

8 9

Id., pp. 11 & 53. Id., pp. 14 & 56.

10

This case was deemed submitted for decision on August 30, 2004, upon this Courts receipt in GR No. 159694 of Petitioners Memorandum, signed by Assistant Solicitor General Vida G. San Vicente and Associate Solicitor Sherri Lynn S. Cheng. Respondents Memorandum, signed by Atty. Reynoso B. Floreza, was received by this Court on July 28, 2004.
11

GR No. 159694. Petitioners Memorandum, pp. 12-13; rollo, pp. 259-260. Original in uppercase.
12 13

The Tax Code referred to is Republic Act (RA) No. 8424, as amended. The National Internal Revenue Code of 1977 provides: "SECTION 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 regulation within thirty (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 the said decision; otherwise, the decision shall become final, executory and demandable."

14 15 16 17

Agpalo, Statutory Construction (4th ed., 1998), p. 373. 244 of the Tax Code. Aban, Law of Basic Taxation in the Philippines (2001), p. 149.

Agpalo, Statutory Construction, id., p. 375. See also Adamson Ozanom Educational Institution, Inc. v. Adamson University Faculty and Employees Association, 179 SCRA 279, November 9, 1989.
18

Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, 198 SCRA 82, 88, June 3, 1991, citing Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628, 634, June 27, 1988.
19 20 21 22 23

Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, February 27, 1940. See Ang Ping v. CA, 369 Phil. 607, July 15, 1999. Marcos II v. CA, 273 SCRA 47, 57, June 5, 1997, per Torres Jr., J. Aban, Law of Basic Taxation in the Philippines, id., p. 143. Art. 5 of the Civil Code. Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION G.R. No. 134062 April 17, 2007 COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, Respondent. DECISION CORONA, J.: This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision 3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715. In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63: 1986 Deficiency Percentage Tax Deficiency percentage tax Add: 25% surcharge 20% interest from 1-21-87 to 10-28-88 Compromise penalty TOTAL AMOUNT DUE AND COLLECTIBLE 1986 Deficiency Documentary Stamp Tax Deficiency percentage tax Add: 25% surcharge Compromise penalty TOTAL AMOUNT DUE AND COLLECTIBLE Both notices of assessment contained the following note: Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown above. Said assessment has been based on return (filed by you) (as verified) (made by this Office) (pending investigation) (after investigation). You are requested to pay the above amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx6 In a letter dated December 10, 1988, BPI, through counsel, replied as follows: 1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether to pay or to protest the assessment. This is all the more so when the assessment involves astronomical amounts, as in this case. We therefore request that the examiner concerned be required to state, even in the briefest form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and as to the percentage tax, it is important that the taxpayer be informed also as to what particular percentage tax the assessment refers to. 2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged between your office and the Bankers Association of the Philippines [BAP] on this issue and of BPIs submission of its computations under this compromise. There is therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP compromise. On the other hand, if it relates to documentary stamp tax on some P93,723,372.40 23,430,843.10 15,000.00 P117,169,215.50.5 P 7, 270,892.88 1,817,723.22 3,215,825.03 15,000.00 P12,319,441.13

other issue, we should like to be informed about what those issues are. 3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may be protested since your letter does not even tell the taxpayer what particular percentage tax is involved and how your examiner arrived at the deficiency. As 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. 7 On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that: although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against the validity of our assessment still we obliged to explain the basis of the assessments. xxx xxx xxx this constitutes the final decision of this office on the matter. 8 On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992.10 On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a decision dated November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125.12 It denied reconsideration in a resolution dated May 27, 1996. 13 On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared that the proper assessments were those contained in the May 8, 1991 letter which provided the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on time.17 The CIR elevated the case to this Court. This petition raises the following issues: 1) whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and unappealable and 2) whether or not BPI was liable for the said taxes. The former Section 27018 (now renumbered as Section 228) of the NIRC stated: Sec. 270. Protesting of assessment. When the [CIR] 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 [CIR] shall issue an assessment based on his findings. xxx xxx xxx (emphasis supplied) Were the October 28, 1988 Notices Valid Assessments? The first issue for our resolution is whether or not the October 28, 1988 notices 19 were valid assessments. If they were not, as held by the CA, then the correct assessments were in the May 8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18, 1992 would be well within the 30-day period provided by law. 20 The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which was designed for the precise purpose of notifying taxpayers of the assessed amounts due and demanding payment thereof.21 He contends that there was no law or jurisprudence then that

required notices to state the reasons for assessing deficiency tax liabilities. 22 BPI counters that due process demanded that the facts, data and law upon which the assessments were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section 228), specifically provides that: "[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void." According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due process requires even under the former Section 270. BPIs contention has no merit. The present Section 228 of the NIRC provides: Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: xxx xxx xxx The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. xxx xxx xxx (emphasis supplied) Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the computation of the tax liabilities and a demand for payment thereof within 30 days after receipt. In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997). 23 In CIR v. Reyes,24 we held that: In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997. First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law.25 (emphasis supplied; italics in the original) Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and facts on which the assessments were based. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial legislation, nothing less. Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence. The sentence [t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in

1997. Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the amendment, the statute had an entirely different meaning. 28 Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an affirmation of what the law required under the former Section 270. The amendment introduced by RA 8424 was an innovation and could not be reasonably inferred from the old law. 29 Clearly, the legislature intended to insert a new provision regarding the form and substance of assessments issued by the CIR.30 In ruling that the October 28, 1988 notices were not valid assessments, the CA explained: xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the legal and factual basis of the formers decision to charge the latter for deficiency documentary stamp and gross receipts taxes.31 In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it in writing of the factual and legal bases of the assessments even if these were not called for under the old law. We disagree. Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be deprived of his property without due process of law." 32 We note, however, what the CTA had to say: xxx xxx xxx From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh] out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel honestly tell this Court that they did not know anything about the assessments? Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which contain his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the same worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI]. xxx xxx xxx From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and basis of the assessments, and was given all the opportunity to contest the same but ignored it despite the notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client.33 The CA never disputed these findings of fact by the CTA: [T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the [CTA]. 34 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:35 Sec. 270. Protesting of assessment.1a\^/phi1.net xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by the implementing regulations within thirty (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 [CTA] within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable. Implications Of A Valid Assessment Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30 days from receipt thereof. The December 10, 1988 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."36 Hence, by its own declaration, 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 October 28, 1988 notices as valid or proper assessments. The inevitable conclusion is that BPIs 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 BPIs 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.37 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. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38 Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIRs final decision regarding the disputed assessments within the 30-day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final decision on the matter." BPI therefore had 30 days from the time it received the decision on June 27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer the repercussions of its omission. We have already declared that: the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis of his statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action.39 (emphasis supplied) 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. The state will be deprived of the taxes validly due it and 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 fulfill its mandate of promoting the general welfare and well-being of the people.40 WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE. SO ORDERED. RENATO C. CORONA Associate Justice WE CONCUR: REYNATO S. PUNO Chief Justice Chairperson ANGELINA SANDOVAL-GUTIERREZ Associate Justice ADOLFO S. AZCUNA Asscociate Justice

CANCIO C. GARCIA Associate Justice C E RTI F I CATI O N Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice Footnotes
1 2

Under Rule 45 of the Rules of Court.

Penned by Associate Justice Emeterio C. Cui (retired) and concurred in by Associate Justices Ramon U. Mabutas, Jr. (retired) and Hilarion L. Aquino (retired) of the Second Division of the Court of Appeals; rollo, pp. 40-46. Under RA 9282, effective April 23, 2004, decisions of the reconstituted CTA are no longer appealable to the CA but directly to the SC.
3

Penned by Associate Judge Ramon O. De Veyra (retired) and concurred in by Presiding Judge Ernesto D. Acosta and Associate Judge Manuel K. Gruba (deceased) of the old CTA; id., pp. 47-69.
4 5 6 7 8 9

Id., pp. 70-71. Id., pp. 47-48, 72. Id., p. 72. Id., pp. 41, 90. Id., pp. 12, 48. Id., p. 41.

10 11 12

Id., p. 49. Id., p. 41. Id., pp. 67-68. These sections state: Sec. 7. Jurisdiction The [CTA] shall exercise exclusive appellate jurisdiction to review by appeal as herein provided (1) Decisions of the Collector (now Commissioner) of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the [NIRC] or other law or part of law administered by the Bureau of Internal Revenue; xxx Sec. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector (now Commissioner) of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the [CTA] within thirty days after the receipt of such decision or ruling.

13 14 15 16 17 18

Id., pp. 70-71. Id., p. 45. Id. Id., p. 43. Id., p. 44.

People v. Sandiganbayan (G.R. No. 152532, 16 August 2005) contains a legislative history of this provision in its footnote no. 9: "Sec. 229 was originally found in the [National Internal Revenue Code (NIRC)] of 1977, which was codified by and made an integral part of Presidential Decree (PD) No. 1158, otherwise known as A Decree to Consolidate and Codify all the Internal Revenue Laws of the Philippines. When the NIRC of 1977 was amended by PD 1705 on August 1, 1980, Sec. 229 was restated as Sec. 16(d). On January 16, 1981, PD 1773 further amended Sec. 16 by eliminating paragraph (d) and inserting its contents between Secs. 319 and 320 as a new Sec. 319-A. PD 1994 then renumbered Sec. 319-A as Sec. 270 on January 1, 1986; and on January 1, 1988, Sec. 270 was again renumbered as Sec. 229 and rearranged to fall under Chapter 3 of Title VIII of the NIRC by Executive Order (EO) No. 273, otherwise known as Adopting a Value-Added Tax, Amending for this Purpose Certain Provisions of the [NIRC], and for other purposes. At present, Sec. 229 has been amended as Sec. 228 by RA 8424, otherwise known as the Tax Reform Act of 1997."
19 20 21 22 23

FAS-4-86-88-003209 and FAS-5-86-88-003210; id., p. 72. Id., pp. 43-44. Id., pp. 163-164. Id., p. 164.

Sec. 270 was renumbered Sec. 229 before it was amended and became Sec. 228; supra note 18.
24 25 26

G.R. No. 159694, 27 January 2006, 480 SCRA 382. Id., p. 393. Tupaz v. Ulep, G.R. No. 127777, 1 October 1999, 316 SCRA 118, 126.

27

See Commissioner v. Court of Tax Appeals, G.R. Nos. L-48886-88, 21 July 1993, 224 SCRA 665, 671.
28

Palanca v. City of Manila and Trinidad, 41 Phil. 125, 131 (1920); R. Agpalo, Statutory Construction 308 (3rd ed., 1995).
29 30 31 32 33 34

See Pioneer Texturizing Corp. v. NLRC, 345 Phil. 1057, 1072 (1997). Id. Rollo, p. 43. Constitution, Art. III, Sec. 1. Rollo, pp. 62-65, citations omitted.

Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, G.R. No. 157064, 7 August 2006, 498 SCRA 126.
35 36 37

Rollo, pp. 51-52. Supra note 7.

Republic v. Court of Appeals, G.R. No. L-38540, 30 April 1987, 149 SCRA 351, 357, citation omitted.
38

Sy Po v. Court of Appeals, G.R. No. L-81446, 18 August 1988, 164 SCRA 524, 530, citations omitted.
39

Oceanic Wireless Network, Inc. v. Commission of Internal Revenue , G.R. No. 148380, 9 December 2005, 477 SCRA 205, 211-212, citing Surigao Electric Co., Inc. v. Court of Tax Appeals, G.R. No. L-25289, 28 June 1974, 57 SCRA 523.
40

National Power Corporation v. City of Cabanatuan , G.R. No. 149110, 9 April 2003, 401 SCRA 259, 269-270, citations omitted. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11238 August 21, 1958 ST. STEPHEN'S ASSOCIATION and ST. STEPHEN'S CHINESE GIRLS SCHOOL, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent. Ross, Selph, Carrascoso and Janda for petitioners. Office of the Solicitor General Ambrosia Padilla, Solicitor Conrado T. Limcaoco and Special Attorney Jose G. Azurin for respondent. REYES, J. B. L., J.: Petitioner St. Stephen's Association is a non-stock corporation organized under the laws of the Philippines for the purpose of supporting and maintaining school or schools wherein the arts, sciences, and other studies are taught to children of Chinese parentage and descent; while the other petitioner, the St. Stephen's Chinese Girls School, is a school maintained and supported by funds received from its co-petitioners, the St. Stephen's Association. On January 21, 1950, the petitioner St. Stephen's Association turned over the amount of P9,252.48 to the St. Stephen's Chinese Girls School, and the transfer of funds was entered in the ledger and cash book of the School as a "donation" from the Association. Having come across the book entry in a routine inspection of the books of the School, an examiner of the Bureau of Internal Revenue reported the donation to the Collector and thereafter, the Collector of Internal Revenue sent petitioners his Assessment Notice No. GA-3008-50 dated October 15, 1954, demanding the payment of the amounts of P98.70 and P699.07 as donor's and donee's gift taxes on the donation in question, including surcharges and interests.

On November 13, 1954, petitioners wrote the Collector a letter requesting the cancellation and withdrawal of the assessment notice in question on the ground that the amount of P9,252.48 was erroneously entered by the bookkeeper as a donation from the Association to the School, when the truth was that said amount was obtained by the former by means of small contributions from the public and allocated to the School for its maintenance. On April 21, 1955, petitioners received a letter from the Collector dated April 6, 1955, denying the request embodied in their letter of November 13, 1954, and insisting that the assessment in question be paid. On May 9, 1955, petitioners filed their reply to the Collector's letter of April 6, 1955, rebutting the arguments of the Collector in support of the assessment, and asking for its reconsideration. On July 25, 1955, petitioners received the letter of the Collector dated July 11, 1955, again denying their request that the assessment in question be cancelled and withdrawn, and stating in its last paragraph that: This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within the same period, in accordance with the provisions of Republic Act No. 1125. Within thirty days from the receipt of the above letter, or on August 13, 1955, petitioners filed a petition for review with the respondent Court of Tax Appeals. Issues having been joined in the respondent court, the case was tried on the merits and thereafter, the parties were asked to file their respective memoranda. Before they could do so, however, the court required the parties to submit arguments to show whether the petition for review was filed within the thirty-day period prescribed in Section 11 of Republic Act No. 1125. Petitioners filed a memorandum calling attention to the last paragraph of the letter of the Collector of Internal Revenue of July 11, 1955; no memorandum was filed by the respondent Collector. On August 15, 1955, the respondent court promulgated a resolution dismissing the petition for lack of jurisdiction. The resolution was premised on the court's findings that the period for petitioners' appeal started to run from their receipt of the assessment notice in question; that said period was interrupted by the filing of petitioners' two requests for the cancellation of the assessment, but started to run again when said requests were denied; and that from November 12, 1954, when petitioners received the assessment notice, to August 13, 1955, when they filed their petition for review, deducting the time when their two requests for cancellation were pending with the respondent Collector, 37 days had elapsed and therefore, their petition was filed out of time and did not confer jurisdiction upon the respondent court. From this resolution of dismissal, petitioners appealed to this Court. We find merit in the appeal. In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment. 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, in accordance with paragraph (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax Appeals to review "decisions of the Collector of Internal Revenue in cases involving disputed assessment . . ." (Emphasis supplied). The period for appeal to the respondent court in this case must, therefore, be computed from the time petitioners received the decision of the respondent Collector of Internal Revenue on the disputed assessment, and not from the time they received said assessment. The next question now is: which is the decision of the Collector on the disputed assessment his letter of April 6, 1955, received by petitioners on April 21, 1955, denying their first request for the withdrawal and cancellation of the assessment; or his letter of July 11, 1955, received by petitioners on July 25, 1955, denying their second request that the assessment be cancelled and withdrawn, and stating that:

This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within the same period, in accordance with the provision of Republic Act No. 1125. From the above-quoted statement appearing in his letter of July 11, 1955, it is evident that the respondent Collector himself considered said letter as his final decision in the case, hence his warning that the same would become final in thirty days unless petitioners appealed to the Court of Tax Appeals within the same period. Prior to his letter-decision of July 11, 1955, then, the Collector must have held the matter under advisement and considered his preceding rulings as merely tentative in character, pending his final determination and resolution of the merits of the arguments of fact and law submitted by petitioners in support of their requests for the cancellation and withdrawal of the assessment. This must have been the reason why, in said letter-decision of July 11, 1955, the Collector included an express statement that said decision was to become final in thirty days unless appealed from within the same period; and it must also have been for this reason that, throughout the proceedings in the respondent Collector never claimed that petitioners' appeal was filed out of time, and it was the Tax Court that motu proprio dismissed the petition because it believed it was not filed within the period provided by Republic Act No. 1125. Respondents assert that the Collector of Internal Revenue can not enlarge or extend the period for appeal under section 11 of Republic Act No. 1125. This is not, however, a case where the respondent Collector had enlarged or extended the period for appeal to the respondent Court; this is simply a case where the Collector did not reach a final decision on the matter pending before him until July 11, 1955, when he released his letter-decision of the same date. Petitioners having filed their appeal on the 19th day from the receipt of this decision, their appeal was filed on time and the respondent Court erred in dismissing the same for lack of jurisdiction. Wherefore, the resolution appealed from is reversed, and the records are ordered remanded to the respondent court for decision on the merits. Without costs. So Ordered. Paras, C. J., Bengzon, Padilla, Montemayor, Reyes A., Bautista Angelo, Concepcion, Endencia and Felix, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9692 January 6, 1958 COLLECTOR OF INTERNAL REVENUE, petitioner, vs. BATANGAS TRANSPORTATION COMPANY and LAGUNA-TAYABAS BUS COMPANY, respondents. Office of the Solicitor General Ambrosio Padilla, Solicitor Conrado T. Limcaoco and Zoilo R. Zandoval for petitioner. Ozaeta, Lichauco and Picazo for respondents. MONTEMAYOR, J.: This is an appeal from the decision of the Court of Tax Appeals (C.T.A.), which reversed the assessment and decision of petitioner Collector of Internal Revenue, later referred to as Collector, assessing and demanding from the respondents Batangas Transportation Company, later referred to as Batangas Transportation, and Laguna-Tayabas Bus Company, later referred to as Laguna Bus, the amount of P54,143.54, supposed to represent the deficiency income tax and compromise for the years 1946 to 1949, inclusive, which amount, pending appeal in the C.T.A., but before the Collector filed his answer in said court, was increased to P148,890.14. The following facts are undisputed: Respondent companies are two distinct and separate corporations engaged in the business of land transportation by means of motor buses, and operating distinct and separate lines. Batangas Transportation was organized in 1918, while Laguna Bus was organized in 1928. Each company now has a fully paid up capital of Pl,000,000.

Before the last war, each company maintained separate head offices, that of Batangas Transportation in Batangas, Batangas, while the Laguna Bus had its head office in San Pablo Laguna. Each company also kept and maintained separate books, fleets of buses, management, personnel, maintenance and repair shops, and other facilities. Joseph Benedict managed the Batangas Transportation, while Martin Olson was the manager of the Laguna Bus. To show the connection and close relation between the two companies, it should be stated that Max Blouse was the President of both corporations and owned about 30 per cent of the stock in each company. During the war, the American officials of these two corporations were interned in Santo Tomas, and said companies ceased operations. They also lost their respective properties and equipment. After Liberation, sometime in April, 1945, the two companies were able to acquire 56 auto buses from the United States Army, and the two companies diveded said equipment equally between themselves,registering the same separately in their respective names. In March, 1947, after the resignation of Martin Olson as Manager of the Laguna Bus, Joseph Benedict, who was then managing the Batangas Transportation, was appointed Manager of both companies by their respective Board of Directors. The head office of the Laguna Bus in San Pablo City was made the main office of both corporations. The placing of the two companies under one sole mangement was made by Max Blouse, President of both companies, by virtue of the authority granted him by resolution of the Board of Directors of the Laguna Bus on August 10, 1945, and ratified by the Boards of the two companies in their respective resolutions of October 27, 1947. According to the testimony of joint Manager Joseph Benedict, the purpose of the joint management, which was called, "Joint Emergency Operation", was to economize in overhead expenses; that by means of said joint operation, both companies had been able to save the salaries of one manager, one assistant manager, fifteen inspectors, special agents, and one set of office of clerical force, the savings in one year amounting to about P200,000 or about P100,000 for each company. At the end of each calendar year, all gross receipts and expenses of both companies were determined and the net profits were divided fifty-fifty, and transferred to the book of accounts of each company, and each company "then prepared its own income tax return from this fifty per centum of the gross receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency Operation' and paid the corresponding income taxes thereon separately". Under the theory that the two companies had pooled their resources in the establishment of the Joint Emergency Operation, thereby forming a joint venture, the Collector wrote the bus companies that there was due from them the amount of P422,210.89 as deficiency income tax and compromise for the years 1946 to 1949, inclusive. Since the Collector caused to be restrained, seized, and advertized for sale all the rolling stock of the two corporations, respondent companies had to file a surety bond in the same amount of P422,210.89 to guarantee the payment of the income tax assessed by him. After some exchange of communications between the parties, the Collector, on January 8, 1955, informed the respondents "that after crediting the overpayment made by them of their alleged income tax liabilities for the aforesaid years, pursuant to the doctrine of equitable recoupment, the income tax due from the `Joint Emergency Operation' for the years 1946 to 1949, inclusive, is in the total amount of P54,143.54." The respondent companies appealed from said assessment of P54,143.54 to the Court of Tax Appeals, but before filing his answer, the Collector set aside his original assessment of P54,143.54 and reassessed the alleged income tax liability of respondents of P148,890.14, claiming that he had later discovered that said companies had been "erroneously credited in the last assessment with 100 per cent of their income taxes paid when they should in fact have been credited with only 75 per cent thereof, since under Section 24 of the Tax Code dividends received by them from the Joint Operation as a domestic corporation are returnable to the extent of 25 per cent". That corrected and increased reassessment was embodied in the answer filed by the Collector with the Court of Tax Appeals. The theory of the Collector is the Joint Emergency Operation was a corporation distinct from the two respondent companies, as defined in section 84 (b), and so liable to income tax under section 24, both of the National Internal Revenue Code. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency Operation or joint management of the two companies "is not

a corporation within the contemplation of section 84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and therefore was not subject to the income tax under the provisions of section 24 of the same Code, separately and independently of respondent companies; so, it reversed the decision of the Collector assessing and demanding from the two companies the payment of the amount of P54,143.54 and/or the amount of P148,890.14. The Tax Court did not pass upon the question of whether or not in the appeal taken to it by respondent companies, the Collector could change his original assessment by increasing the same from P54,143.14 to P148,890.14, to correct an error committed by him in having credited the Joint Emergency Operation, totally or 100 per cent of the income taxes paid by the respondent companies for the years 1946 to 1949, inclusive, by reason of the principle of equitable recoupment, instead of only 75 per cent. The two main and most important questions involved in the present appeal are: (1) whether the two transportation companies herein involved are liable to the payment of income tax as a corporation on the theory that the Joint Emergency Operation organized and operated by them is a corporation within the meaning of Section 84 of the Revised Internal Revenue Code, and (2) whether the Collector of Internal Revenue, after the appeal from his decision has been perfected, and after the Court of Tax Appeals has acquired jurisdiction over the same, but before said Collector has filed his answer with that court, may still modify his assessment subject of the appeal by increasing the same, on the ground that he had committed error in good faith in making said appealed assessment. The first question has already been passed upon and determined by this Tribunal in the case of Eufemia Evangelista et al., vs. Collector of Internal Revenue et al.,* G.R. No. L-9996, promulgated on October 15, 1957. Considering the views and rulings embodied in our decision in that case penned by Mr. Justice Roberto Concepcion, we deem it unnecessary to extensively discuss the point. Briefly, the facts in that case are as follows: The three Evangelista sisters borrowed from their father about P59,000 and adding thereto their own personal funds, bought real properties, such as a lot with improvements for the sum of P100,000 in 1943, parcels of land with a total area of almost P4,000 square meters with improvements thereon for P18,000 in 1944, another lot for P108,000 in the same year, and still another lot for P237,000 in the same year. The relatively large amounts invested may be explained by the fact that purchases were made during the Japanese occupation, apparently in Japanese military notes. In 1945, the sisters appointed their brother to manage their properties, with full power to lease, to collect and receive rents, on default of such payment, to bring suits against the defaulting tenants, to sign all letters and contracts, etc. The properties therein involved were rented to various tenants, and the sisters, through their brother as manager, realized a net rental income of P5,948 in 1945, P7,498 in 1946, and P12,615 in 1948. In 1954, the Collector of Internal Revenue demanded of them among other things, payment of income tax on corporations from the year 1945 to 1949, in the total amount of P6,157, including surcharge and compromise. Dissatisfied with the said assessment, the three sisters appealed to the Court of Tax Appeals, which court decided in favor of the Collector of Internal Revenue. On appeal to us, we affirmed the decision of the Tax Court. We found and held that considering all the facts and circumstances sorrounding the case, the three sisters had the purpose to engage in real estate transactions for monetary gain and then divide the same among themselves; that they contributed to a common fund which they invested in a series of transactions; that the properties bought with this common fund had been under the management of one person with full power to lease, to collect rents, issue receipts, bring suits, sign letters and contracts, etc., in such a manner that the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit; and that the said sisters had the intention to constitute a partnership within the meaning of the tax law. Said sisters in their appeal insisted that they were mere co-owners, not co-partners, for the reason that their acts did not create a personality independent of them, and that some of the characteristics of partnerships were absent, but we held that when the Tax Code includes "partnerships" among the entities subject to the tax on corporations, it must refer to organizations which are not necessarily partnerships in the technical sense of the term, and that furthermore, said law defined the term "corporation" as including partnerships no matter how created or organized, thereby indicating that "a joint venture

need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations"; that besides, said section 84 (b) provides that the term "corporation" includes "joint accounts" (cuentas en participacion) and "associations", none of which has a legal personality independent of that of its members. The decision cites 7A Merten's Law of Federal Income Taxation. In the present case, the two companies contributed money to a common fund to pay the sole general manager, the accounts and office personnel attached to the office of said manager, as well as for the maintenance and operation of a common maintenance and repair shop. Said common fund was also used to buy spare parts, and equipment for both companies, including tires. Said common fund was also used to pay all the salaries of the personnel of both companies, such as drivers, conductors, helpers and mechanics, and at the end of each year, the gross income or receipts of both companies were merged, and after deducting therefrom the gross expenses of the two companies, also merged, the net income was determined and divided equally between them, wholly and utterly disregarding the expenses incurred in the maintenance and operation of each company and of the individual income of said companies. From the standpoint of the income tax law, this procedure and practice of determining the net income of each company was arbitrary and unwarranted, disregarding as it did the real facts in the case. There can be no question that the receipts and gross expenses of two, distinct and separate companies operating different lines and in some cases, different territories, and different equipment and personnel at least in value and in the amount of salaries, can at the end of each year be equal or even approach equality. Those familiar with the operation of the business of land transportation can readily see that there are many factors that enter into said operation. Much depends upon the number of lines operated and the length of each line, including the number of trips made each day. Some lines are profitable, others break above even, while still others are operated at a loss, at least for a time, depending, of course, upon the volume of traffic, both passenger and freight. In some lines, the operator may enjoy a more or less exclusive exclusive operation, while in others, the competition is intense, sometimes even what they call "cutthroat competition". Sometimes, the operator is involved in litigation, not only as the result of money claims based on physical injuries ar deaths occassioned by accidents or collisions, but litigations before the Public Service Commission, initiated by the operator itself to acquire new lines or additional service and equipment on the lines already existing, or litigations forced upon said operator by its competitors. Said litigation causes expense to the operator. At other times, operator is denounced by competitors before the Public Service Commission for violation of its franchise or franchises, for making unauthorized trips, for temporary abandonement of said lines or of scheduled trips, etc. In view of this, and considering that the Batangas Transportation and the Laguna Bus operated different lines, sometimes in different provinces or territories, under different franchises, with different equipment and personnel, it cannot possibly be true and correct to say that the end of each year, the gross receipts and income in the gross expenses of two companies are exactly the same for purposes of the payment of income tax. What was actually done in this case was that, although no legal personality may have been created by the Joint Emergency Operation, nevertheless, said Joint Emergency Operation joint venture, or joint management operated the business affairs of the two companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. For the foregoing reasons, and in the light of our ruling in the Evangelista vs. Collector of Internal Revenue case, supra, we believe and hold that the Joint Emergency Operation or sole management or joint venture in this case falls under the provisions of section 84 (b) of the Internal Revenue Code, and consequently, it is liable to income tax provided for in section 24 of the same code. The second important question to determine is whether or not the Collector of Internal Revenue, after appeal from his decision to the Court of Tax Appeals has been perfected, and after the Tax Court Appeals has acquired jurisdiction over the appeal, but before the Collector has filed his answer with the court, may still modify his assessment, subject of the appeal, by increasing the

same. This legal point, interesting and vital to the interests of both the Government and the taxpayer, provoked considerable discussion among the members of this Tribunal, a minority of which the writer of this opinion forms part, maintaining that for the information and guidance of the taxpayer, there should be a definite and final assessment on which he can base his decision whether or not to appeal; that when the assessment is appealed by the taxpayer to the Court of Tax Appeals, the collector loses control and jurisdiction over the same, the jurisdiction being transferred automatically to the Tax Court, which has exclusive appellate jurisdiction over the same; that the jurisdiction of the Tax Court is not revisory but only appellate, and therefore, it can act only upon the amount of assessment subject of the appeal to determine whether it is valid and correct from the standpoint of the taxpayer-appellant; that the Tax Court may only correct errors committed by the Collector against the taxpayer, but not those committed in his favor, unless the Government itself is also an appellant; and that unless this be the rule, the Collector of Internal Revenue and his agents may not exercise due care, prudence and pay too much attention in making tax assessments, knowing that they can at any time correct any error committed by them even when due to negligence, carelessness or gross mistake in the interpretation or application of the tax law, by increasing the assessment, naturally to the prejudice of the taxpayer who would not know when his tax liability has been completely and definitely met and complied with, this knowledge being necessary for the wise and proper conduct and operation of his business; and that lastly, while in the United States of America, on appeal from the decision of the Commissioner of Internal Revenue to the Board or Court of Tax Appeals, the Commissioner may still amend or modify his assessment, even increasing the same the law in that jurisdiction expressly authorizes the Board or Court of Tax Appeals to redetermine and revise the assessment appealed to it. The majority, however, holds, not without valid arguments and reasons, that the Government is not bound by the errors committed by its agents and tax collectors in making tax assessments, specially when due to a misinterpretation or application of the tax laws, more so when done in good faith; that the tax laws provide for a prescriptive period within which the tax collectors may make assessments and reassessments in order to collect all the taxes due to the Government, and that if the Collector of Internal Revenue is not allowed to amend his assessment before the Court of Tax Appeals, and since he may make a subsequent reassessment to collect additional sums within the same subject of his original assessment, provided it is done within the prescriptive period, that would lead to multiplicity of suits which the law does not encourage; that since the Collector of Internal Revenue, in modifying his assessment, may not only increase the same, but may also reduce it, if he finds that he has committed an error against the taxpayer, and may even make refunds of amounts erroneously and illegally collected, the taxpayer is not prejudiced; that the hearing before the Court of Tax Appeals partakes of a trial de novo and the Tax Court is authorized to receive evidence, summon witnesses, and give both parties, the Government and the taxpayer, opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected, may be determined and decided, whether resulting in the increase or reduction of the assessment appealed to it. The result is that the ruling and doctrine now being laid by this Court is, that pending appeal before the Court of Tax Appeals, the Collector of Internal Revenue may still amend his appealed assessment, as he has done in the present case. There is a third question raised in the appeal before the Tax Court and before this Tribunal, namely, the liability of the two respondent transportation companies for 25 per cent surcharge due to their failure to file an income tax return for the Joint Emergency Operation, which we hold to be a corporation within the meaning of the Tax Code. We understand that said 25 per cent surcharge is included in the assessment of P148,890.14. The surcharge is being imposed by the Collector under the provisions of Section 72 of the Tax Code, which read as follows: The Collector of Internal Revenue shall assess all income taxes. In case of willful neglect to file the return or list within the time prescribed by law, or in case a false or fraudulent return or list is willfully made the collector of internal revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make and file a return list within the time

prescribed by law or by the Collector or other internal revenue officer, not due to willful neglect, the Collector, shall add to the tax twenty-five per centum of its amount, except that, when the return is voluntarily and without notice from the Collector or other officer filed after such time, it is shown that the failure was due to a reasonable cause, no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. We are satisfied that the failure to file an income tax return for the Joint Emergency Operation was due to a reasonable cause, the honest belief of respondent companies that there was no such corporation within the meaning of the Tax Code, and that their separate income tax return was sufficient compliance with the law. That this belief was not entirely without foundation and that it was entertained in good faith, is shown by the fact that the Court of Tax Appeals itself subscribed to the idea that the Joint Emergency Operation was not a corporation, and so sustained the contention of respondents. Furthermore, there are authorities to the effect that belief in good faith, on advice of reputable tax accountants and attorneys, that a corporation was not a personal holding company taxable as such constitutes "reasonable cause" for failure to file holding company surtax returns, and that in such a case, the imposition of penalties for failure to file holding company surtax returns, and that in such a case, the imposition of penalties for failure to file return is not warranted1 In view of the foregoing, and with the reversal of the appealed decision of the Court of Tax Appeals, judgment is hereby rendered, holding that the Joint Emergency Operation involved in the present is a corporation within the meaning of section 84 (b) of the Internal Revenue Code, and so is liable to incom tax under section 24 of the code; that pending appeal in the Court of Tax Appeals of an assessment made by the Collector of Internal Revenue, the Collector, pending hearing before said court, may amend his appealed assessment and include the amendment in his answer before the court, and the latter may on the basis of the evidence presented before it, redetermine the assessment; that where the failure to file an income tax return for and in behalf of an entity which is later found to be a corporation within the meaning of section 84 (b) of the Tax Code was due to a reasonable cause, such as an honest belief based on the advice of its attorneys and accountants, a penalty in the form of a surcharge should not be imposed and collected. The respondents are therefore ordered to pay the amount of the reassessment made by the Collector of Internal Revenue before the Tax Court, minus the amount of 25 per cent surcharge. No costs. Bengzon, Paras, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Reyes, A. J., concurs in the result. Footnotes
1

Walnut St. Co. vs. Glenn, D.C. Ky. 148, 83 F. Supp. 945; Safety Tube Corp. vs. Commissioner of Internal Revenue, 1947 8 T.C. 757 affirmed 168 F. 2d 787; Elm Beach Trust Co. vs. Commissioner of Internal Revenue, 174 F. 2d 527. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19074 January 31, 1967 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ANTONIO G. GUERRERO, and the COURT OF TAX APPEALS, respondents. -----------------------------

G.R. No. L-19089

January 31, 1967

ANTONIO G. GUERRERO, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. L-19074. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General F. R. Rosete and Atty. A. B. Afurong for petitioner. Venancio B. Fernando for respondents. L-19089 Venancio B. Fernando for petitioner. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General F. R. Rosete and Atty. A. B. Afurong for respondent. CONCEPCION, C.J.: These are two (2) appeals from the same decision of the Court of Tax Appeals. One (L-19074) was taken by the Commissioner of Internal Revenue, and the other (L-19089) by Antonio G. Guerrero. The dispositive part of said decision reads: In line with the foregoing opinion, the decision appealed from is hereby modified. Petitioner (Antonio G. Guerrero) is ordered to pay the sum of P3,775.66 within thirty days from the date this decision becomes final. No pronouncement as to costs. (Emphasis ours.) Said Antonio G. Guerrero was, during the years 1949 and 1950, a dealer in logs, which he used to sell to the Aparri Lumber Company, hereinafter referred to as the company. On April 2, 1954, the then Collector of Internal Revenue made an assessment and demand requiring Guerrero to pay the sum of P4,014.91, representing fixed and percentage taxes and forest charges, as well as surcharges and penalties, in connection with his aforementioned business transactions with the company. Upon Guerrero's request, the matter was submitted to the Conference Staff of the Bureau of Internal Revenue, which, in due course, thereafter, or on January 11, 1956, recommended that the assessment be increased to P5,139.17, computed as follows: C-14 producer's fixed tax for 1949 and 1950 . . . . . . . . . . . . . . . . . . . 5% sales tax on P18,760.20 (P14,377.92 & P4,382.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total for fixed and sales taxes and surcharges . . . . . . . . Vol. of timber, July 4, 1949 to May 21, 1950 (41,880 & 13,892) . . . Add: 40% for squaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Total volume to be assessed . . . . . . . . . . . . . . . . . . . . . . . or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regular forest charges on 184.15 cu. m. at P3.50 . . . . . . . . . . . . . 300% surcharge for cutting without license . . . . . . . . . . . . . . . . . . . 50% (x) surcharge for transporting without invoice . . . . . . . . . . . . . 50% surcharge for discharging without permit . . . . . . . . . . . . . . . . . 50% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . Regular forest charges on 13.94 cu. m. at P3.50 . . . . . . . . . . . . . . . P 20.00 938.01 234.50 P1,192.51 55,772 Bd. ft 22,309 " " 78,081 " " 184.15 cu. m. P 644.53 1,933.5 9 322.26 322.26 322.26 P3,544.90 48.79

300% surcharge for cutting without license . . . . . . . . . . . . . . . . . . . . 25% surcharge for transporting without invoice . . . . . . . . . . . . . . . . 25% surcharge for discharging without permit . . . . . . . . . . . . . . . . . 25% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forest charges & surcharges . . . . . . . . . . . . . . . . . . . . . . . . TOTAL AMOUNT DUE . . . . . . . . . . . . . . . . . . . . . . . . . . . .

146.37 12.20 12.20 12.20 P231.76 P4,969.17

In addition to the above amount, the sums of P20.00 and P100.00 as compromise penalties in extrajudicial settlement of his penal liabilities under sections 208 and 209 of the N.I.R.C. should be reiterated. That another sum of P50.00 as compromise penalty for his violation of the Bookkeeping Regulations should be imposed against the taxpayer, he having admitted during the hearing of this case that he did not keep books of accounts for his timber business. This recommendation was approved by the Collector of Internal Revenue, who, accordingly, made the corresponding reassessment upon receipt of notice of which Guerrero requested, on February 10, 1956, a rehearing before the Conference Staff. Instead of acting on this request, on April 20, 1956, the corresponding Internal Revenue Regional Director issued a warrant of distraint and levy against the properties of Guerrero, in order to effect the collection of his tax liabilities under said reassessment. Hence, on June 8, 1956, Guerrero filed with the Court of Tax Appeals the corresponding petition for review. Subsequently, said court rendered the decision appealed from. Hence, these appeals. There is no dispute as to the volume of sales of logs made by Guerrero during the years 1949 and 1950, upon which the disputed reassessment is based. The only issues in these appeals are whether or not he is liable for the payment of: (1) P3,775.66, by way of forest charges and surcharges on the logs sold to the company, which the Court of Tax Appeals answered in the affirmative; (2) P1,192.51, by way of fixed and percentage taxes and surcharges as producer of said logs, which said court decided in the negative; (3) P668.36, as additional forest charges and sales taxes, as well as surcharges, which was decided by the trial court in favor of the taxpayer; and (4) P120.00 and P50.00 as compromise penalties for violation of Sections 208 and 209 of the Revised Internal Revenue Code and of the bookkeeping regulations, respectively, likewise, decided by the Court of Tax Appeals against the Government. With respect to the first item, Guerrero maintains that, he is not liable therefor because he bought the logs in question for the company, as agent thereof and with money belonging thereto. However, before the Conference Staff of the then Bureau of Internal Revenue, Guerero had: claimed that he financed his business with his own money and sold the logs to the company on a commission basis. Moreover, he admitted having sold some lumber to other enterprises in Manila, although he had previously asserted that he dealt exclusively with the company. Upon the other hand, the auxiliary invoices presented before the Bureau of Internal Revenue were either spurious, or referred to logs other than those involved in the disputed reassessment. Thus, for instance, in exhibit 8-AA (O.R. No. 6578049, p. 82, BIR record), the word "June" was superimposed over the word "May" and, at the back of Exhibit 8-AA-1 (p. 81, BIR record), which is the corresponding invoice, two similar alterations were made. In the auxiliary invoices Exhibits 00-3 and 00-4 (PP. 28-29, BIR record), submitted by Guerrero to the Conference Staff, as Exhibits C-3 and C-4, his name is written (script), in ink, on the space opposite the word consignee". However, in the copies of said auxiliary invoices (Exhibits 8-R-2 and 8-S pp. 117 and 119, BIR record), taken from the company, the corresponding space is blank. Again, the taxpayer's name on said Exhibits 00-3 and 00-4 is handwritten with a penmanship that is markedly different from that of Segundo Agustin, the signatory of said invoices, who had supposedly accomplished the same, thus indicating that said name could not have been written by Segundo Agustin, and rendering the authenticity of the documents highly doubtful. Furthermore, said invoices, as well as the other invoices submitted by Guerrero to the Conference Staff (Exhibits C-1 to C-14, also, marked as Exhibits 00-1 to 00-14, pp. 18-31, BIR record), referred to logs other than those involved in the questioned reassessment.

The foregoing circumstances clearly indicate that the logs involved in said reassessment were obtained from illegal sources, and that the forest charges due thereon had not been paid. Since these charges "are liens on the products and collectible from whomsoever is in possession" thereof, "unless he can show that he has the required auxiliary and official invoice and discharge permit" (Collector of Internal Revenue vs. Pio Barretto and Sons, L-11805, May 31, 1960) which Guerrero has not shown it follows that he is bound to pay the aforementioned forest charges and surcharges, in the sum of P3,775.66. As regards the second item of P1,192.51, representing fixed and percentage taxes and surcharges, as producer of the logs involved in the reassessment, the Court of Tax Appeals held that Guerrero is not liable therefor, upon the theory that said logs were sold by the Government to the one who had cut, and removed the products from the forest; that the original sale of said logs was, therefore, made by the Government, not by the concessionaire or cutter of the forest products; and that, accordingly, Guerrero is not liable for the payment of the corresponding fixed and percentage taxes thereon. This theory is based upon the premise that, whereas in Collector of Internal Revenue vs. M.R. Lacson, L-12945 (April 29, 1960), we held that forest charges are internal revenue taxes, this ruling was reversed in Collector of Internal Revenue vs. Pio Barretto Sons, L-11805 (May 31, 1960). It is true that the dispositive portion of our decision in the first case expressly sustained the concurring and dissenting opinion of a member of the Court of Tax Appeals in the appealed decision thereof and that the writer of the opinion maintained that forest charges are internal revenue taxes. A careful perusal of the text of the decision of the Supreme Court therein shows, however, that said dissenting opinion is not the ratio decidendi of the aforementioned decision. It should be noted that the Collector of Internal Revenue contested the jurisdiction of the Court of Tax Appeals to entertain the appeal taken by Lacson from the assessment made by said officer involving forest charges, and that the Supreme Court upheld the authority of the tax court to hear and decide said appeal, because the issue therein was the validity of said assessment. From the viewpoint of the Supreme Court, this issue was decisive on the question of jurisdiction of the Court of Tax Appeals, regardless of whether forest charges were taxes or not. At this juncture, it may not be amiss to advert to a problem of semantics arising from the operation of Section 1588 of the Revised Administrative Code, the counterpart of which is now Section 315 of the National Internal Revenue Code, pursuant to which: 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. xxx xxx xxx The enforcement of this lien by the Commissioner (formerly Collector) of Internal Revenue, has often induced the parties adversely affected thereby to raise the question whether a given charge is a tax or not, on the theory that there would be no lien if said question were decided in the negative. In connection therewith, said parties had tended to distinguish between taxes, on the one hand as burdens imposed upon persons and/or properties, by way of contributions to the support of the Government, in consideration of general benefits derived from its operation and license fees charged in the exercise of the regulatory authority of the state, under its police power and other charges for specific things or special or particular benefits received from the Government on the other hand. It is high time to stress that the term "tax," as it appears in said Section 1588 of the Revised Administrative Code and Section 315 of the National Internal Revenue Code, is used in these provisions, not in the limited sense adverted to above, but, in a broad sense encompassing all Government revenues collectible by the Commissioner of Internal Revenue under said Code , whether involving taxes, in the strict technical sense thereof, or not. Thus, under the heading "injunction not available to restrain collection of tax", Section 305 of said Code which is the first provision of Title IX (entitled "General Administrative Provisions"), Chapter I (entitled " Remedies

in General) thereof provides: 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. Similarly, under the heading "Civil remedies for the collection of delinquent taxes," Section 316 of the same Code ordains; The civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto resulting from delinquency shall be (a) by distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and (b) by judicial action. Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes. No exemption shall be allowed against the internal revenue taxes in any case. (Emphasis supplied.) In other words, the National Internal Revenue Code makes a distinction between taxes, on the one hand, and fees or charges, on the other; but as used in Title IX of said Code, the term "tax" includes "any national internal revenue tax, fee or charge imposed by" the Code. And it is in this sense only that we sustained the view taken in the aforementioned concurring dissenting opinion in Collector of Internal Revenue vs. Lacson (supra). Hence, in the Barretto case, it was held that the Government does not sell forest products, but merely collects charges on the privilege granted by it "for the exploitation of forest concessions, i.e., charges for the right to exercise the privilege granted by the Government to the licensee of cutting timber from a public forest or forest reserve". In line with this view, we stressed in Cordero vs. Gonda, L-22369 (October 15, 1966), the declaration made in Cebu Portland Cement Co. vs. Commissioner of Internal Revenue , L-18649 (February 27, 1965), that a mining ad valorem tax "is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth," although strictly a fee for something received is not a tax. As a consequence, the original sale, as contemplated in Section 186 of the Internal Revenue Code, is made by the concessionaire or whoever cuts or removes forest products from public forests or forest reserves in the case at bar, Guerrero, who is accordingly, bound to pay said sum of P1,192.51. While this case was being heard in the Court of Tax Appeals, certain documents were discovered, tending to show that Guerrero had evaded the payment of forest charges on certain logs (other than those heretofore mentioned), which had been shipped and sold by him to the company. Said documents, which were found in the possession of the latter, covered logs shipped and sold thereto as follows: Exhibit 8-I-2 8-I-3 8-BB-1 8-AA-1 Date May 9, 1949 May 9, 1949 May 20, 1949 May 21, 1949 Volume 4.966 Cu. m. 2.151 Cu. m. 5.20 Cu. m. 4.63 Cu. m. Invoice 12272263 12272263 6578041 A6578048 155 77 81 Page 156 (BIR Rec.) " " " " " "

The aforementioned documents consist of auxiliary invoices purporting to have been issued by Concessionaire Segundo Agustin to Guerrero as consignee of the logs therein mentioned which are not included in Agustin's certificate (Exhibit 00, p. 32 BIR record) of the invoices covering logs sold by him to Guerrero, thus showing that the said invoices (Exhibits 8-I-2, 8-I-3, 8BB-1 and 8-AA-1) are spurious; that the logs therein described must have been obtained by Guerrero from illegal sources; and that the forest charges and the sale and percentage taxes thereon have not been paid. Although these charges and taxes are not included in the original and revised assessments made in this case, petitioner herein maintains that Guerrero may

nevertheless be held liable therefor, inasmuch as: Where plaintiffs themselves show facts upon which they should not recover, whether defendant pleaded such fact as a defense or not, their claim should be dismissed. Evidence introduced without objection becomes property of the case and all the parties are amenable to any favorable or unfavorable effects resulting from the evidence . (Emphasis ours; Beam vs. Yatco, 82 Phil. 30.) Petitioner's contention is untenable. The foregoing doctrine deals with plaintiff's right to recover, when his own evidence proves the contrary. In short, it refers to a point in issue. In the case at bar, the additional logs under consideration were not included in the contested assessments. Since the jurisdiction of the Court of Tax Appeals is purely appellate, said Court correctly declined to make an award thereon, for lack of jurisdiction over the same. With reference to the last two (2) items of P120.00 and P50.00, the Court of Tax Appeals did not sentence Guerrero to pay the same upon the ground that he had not entered into a compromise agreement with the Government. The record shows, however, that Guerrero had expressed his willingness to pay "any compromise penalty which may be imposed by the Honorable Court." In short we find that the Court of Tax Appeals has erred in not sentencing Antonio G. Guerrero to pay, besides the sum of P3,775.66 awarded in the decision appealed from, the aforementioned additional sums of P1,192.51, P120.00 and P50.00. Thus modified, with the addition of these sums in the award in favor of the Government and against Antonio G. Guerrero, the decision appealed from is hereby affirmed, therefore, in all other respect, with costs against the latter. It is so ordered. Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-36181 October 23, 1982 MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS CORPORATION), petitioner, vs. HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the late Juan G. Maniago, respondents. G.R. No. L-36748 October 23, 1982 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the late Juan G. Maniago, respondents. G.R. No. L-36181 San Juan, Africa, Gonzales & San Agustin for petitioner. Ramon A. Gonzales for respondents. TEEHANKEE, J.: These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering petitioner Meralco Securities Corporation (now First Philippine Holdings Corporation) to pay, and petitioner Commissioner of Internal Revenue to collect from the former, the amount of P51,840,612.00, by way of alleged deficiency corporate income tax, plus interests and

surcharges due thereon and to pay private respondents 25% of the total amount collectible as informer's reward. On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the government of income tax due from 75% of the said dividends. Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the Manila Electric Co., since under the law then prevailing (section 24[a] of the National Internal Revenue Code) "in the case of dividends received by a domestic or foreign resident corporation liable to (corporate income) tax under this Chapter . . . .only twenty-five per centum thereof shall be returnable for the purposes of the tax imposed under this section." The Commissioner accordingly rejected Maniago's contention that the Meralco from whom the dividends were received is "not a domestic corporation liable to tax under this Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his findings and ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency. This action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May 11, 1971. On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to him the corresponding informer's reward under the provisions of R.A. 2338. On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in matters of issuance and non-issuance of assessments, he is clothed under the National Internal Revenue Code and existing rules and regulations with discretionary power in evaluating the facts of a case and since mandamus win not lie to compel the performance of a discretionary power, he cannot be compelled to impose the alleged tax deficiency assessment against the Meralco Securities Corporation. He further argued that mandamus may not lie against him for that would be tantamount to a usurpation of executive powers, since the Office of the Commissioner of Internal Revenue is undeniably under the control of the executive department. On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, 1971, interposing as special and/or affirmative defenses that the petition states no cause of action, that the action is premature, that mandamus win not lie to compel the Commissioner of Internal Revenue to make an assessment and/or effect the collection of taxes upon a taxpayer, that since no taxes have actually been recovered and/or collected, Maniago has no right to recover the reward prayed for, that the action of petitioner had already prescribed and that respondent court has no jurisdiction over the subject matter as set forth in the petition, the same being cognizable only by the Court of Tax Appeals. On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and ordering the Commissioner of Internal Revenue to assess and collect from the Meralco Securities Corporation the sum of P51,840,612.00 as deficiency corporate income tax for the period 1962 to 1969 plus interests and surcharges due thereon and to pay 25% thereof to Maniago as informer's reward. All parties filed motions for reconsideration of the decision but the same were denied by respondent judge in his order dated April 6, 1973, with respondent judge denying respondents' claim for attorneys fees and for execution of the decision pending appeal. Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-36748 praying that the decision of respondent judge dated January 10, 1973 and his order dated April 6, 1973 be reconsidered for respondent judge has no jurisdiction over the subject matter of the case

and that the issuance or non-issuance of a deficiency assessment is a prerogative of the Commissioner of Internal Revenue not reviewable by mandamus. The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise appealed the same decision of respondent judge in G.R. No. L-36181 and in the Court's resolution dated June 13, 1973, the two cases were ordered consolidated. We grant the petitions. Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts. 1 The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . .In the case of Blaquera vs. Rodriguez, et al, 2 this Court ruled that "the determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 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 or other law or part of law administered by the Bureau of Internal Revenue." Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from receipt thereof pursuant to section 11 of Republic Act No. 1125. 3 He failed to take such an appeal to the tax court. The ruling is clearly final and no longer subject to review by the courts. 4 It is furthermore a well-recognized rule that mandamus only lies to enforce the performance of a ministerial act or duty 5 and not to control the performance of a discretionary power. 6 Purely administrative and discretionary functions may not be interfered with by the courts. 7 Discretion, as thus intended, means the power or right conferred upon the office by law of acting officially under certain circumstances according to the dictates of his own judgment and conscience and not controlled by the judgment or conscience of others. 8 mandamus may not be resorted to so as to interfere with the manner in which the discretion shall be exercised or to influence or coerce a particular determination. 9 In an analogous case, where a petitioner sought to compel the Rehabilitation Finance Corporation to accept payment of the balance of his indebtedness with his backpay certificates, the Court ruled that "mandamus does not compel the Rehabilitation Finance Corporation to accept backpay certificates in payment of outstanding loans. Although there is no provision expressly authorizing such acceptance, nor is there one prohibiting it, yet the duty imposed by the Backpay Law upon said corporation as to the acceptance or discount of backpay certificates is neither clear nor ministerial, but discretionary merely, and such special civil action does not issue to control the exercise of discretion of a public officer." 10 Likewise, we have held that courts have no power to order the Commissioner of Customs to confiscate goods imported in violation of the Import Control Law, R.A. 426, as said forfeiture is subject to the discretion of the said official, 11 nor may courts control the determination of whether or not an applicant for a visa has a nonimmigrant status or whether his entry into this country would be contrary to public safety for it is not a simple ministerial function but an exercise of discretion. 12

Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not he against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. As we held in the case of Commissioner of Immigration vs. Arca 13 anent this principle, "the administration of immigration laws is the primary responsibility of the executive branch of the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to extend the stay of an alien whose period to stay has expired. Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. " "Discretion," when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." 14 Thus, after the Commissioner who is specifically charged by law with the task of enforcing and implementing the tax laws and the collection of taxes had after a mature and thorough study rendered his decision or ruling that no tax is due or collectible, and his decision is sustained by the Secretary, now Minister of Finance (whose act is that of the President unless reprobated), such decision or ruling is a valid exercise of discretion in the performance of official duty and cannot be controlled much less reversed by mandamus. A contrary view, whereby any stranger or informer would be allowed to usurp and control the official functions of the Commissioner of Internal Revenue would create disorder and confusion, if not chaos and total disruption of the operations of the government. Considering then that respondent judge may not order by mandamus the Commissioner to issue the assessment against Meralco Securities Corporation when no such assessment has been found to be due, no deficiency taxes may therefore be assessed and collected against the said corporation. Since no taxes are to be collected, no informer's reward is due to private respondents as the informer's heirs. Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually assessed and collected. Since no assessment, much less any collection, has been made in the instant case, respondent judge's writ for the Commissioner to pay respondents 25% informer's reward is gross error and without factual nor legal basis. WHEREFORE, the petitions are hereby granted and the questioned decision of respondent judge dated January 10, 1973 and order dated April 6, 1973 are hereby reversed and set aside. With costs against private respondents. Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur. Gutierrez, Jr., J., took no part. Footnotes 1 Ledesma vs. Court of Tax Appeals, 102 Phil. 931. 2 103 Phil. 511. 3 Sec. 11. Who may appeal: effect of appeal.-Any person, association or ruling of the Commissioner of Internal Revenue, the Collector of Customs or among provincial or city Board of Assessment appeals may file an appeal in the Court of Tax Appeals within thirty (30) days after the receipt of such decision or ruling.

4 Republic of the Philippines vs. Juana vda. del Rosario, et al., 105 Phil. 277; Republic of the Philippines vs. Benito M. Lopez, 117 Phil. 575; Republic of the Philippines vs. Manila Port Service; 12 Phil. 384; Republic of the Philippines vs. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584. 5 Province of Pangasinan vs. Reparations Commission, 80 SCRA 376. 6 Caltex Filipino Managers & Supervisors Association vs. CIR, 23 SCRA 492. 7 Coloso vs. Board of Accountancy, 92 Phil. 938. 8 34 Am. Jur. 855. 9 34 Am. Jur. 856-858; see also Diokno vs. Rehabilitation Finance Corporation, 91 Phil. 608; Caltex Filipino Managers & Supervisors Association vs. CIR, 23 SCRA 492; Sy Ha vs. Galang, 7 SCRA 797; Astudillo vs. Board of Directors of PHHC, 73 SCRA 15; Aprueba vs. Ganzon, 18 SCRA 8. 10 Diokno vs. RFC, 91 SCRA 608. 11 Marcelo Steel Corp. vs. Import Control Board, 87 Phil. 374. 12 Sy Ha vs. Galang, 7 SCRA 797. 13 Commissioner of Immigration vs. Arca, 22 SCRA 805. 14 Samson vs. Barrios, 63 Phil. 198; Lemi vs, Valencia, 26 SCRA 203. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-39910 September 26, 1988 CECILIA TEODORO DAYRIT, TORIBIA TEODORO CASTANEDA, PRUDENCIO J. TEODORO, FRANCISCO J. TEODORO, AND JOSEFINA TEODORO TIONGSON, petitioners, vs. THE HONORABLE FERNANDO A. CRUZ, Presiding Judge, Branch XII, Court of First Instance of Rizal, and MISAEL P. VERA, in his capacity as the Commissioner of Internal Revenue, respondents. Atienza, Tabora, Del Rosario & Castillo Law Offices and Tanada, Sanchez, Tanada & Tanada Law Offices for petitioners. GANCAYCO, J.: The application of tax amnesty to the estate of the Teodoros is the issue in this case. Petitioners are the legitimate children and heirs of the deceased spouses Marta J. Teodoro who died intestate on July 1, 1965 and Don Toribio Teodoro who died testate on August 30, 1965. Thereafter, the heirs of the deceased filed separate estate and inheritance tax returns for the estates of the late spouses with the Bureau of Internal Revenue. * In the meantime, testate and intestate proceedings for the settlement of the decedents' estates were filed 1 by Cecilia Teodoro-Dayrit, one of the petitioners herein, in the then Court of First Instance of Caloocan City, ** Branch XII docketed as Special Proceedings No. C-113. 2 On August 14, 1968, said petitioner was appointed administratrix of the estate of Dona Marta and letters testamentary was issued in her favor as executrix of the estate of Don Toribio. On August 9,1972, the respondent Commissioner of Internal Revenue issued the following deficiency estate and inheritance tax assessments: 3 Estate of Doa Estate of Don

Marta Estate Tax & penalties Inheritance Tax & interests P1,662,072.34 1,747,790.94

Toribio *** P1,542,293.01 1,518,458.72

The aforementioned notice of deficiency assessments was received by petitioner Dayrit on August 14, 1972. In a letter dated October 7, 1972, **** petitioners through counsel, asked for a reconsideration of the said assessments alleging that the same are contrary to law and not supported by sufficient evidence. 4 In the same letter, petitioners requested a period of thirty (30) days within which to submit their position paper in support of their claim. Meanwhile, on October 16, 1972, Presidential Decree (P.D) No. 23, entitled "Proclaiming Tax Amnesty Subject to Certain Conditions," was issued by then President Ferdinand E. Marcos, quoted hereunder as follows: xxx xxx xxx 1. In all cases of voluntary disclosure of previously untaxed income realized here or abroad by any taxpayer, natural or juridical, the collection of the income tax and penalties incident to nonpayment, as well as all criminal and civil liabilities under the National Internal Revenue Code, the Revised Penal Code, the AntiGraft and Corrupt Practices Act or any other law applicable thereto, is hereby condoned and, in lieu thereof, a tax of TEN PERCENTUM (10%) on such previously untaxed income is hereby imposed, subject to the following conditions: (a) Such previously untaxed income must have been earned or realized prior to 1972; (b) The taxpayer must file a notice and return with the Commissioner of Internal Revenue on or before March 31, 1972 showing such previously untaxed income; ... 2. The tax imposed under Paragraph 1 hereof, shall be paid within the following period: (a) If the amount does not exceed P10,000.00 the tax must be paid at the time of the filing of notice and return but not later than March 31, 1973; (b) If the amount exceeds P10,000.00 the tax maybe paid in two (2) installments, the first installment to be paid upon the filing of the notice and return but not later than March 31, 1973; and the second installment within three (3) months from the date of the filing of the return but not later than June 30, 1973. .... On November 24, 1972, P.D. No. 67, was issued amending paragraphs 1 and 3 of P.D. No. 23, to read as follows: xxx xxx xxx 1. In all cases of voluntary disclosure of previously untaxed income and/or wealth such as earnings, receipts, gifts bequests or any other acquisitions from any source whatsoever which are taxable under the National Internal Revenue Code, as amended realized here or abroad by any taxpayer, natural or juridical; the collection of all internal revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal or administrative liabilities arising from or incident to such disclosures under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service laws and regulations, laws and regulations on Immigration and Deportation, or any other applicable law or proclamation, are hereby condoned and, in lieu thereof, a tax of ten per centum

(10%) on such previously untaxed income or wealth is hereby imposed, subject to the following conditions: a. Such previously untaxed income and/or wealth must have been earned or realized prior to 1972; b. The taxpayer must file a return with the Commissioner of Internal Revenue on or before March 31, 1973, showing such previously untaxed income and/or wealth; .... In a tax return dated March 31, 1973, petitioner Cecilia Teodoro-Dayrit declared an additional amount of P3,655,595.78 as part of the estates of the Teodoro spouses, for additional valuation over and above the amount declared in the previous return for estates and inheritance taxes of the said late spouses. 5 The Bureau of Internal Revenue issued tax payment acceptance order Nos.1127185-86 and 1533011. 6 Pursuant to the aforesaid tax acceptance orders, the estates and heirs of the deceased spouses Teodoro paid the amounts of P5,000.00, P30,046.68 and P250,000.00 per official receipts Nos. 73201, 774037 and 964467 dated April 2, 1973, July 17, 1973 and October 31, 1973, respectively, 7 amounting to a total of P285,046.68. On March 14, 1974, respondent Commissioner of Internal Revenue filed a motion for Allowance of Claim against the estates of spouses Teodoro and for an order of payment of taxes in S.P. No. C-113 with the then Court of First Instance of Rizal, Branch XII, praying that petitioner Dayrit be ordered to pay the Bureau of Internal Revenue the sum of P6,470,396.81 plus surcharges and interest 8 Petitioners filed two (2) separate oppositions alleging that the estate and inheritance taxes sought to be collected have already been settled in accordance with the provisions of P.D. No. 23, as amended by P.D. No. 67 and that at any rate, the assessments have not become final and executory. 9 In reply thereto, respondent Commissioner alleged that petitioners could not avail of the tax amnesty in view of the existence of a prior assessment. 10 Petitioners insisted that the tax amnesty could still be availed of invoking Section 4, BIR Revenue Regulation No. 8-72. 11 On July 10, 1974, respondent Judge issued an order approving the claim of respondent Commissioner and directing the payment of the estate and inheritance taxes. 12 Dissastisfied with the decision, petitioners filed a motion for reconsideration 13 but it was denied 14 in an order dated September 30, 1974.***** Hence, the present petition. Petitioners contend that respondent Judge acted without jurisdiction or in excess of jurisdiction or with grave abuse of discretion amounting to lack of jurisdiction in granting the respondent Commissioner's claim for estate and inheritance taxes against the estates of the Teodoro spouses on the ground that due to the pendency of their motion for reconsideration of the deficiency assessments issued by the Commissioner, said tax assessments are not yet final and executory. Petitioners stressed that the absence of a decision on the disputed assessments was a bar against collection of taxes. Finally, petitioners insist that their act of filing an estate and inheritance tax return of a previously untaxed wealth of the estates entitles said estates to tax amnesty under P.D. No. 23, as amended by P.D. 67 and hence, it is an error to grant respondent Commissioner's claim for collection of estate and inheritance taxes. On the other hand, respondent Commissioner contends that petitioners cannot avail of the tax amnesty in view of the prior existing assessments issued against the estates of the deceased spouses before the promulgation of P.D. No. 23. In support thereof, respondent cited Section 4 of Revenue Regulation No. 15-72, amending Section 4 of Regulation No. 8-12. Respondent Commissioner contends further that neither may petitioners' act of filing a return of a previously untaxed income or wealth in the amount of P3,655,595.98 entitled the estates to tax amnesty where petitioners failed to pay the 10% tax in full within the time frame required under P.D. No. 23, and that to allow petitioners to avail of the tax amnesty will render nugatory the provisions of P.D. No. 68. Moreover, said respondent argues that certiorari is not the proper remedy in that respondent Judge committed no grave abuse of discretion in allowing the claim for collection of taxes and that if at all, it was merely an error of judgment which can be corrected only on appeal, and in which case the reglementary period for the same has already prescribed.

The main issue in this petition is whether an estate may avail of tax amnesty under Presidential Decree No. 23 where there is already an existing assessment made prior to the issuance of the said decree on the basis of the submitted estate and inheritance tax returns by merely filing separate estate tax returns of an undeclared and untaxed income over and above the original amount of the estate declared. Anent petitioners' claim that the tax assessments against the estates of the Teodoro spouses are not yet final, the court finds the claim untenable. In petitioners' motion for reconsideration of the aforementioned assessments, petitioners requested then Commissioner Misael P. Vera for a period of thirty (30) days from October 7, 1972 within which to submit a position paper that would embody their grounds for reconsideration. However, no position paper was ever filed. 15 Such failure to file a position paper may be construed as abandonment of the petitioners' request for reconsideration. The court notes that it took the respondent Commissioner a period of more than one (1) year and five (5) months, from October 7, 1972 to March 14, 1974, before finally instituting the action for collection. Under the circumstances of the case, the act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes, may be considered as an outright denial of petitioners' request for reconsideration. From the date of receipt of the copy of the Commissioner's letter for collection of estate and inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or dispute the same and, upon a denial thereof, the petitioners have a period of thirty (30) days within which to appeal the case to the Court of Tax Appeals. 16 This they failed to avail of . Tax assessments made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove otherwise. 17 Failure of the petitioners to appeal to the Court of Tax Appeals in due time made the assessments in question, final, executory and demandable. 18 The petitioners' allegation that the Court of First Instance (CFI) lacks jurisdiction over the subject of the case is likewise untenable. The assessments having become final and executory, the CFI properly acquired jurisdiction. 19 Neither is there merit in petitioners' claim that the exclusive jurisdiction of the Court of Tax Appeals (CTA) applies in the case. The aforesaid exclusive jurisdiction of the CTA arises only in cases of disputed tax assessments. 20 As noted earlier, petitioners' letter dated October 7, 1972 asking for reconsideration of the questioned assessments cannot be considered as one disputing the assessments because petitioners failed to substantiate their claim that the deficiency assessments are contrary to law. Petitioners asked for a period of thirty (30) days within which to submit their position paper but they failed to submit the same nonetheless. Hence, petitioners' letter for a reconsideration of the assessments is nothing but a mere scrap of paper. Petitioners' contention that the absence of a decision on their request for reconsideration of the assessments is a bar to granting the claim for collection is likewise without merit. In Republic vs. Lim Tian Teng Son & Co., Inc., 21 this Court had occasion to rule that a decision on a request for reinvestigation is not a condition precedent to the filing of an action for collection of taxes already assessed. This Court ruled that "nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's request for reconsideration before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withheld from all courts, except the Court of Tax Appeals under Republic Act No. 1125, 22 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 on the speedy and prompt collection of taxes." Petitioners argue, however, that the Commissioner of Internal Revenue must first rule on the taxpayer's protest against tax assessment so as not to deprive the taxpayer of the remedy of appeal and that it is only from the receipt of the decision that the right to appeal to the Court of Tax Appeals should run, citing for the purpose San Juan vs. Velasquez 23 as well as Commissioner of Internal Revenue vs. Gonzales. 24 The aforementioned cases are both not in point. In San Juan, the taxpayer concerned, through his accountant, disputed the assessments of income tax and deficiency income tax by adducing the reasons and explanations why said assessments of income tax were not due and owing from

the taxpayer. Thus, it was therein ruled that having disputed the assessments at the opportune time, the Commissioner of Internal Revenue cannot ignore the disputed assessments by immediate immediately bringing an action to collect. By the same token in Commissioner of Internal Revenue vs. Gonzales, the assessments of estate and inheritance taxes were disputed by the taxpayer by invoking prescription as a defense claiming that the assessments were made after the lapse of more than five (5) years. Payment of taxes being admittedly a burden, taxpayers should not be left without any recourse when they feel aggrieved due to the erroneous and burdensome assessments made by a Bureau of Internal Revenue agent or by the Commissioner. Said right is vested upon adversely affected taxpayers under Republic Act No. 1125. It cannot be rendered nugatory through the Commissioner's act of immediately filing an action for collection without ruling beforehand on the disputed assessments. 25 However, the remedy of an aggrieved taxpayer is not without any limitation. A taxpayer's right to contest assessments, particularly the right to appeal to the Court of Tax Appeals, may be waived or lost as in this case. 26 The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. In the present case where the petitioners did not actually contest the assessments by stating the basis thereof, the respondent Commissioner need not rule on their request. 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. We cannot tolerate taxpayers hampering expedient collection of taxes by their failure to act within a reasonable period. No government could exist if all litigants were permitted to delay the collection of its taxes. 27 Thus, this Court ruled earlier that a suit for the collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. 28 In view of the foregoing discussions, petitioners' allegation of grave abuse of discretion on the part of the respondent judge must perforce fall. Considering further that the court a quo properly acquired jurisdiction over the subject matter of the case, petitioners should have appealed the case. The order of the court a quo dated September 30,1974, was received by the petitioners on October 16, 1974. Petitioners should have appealed within a period of fifteen (15) days from receipt thereof but they failed to do so. ****** As petitioners failed to file a timely appeal from the order of the trial court, they can no longer avail of the remedy of a special civil action for certiorari in lieu of appeal. There is no error of jurisdiction committed by the trial court. 29 On the other hand with respect the petitioners' plea that the estate is at any rate entitled to tax amnesty, a reading of P.D. No. 23 30 reveals that in order to avail of tax amnesty, it is required, among others, that there should be a voluntary disclosure of a previously untaxed income. This was the pronouncement of this Court in Nepomuceno vs. Montecillo 31 with respect to P.D. 370 32 which was decreed as a complement of P.D. Nos. 23 and 157. In addition thereto, said income must have been earned or realized prior to 1972 and the tax return must be filed on or before March 31, 1973. Considering that P.D. No. 23 was issued on October 16, 1972, the court rules that the said decree embraces only those income declared in pursuance thereof within the taxable year 1972. The time frame cannot be stretched to include declarations made prior to the issuance of the said decree or those made outside of the time frame as envisioned in the said decree. Thus, the estates of the Teodoro spouses which have been declared separately sometime in the 1960's are clearly outside the coverage of the tax amnesty provision. Petitioners argue, however, that even if a notice of deficiency assessment had already been issued, the estates may still avail of tax amnesty if the basis of such deficiency assessment is either the failure to file a return or the omission of items of taxable income for a return already filed or the under declaration of said return, citing P.D. No. 67 and Section 4 of BIR Revenue Regulation No. 8-72. There is no merit in this contention. Even if P.D. No. 67, as an amendment to P.D. 23, enlarges

the coverage of tax amnesty to include wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever, said decree reiterates the need of voluntary disclosure on the part of the taxpayer filing the return in order to avail of the tax amnesty. The only noticeable departure from P.D. No. 23 is the extension of the date for the filing of the return from March 31, 1972 to March 31, 1973. Thus, this Court finds that the same policy observed in the issuance of P.D. No. 23, governs P.D. No. 67. In addition thereto, it gives the tax evaders who failed to avail of the provisions of P.D. No. 23 a chance to reform themselves. An examination of both decrees does not show that taxpayers availing of the tax amnesty in accordance with P.D. No. 67, are entitled to blanket coverage of declarations made prior to the issuance of said decrees. Petitioners argue that the estates of their parents declared for estate tax valuation sometime in the 1960's can avail of the tax amnesty when petitioners declared an additional amount of the estates over and above that which was previously declared. A reading of P.D. No. 67 reveals that tax amnesty is extendible only to those declarations made pursuant to said decree. Thus, if at all, it is only the estates in the amount of P3,655,595.78 declared pursuant to P.D. No. 67 that is covered, upon payment of 10% of the said amount within the period prescribed under P.D. No. 23, which was up to June 30, 1973. Considering that there has been partial compliance with the said requirement by the payment of P285,046.68, petitioner may claim the benefit of amnesty for said declared amount upon payment of the balance of 10% thereof required to be paid. WHEREFORE, with the above modification of the questioned order of July 10, 1974, said order is hereby affirmed in all other respect. No pronouncement as to costs. SO ORDERED. Cruz, Grio-Aquino and Medialdea, JJ., concur. Narvasa, J., took no part. Footnotes * The date of biling of returns does not appear in the record of the case, but appears to be before the issuance of P.B. No. 23, proclaiming tax amensty. 1 September 2, 1965. ** The deceased were both residents of Caloocan City. 2 Entitled "In the Matter of the Estate of the Spouses Don Toribio Teodoro, Testamentary & Doa Marta J. Teodoro, Intestate." 3 Page 22, Rollo, Annex B. Petition. *** After due investigation, the BIR found that the late spouses have a total conjugal estate of P20,374,634.24 with Doa Marta leaving a net taxable estate of P7,633,897.11 while Don Toribio with a net taxable estate of P7,425.020.20. **** According to respondent Commissioner, said letter was received on October 9, 1972. 4 Page 22, Rollo; Annex B, Petition. 5 Page 23, Rollo; Annex C, Petition. 6 Pages 24-26, Rollo; Annex D-D-2, Petition. 7 Pages 27-29, Rollo; Annex E, Petition. 8 Pages 30-31, Rollo. 9 Pages 32-42, Rollo; Annex G to G-1. 10 Pages 43-46, Rollo; Annex H. 11 Pages 47-51, Rollo; Annex I.

12 Pages 52-53, Rollo; Annex J. 13 Pages 54-59, Rollo; Annex K. 14 Page 75, Rollo; Annex N. ***** The order of denial was received by the petitioners on October, 16,1974 while the present petition for certiorari was filed on January 3, 1975. 15 Page 96, Rollo; page 8, Comment of Respondent Commissioner of Internal Revenue. 16 Commissioner of Internal Revenue v. Villa, 22 SCRA 3. 17 CIR v. Construction Resources of Asia, Inc., 145 SCRA 671 (1986). 18 Republic v. Manila Port Service, 12 SCRA 384 (1964). 19 Yabes v. Flojo, 115 SCRA 278 (1982). 20 Republic v. Plan, 84 SCRA 688 (1978). 21 16 SCRA 584 (1966). 22 Act Creating the Court of Tax Appeals. 23 3 SCRA 93 (1961). 24 18 SCRA 754 (1966). 25 San Juan v. Velasquez, supra. 26 Republic v. Lim Tian Teng & Sons & Co., Inc. supra. 27 Churchill & Tailt v. Rafferty, 32 Phil. 580, (1932). 28 Mambulao Lumber Co. v. Republic, 132 SCRA 1 (1984). ****** See footnote No. 14. 29 Mabuhay Insurance & Guaranty, Inc. v. Court of Appeals, 32 SCRA 245 (1970). 30 Supra. 31 118 SCRA 254 (1982). 32 Entitled "Enlarging the Coverage of Tax Amnesty on Previously Untaxed Income and/or Wealth Subject to Certain Conditions." Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19927 February 26, 1965 ANDREA R. VDA. DE AGUINALDO, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and the COURT OF TAX APPEALS, respondents. V. E. del Rosario and Associates for petitioner. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Leopoldo R. Aguinaldo and his wife received in 1952 cash dividends in the sum of P10,000.00 from Aguinaldo Brothers, Inc. The spouses did not declare said dividends in their joint income tax return for 1952, but declared P5,000.00 thereof in their income tax return for 1953. On August 14, 1954, they paid the tax due on their declared income for 1953. One year after or in August 1955 agents of the Bureau of Internal Revenue re-examined the 1952

and 1953 joint income tax returns of Leopoldo R. Aguinaldo and his wife and discovered the same. Whereupon, they readjusted the returns, increasing the declared income for 1952 by P10,000.00 and eliminating from the 1953 income tax return the reported dividends of P5,000.00. The result was a deficiency income tax of P3,840.00 for 1952 and an overpayment of tax in the amount of P1,600.00 for 1953. The examination report, dated August 29, 1955, stated that it was a "mere adjustment of 1952 and 1953 returns", and recommended that the overpayment for 1953 in the amount of P1,600.00 be credited against the deficiency tax for 1952. The Collector of Internal Revenue, however, by his letter dated October 28, 1957, assessed against Leopoldo R. Aguinaldo the amount of P3,840.00 as deficiency income tax for 1952, without crediting in his favor the overpayment in 1953. Aguinaldo's counsel, in a letter dated January 10, 1958, protested against the assessment, and requested that the overpayment for 1953 be credited in favor of the taxpayer. The request was denied and the taxpayer asked for reconsideration. Finally, the Commissioner of Internal Revenue informed him that the amount of P1,600.00 cannot be credited against the tax for 1952 inasmuch as the claim for tax credit was filed beyond the two-year period provided for in Section 309 of the National Internal Revenue Code. Subsequently, Leopoldo R. Aguinaldo died, but Andrea Vda. de Aguinaldo, his surviving spouse and administratrix, appealed to the Court of Tax Appeals. After hearing, the Tax Court dismissed the appeal for "lack of cause of action". Petitioner thereupon elevated the case to this Court. The single issue is whether or not petitioner is entitled to tax credit for the year 1953 pursuant to Section 309 of the Tax Code. Petitioner contends that Section 309 does not require the filing of a claim within two years from the payment of the tax before tax credit could be given. On the other hand, respondent Commissioner maintains that the authority of the Commissioner of Internal Revenue under Section 309 can only be exercised if a claim f or credit is made in writing and filed with him within two years from the payment of the tax. Section 309 of the Tax Code states: SEC. 309. Authority of Collector to make compromises and refund taxes .The Collector of Internal Revenue may compromise any civil or other cases arising under this Code or other law or part of law administered by the Bureau of Internal Revenue, may credit or refund taxes erroneously or illegally received, or penalties imposed without authority, and may remit before payment any tax that appears to be unjustly assessed or excessive. He shall refund the value of internal-revenue stamps when the same are returned in good condition by the purchaser, and may, in his discretion, redeem or exchange unused stamps that have been rendered unfit for use, and may refund their value upon proof of destruction. The authority of the Collector of Internal Revenue to credit or refund taxes or penalties under this section can only be exercised if the claim for credit or refund is made in writing and filed with him within two years after the payment of the tax or penalty. 1wph1.t The third paragraph of Section 309, afore-quoted, clearly requires the filing by the taxpayer of a written claim for credit or refund within two years after payment of the tax, before the Commissioner of Internal Revenue can exercise his authority to grant the credit or refund. Such requirement is therefore a condition precedent and non-compliance therewith precludes the Commissioner of Internal Revenue from exercising the authority thereunder given. As noted, the Aguinaldos paid the income tax for 1953 on August 14, 1954 although the adjustment took place on August 29, 1955. From both dates to January 13, 1958, when the claim for tax credit was filed, more than two years have elapsed. Evidently, petitioner's claim for tax credit was filed beyond the period stated in Section 309. WHEREFORE, the judgment appealed from is hereby affirmed, with costs. It is so ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Zaldivar, JJ., concur. Makalintal, J., reserves his vote Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 173594 February 6, 2008 SILKAIR (SINGAPORE) PTE, LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION CARPIO MORALES, J.: 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 operating the Singapore-Cebu-Davao-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes. On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written application for the refund of P4,567,450.79 excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation from January to June 2000. 1 As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for Review2 before the CTA following Commissioner of Internal Revenue v. Victorias Milling Co., Inc., et al.3 Opposing the petition, respondent Commissioner on Internal Revenue (CIR) alleged in his Answer that, among other things, Petitioner failed to prove that the sale of the petroleum products was directly made from a domestic oil company to the international carrier. 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.4 (Emphasis and underscoring supplied) By Decision of May 27, 2005, the Second Division of the CTA denied Silkairs petition on the ground that as the excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, 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. Thus the CTA discoursed: The liability for excise tax on petroleum products that are being removed from its refinery is imposed on the manufacturer/producer (Section 130 of the NIRC of 1997). x x x xxxx While it is true that in the case of excise tax imposed on petroleum products, the seller thereof may shift the tax burden to the buyer, the latter is the proper party to claim for the refund in the case of exemption from excise tax. Since the excise tax was imposed upon Petron Corporation as the manufacturer of petroleum products , pursuant to Section 130(A)(2), and that the corresponding excise taxes were indeed, paid by it, . . . any claim for refund of the subject excise taxes should be filed by Petron Corporation as the taxpayer contemplated under the law. Petitioner cannot be considered as the taxpayer because it merely shouldered the burden of the excise tax and not the excise tax itself. Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies with Petron Corporation who paid and remitted the excise tax to the BIR. Respondent, on

the other hand, may only claim from Petron Corporation the reimbursement of the tax burden shifted to the former by the latter. The excise tax partaking the nature of an indirect tax, is clearly the liability of the manufacturer or seller who has the option whether or not to shift the burden of the tax to the purchaser. Where the burden of the tax is shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased which constitutes a part of the purchase price. The incidence of taxation or the person statutorily liable to pay the tax falls on Petron Corporation though the impact of taxation or the burden of taxation falls on another person, which in this case is petitioner Silkair. 5 (Italics in the original; emphasis and underscoring supplied) Silkair filed a Motion for Reconsideration6 during the pendency of which or on September 12, 2005 the Bengzon Law Firm entered its appearance as counsel, 7 without Silkairs then-counsel of record (Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez or "JGLaw") having withdrawn as such. By Resolution8 of September 22, 2005, the CTA Second Division denied Silkairs motion for reconsideration. A copy of the Resolution was furnished Silkairs counsel JGLaw which received it on October 3, 2005.9 On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of Appearance.10 On even date, Silkair, through the Bengzon Law Firm, filed a Manifestation/Motion11 stating: Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO VALDEZ CALUYA & FERNANDEZ (JGLaw). 1. On 24 August 2005, petitioner served notice to JGLaw of its decision to cease all legal representation handled by the latter on behalf of the petitioner. Petitioner also requested JGLaw to make arrangements for the transfer of all files relating to its legal representation on behalf of petitioner to the undersigned counsel. x x x 2. The undersigned counsel was engaged to act as counsel for the petitioner in the above-entitled case; and thus, filed its entry of appearance on 12 September 2005. x x x 3. The undersigned counsel, through petitioner, has received information that the Honorable Court promulgated a Resolution on petitioners Motion for Reconsideration. To date, the undersigned counsel has yet to receive an official copy of the above-mentioned Resolution. In light of the foregoing, undersigned counsel hereby respectfully requests for an official copy of the Honorable Courts Resolution on petitioners Motion for Reconsideration x x x.12 (Underscoring supplied) On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22, 200513 CTA Second Division Resolution. Thirty-seven days later or on October 28, 2005, Silkair, through said counsel, filed a Motion for Extension of Time to File Petition for Review 14 before the CTA En Banc which gave it until November 14, 2005 to file a petition for review. On November 11, 2005, Silkair filed another Motion for Extension of Time. 15 On even date, the Bengzon Law Firm informed the CTA of its withdrawal of appearance as counsel for Silkair with the information, that Silkair would continue to be represented by Atty. Teodoro A. Pastrana, who used to be with the firm but who had become a partner of the Pastrana and Fallar Law Offices. 16 The CTA En Banc granted Silkairs second Motion for Extension of Time, giving Silkair until November 24, 2005 to file its petition for review. On November 17, 2005, Silkair filed its Petition for Review17 before the CTA En Banc. By Resolution of May 19,2006, the CTA En Banc dismissed 18 Silkairs petition for review for having been filed out of time in this wise: A petitioner is given a period of fifteen (15) days from notice of award, judgment, final order or resolution, or denial of motion for new trial or reconsideration to appeal to the

proper forum, in this case, the CTA En Banc. This is clear from both Section 11 and Section 9 of Republic Act No. 9282 x x x. xxxx The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices, received the Resolution dated September 22, 2005 on October 3, 2005. At that time, the petitioner had two counsels of record, namely, Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices and The Bengzon Law Firm which filed its Entry of Appearance on September 12, 2005. However, as of said date, Atty. Mary Jane B. Austria-Delgado of Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices was still the counsel of record considering that the Notice of Withdrawal of Appearance signed by Atty. Mary Jane B. Austria-Delgado was filed only on October 13, 2005 or ten (10) days after receipt of the September 22, 2005 Resolution of the Courts Second Division. This notwithstanding, Section 2 of Rule 13 of the Rules of Court provides that if any party has appeared by counsel, service upon him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the Court. Where a party is represented by more than one counsel of record, "notice to any one of the several counsel on record is equivalent to notice to all the counsel (Damasco vs. Arrieta, et. al., 7 SCRA 224)." Considering that petitioner, through its counsel of record, had received the September 22, 2005 Resolution as early as October 3, 2005, it had only until October 18, 2005 within which to file its Petition for Review. Petitioner only managed to file the Petition for Review with the Court En Banc on November 17, 2005 or [after] thirty (30) days had lapsed from the final date of October 18, 2005 to appeal. The argument that it requested Motions for Extension of Time on October 28, 2005 or ten (10) days from the appeal period and the second Motion for Extension of Time to file its Petition for Review on November 11, 2005 and its allowance by the CTA En Banc notwithstanding, the questioned Decision is no longer appealable for failure to timely file the necessary Petition for Review.19 (Emphasis in the original) In a Separate Concurring Opinion,20 CTA Associate Justice Juanito C. Castaeda, Jr. posited that Silkair is not the proper party to claim the tax refund. Silkair filed a Motion for Reconsideration21 which the CTA En Banc denied.22 Hence, the present Petition for Review23 which raises the following issues: I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY FILED. II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM, WHETHER OR NOT PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT TO APPEAL ON THE BASIS OF TECHNICALITY. III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT THE FILING OF THE PETITITON FOR REVIEW WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY, WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY TO CLAIM FOR REFUND OR TAX CREDIT.24 (Underscoring supplied) Silkair posits that "the instant case does not involve a situation where the petitioner was represented by two (2) counsels on record, such that notice to the former counsel would be held binding on the petitioner, as in the case of Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the respondent";26 and that "the case of Dolores De Mesa Abad v. Court of Appeals27 has more appropriate application to the present case." 28 In Dolores De Mesa Abad, the trial court issued an order of November 19, 1974 granting the therein private respondents Motion for Annulment of documents and titles. The order was received by the therein petitioners counsel of record, Atty. Escolastico R. Viola, on November 22, 1974 prior to which or on July 17, 1974, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation." Atty. Millora received a copy of the trial courts order on December 9, 1974. On January 4, 1975, the therein petitioners, through Atty.

Ernesto D. Tobias also of the Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash Appeal Bond as well as a Motion for Extension of the period to file a Record on Appeal. They filed the Record on Appeal on January 24, 1975. The trial court dismissed the appeal for having been filed out of time, which was upheld by the Court of Appeals on the ground that the period within which to appeal should be counted from November 22, 1974, the date Atty. Viola received a copy of the November 19, 1974 order. The appellate court held that Atty. Viola was still the counsel of record, he not having yet withdrawn his appearance as counsel for the therein petitioners. On petition for certiorari,29 this Court held x x x [R]espondent Court reckoned the period of appeal from the time petitioners original counsel, Atty. Escolastico R. Viola, received the Order granting the Motion for Annulment of documents and titles on November 22, 1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation" on July 16, 1974. Where there may have been no specific withdrawal by Atty. Escolastico R. Viola, for which he should be admonished, by the appearance of a new counsel, it can be said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders subsequent to the aforesaid date were already sent by the trial Court to the Millora, Tobias and Calimlim Law Office and not to Atty. Viola. Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners counsel and from which the period of appeal from the Order of November 19, 1974 should be reckoned. That being the case, petitioners x x x appeal filed on January 4, 1975 was timely filed.30 (Underscoring supplied) The facts of Dolores De Mesa Abad are not on all fours with those of the present case. In any event, more recent jurisprudence holds that in case of failure to comply with the procedure established by Section 26, Rule 13831 of the Rules of Court re the withdrawal of a lawyer as a counsel in a case, the attorney of record is regarded as the counsel who should be served with copies of the judgments, orders and pleadings.32 Thus, where no notice of withdrawal or substitution of counsel has been shown, notice to counsel of record is, for all purposes, notice to the client.33 The court cannot be expected to itself ascertain whether the counsel of record has been changed.34 In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on October 13, 2005 35 after the Bengzon Law Firm had entered its appearance. While Silkair claims it dismissed JGLaw as its counsel as early as August 24, 2005, the same was communicated to the CTA only on October 13, 2005.36 Thus, JGLaw was still Silkairs counsel of record as of October 3, 2005 when a copy of the September 22, 2005 resolution of the CTA Second Division was served on it. The service upon JGLaw on October 3, 2005 of the September 22, 2005 resolution of CTA Second Division was, therefore, for all legal intents and purposes, service to Silkair, and the CTA correctly reckoned the period of appeal from such date. TECHNICALITY ASIDE, on the merits, the petition just the same fails. Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. Petroleum products sold to the following are exempt from excise tax: xxxx (b) Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; x x x x x x x, and Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or

taken on board aircraft in the territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territories of the first Contracting Party , even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control. 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.37 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. 38 Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party." 39 It invokes Maceda v. Macaraig, Jr.40 which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Silkairss argument does not persuade. In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,41 this Court clarified the ruling in Maceda v. Macaraig, Jr., viz: It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all taxes" granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. But far from providing PLDT comfort, Maceda in fact supports the case of herein petitioner, the correct lesson of Maceda being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute, like NPCs charter, is so couched as to include indirect tax from the exemption. Wrote the Court: x x x However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPCs amended charter] amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties[,] fees" The use of the phrase "all forms" of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before xxxx It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the original; emphasis supplied)42 The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 43 and if an exemption is found to exist, it must not be enlarged by construction. 44 WHEREFORE, the petition is DENIED.

Costs against petitioner. SO ORDERED. Quisumbing,Chairperson, Carpio, Tinga, Velasco, Jr., JJ., concur. Footnotes
1 2 3

CTA 2nd Division records, pp. 12-16. Id. at 1-6. 130 Phil. 12, 16 (1968). x x x [T]he claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. "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."

4 5 6 7 8

CTA 2nd Division records, p. 20. Citation omitted. Id. at 281-283. Id. at 286-293. Id. at 312-313.

Penned by CTA Associate Justice Olga Palanca-Enriquez, with the concurrence of Associate Justices Juanito C. Castaeda, Jr. and Erlinda P. Uy. Id. at 314-315.
9

Id. at 316. Id. at 318-319. The records do not show what action the CTA took on the notice. Id. at 320-322. Id. at 320-321. Id. at 317. CTA En Banc records, pp. 3-5. Id. at 8-9. Id. at 11. Id. at 14-24.

10 11 12 13 14 15 16 17 18

Decision penned by CTA Presiding Justice Ernesto D. Acosta, with the concurrence of Associate Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga Palanca-Enriquez. Id. at 63-72.
19 20 21 22 23 24 25 26 27

Id. at 68-69. Id. at 73-83. Id. at 84-90. Id. at 99-100. Rollo, pp. 9-38. Id. at 18. 117 Phil. 246 (1963). Rollo, p. 103. G.R. No. L-42225, July 9, 1985, 137 SCRA 416.

28 29 30 31

Rollo, p. 108. Supra note 27. Id. at 422. Rules of Court, Rule 138, Sec. 26: Change of Attorneys An attorney may retire at any time from any action or special proceeding, by the written consent of his client filed in court. He may also retire at any time from any action or special proceeding, without the consent of his client, should the court, on notice to the client and attorney, and on hearing, determine that he ought to be allowed to retire. In case of substitution, the name of the attorney newly employed shall be entered on the docket of the court in the place of the former one, and written notice of the change shall be given to the adverse party. Vide Arambulo v. Court of Appeals, G.R. No. 105818, September 17, 1993, 226 SCRA 589, 597: "Under the first sentence of [Section 26 of Rule 138 of the Rules of Court], the retirement is complete once the withdrawal is filed in court."

32 33

Aquino v. Court of Appeals, G.R. No. 109493, July 2, 1999, 309 SCRA 578, 584.

Vide Arambulo v. Court of Appeals, G.R. No. 105818, September 17, 1993, 226 SCRA 589, 597; Rinconada Telephone Company, Inc. v. Buenviaje, G.R. Nos. 49241-42, April 27, 1990, 184 SCRA 701, 704-705; UERM Employees Union-FFW v. Minister of Labor and Employment, G.R. No. 75838, August 21, 1989, 177 SCRA 165, 177; Tumbagahan v. Court of Appeals, G.R. No. L-32684, September 20, 1988, 165 SCRA 485, 488-489; Lee v. Romillo, Jr., G.R. No. L-60937, May 28, 1988, 161 SCRA 589, 599-600.
34 35 36 37

Vide Lee v. Romillo, Jr., G.R. No. L-60937, May 28, 1988, 161 SCRA 589, 600. CTA 2nd Division records, pp. 318-319. Id. at 320-322.

Vide Philippine Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 154028, July 29, 2005, 465 SCRA 308, 317-318.
38

Vide Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 127 Phil. 461, 470 (1967).
39 40 41 42

Air Transport Agreement between RP and Singapore, Article 4(2). Vide Rollo, p. 28. G.R. No. 88291, May 31, 1991, 197 SCRA 771. G.R. No. 140230, December 15, 2005, 478 SCRA 61.

Id. at 76-77, citing Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771, 798, 800-801.
43 44

Id. at 74. Citation omitted. Id. at 77. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 151135

July 2, 2004

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

DECISION QUISUMBING, J.: For review is the Decision1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which reversed and set aside the decision2 dated October 13, 2000, of the Court of Tax Appeals (CTA). The CTA had ordered the Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to petitioner as erroneously paid input value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said amount. Petitioner also assails the appellate courts Resolution,3 dated December 19, 2001, denying the motion for reconsideration. Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Act No. 7227. 4 As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax provided for in Section 12 (c) 5 of Rep. Act No. 7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO Control No. 95-180-000133. From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.6 Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied the first application letter, dated December 29, 1998. Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4. The second letter sought a refund or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously paid input VAT for the period January 1, 1997 to November 30, 1998. When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the Court of Tax Appeals, in a petition for review docketed as CTA Case No. 5895. Petitioner stressed that Section 112(A)7 if read in relation to Section 106(A)(2)(a)8 of the National Internal Revenue Code, as amended and Section 12(b)9 and (c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added tax. In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for refund are strictly construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax credit and its compliance with the rules on tax refund as provided for in Sections 20410 and 22911 of the Tax Code, its claim should be denied, according to the BIR. On October 13, 2000, the CTA decided CTA Case No. 5895 as follows: WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the sum of P683,061.90, representing erroneously paid input VAT. SO ORDERED.12 In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The tax court stressed that these provisions apply only to those entities registered as VAT taxpayers whose sales are zero-rated. Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by the Certificate of Registration RDO

Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA. Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential tax. The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by the two-year prescriptive period under Section 229 of the Tax Code. The tax court also limited the refund only to the input VAT paid by the petitioner on the supplies and materials directly used by the petitioner in the manufacture of its goods. It struck down all claims for input VAT paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or delivered to the petitioners Makati and Pasay City offices. Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision by the Court of Appeals. Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was limited only to direct taxes and not to indirect taxes such as the input component of the VAT. The Commissioner pointed out that from its very nature, the valueadded tax is a burden passed on by a VAT registered person to the end users; hence, the direct liability for the tax lies with the suppliers and not Contex. Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor, thus: WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET ASIDE. Contexs claim for refund of erroneously paid taxes is DENIED accordingly. SO ORDERED.13 In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its implementing rules covers only "the VAT imposable under Section 107 of the [Tax Code], which is a direct liability of the importer, and in no way includes the value-added tax of the seller-exporter the burden of which was passed on to the importer as an additional costs of the goods."14 This was because the exemption granted by Rep. Act No. 7227 relates to the act of importation and Section 10715 of the Tax Code specifically imposes the VAT on importations. The appellate court applied the principle that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as pertaining only to those for which they may be directly liable. It then stated that apparently, the legislative intent behind Rep. Act No. 7227 was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for and only in connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and services. Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied. Hence, the instant petition raising as issues for our resolution the following: A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS. B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW MATERIALS FOR THE YEARS 1997 AND 1998.16 Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to

petitioner as a purchaser; and (2) the entitlement of the petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and 1998. On the first issue, petitioner argues that the appellate courts restrictive interpretation of petitioners VAT exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national taxes shall be imposed upon SBFZregistered firms and hence, said law should govern the case. Petitioner calls our attention to regulations issued by both the SBMA and BIR clearly and categorically providing that the tax exemption provided for by Rep. Act No. 7227 includes exemption from the imposition of VAT on purchases of supplies and materials. The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions, such grant is not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be directly liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a VAT-registered seller. At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. 17 Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including 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. 18 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 consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax. 19 Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the transaction can have preferential treatment in the following ways: (a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. 20 This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods or properties). The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt.21 (b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations.22 Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firms business or non-retail customers. It is for this

reason that a sharp distinction must be made between zero-rating and exemption in designating a value-added tax.23 Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from all national and local internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.24 On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration25 issued by the BIR. As such, it is exempt from VAT on all its sales and importations of goods and services. Petitioners claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund. The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously passed on to it by its suppliers. While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the " Consolidated ValueAdded Tax Regulations" provide: Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. The following sales by VAT-registered persons shall be subject to 0%: (a) Export Sales "Export Sales" shall mean ... (5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992. ... (c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines is a signatory effectively subject such sales to zero-rate." Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit with no corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner. On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioners purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer. Rather, it is the petitioners suppliers who are the proper parties to claim the tax credit and

accordingly refund the petitioner of the VAT erroneously passed on to the latter. Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioners VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw materials and supplies. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur. Austria-Martinez, J., on leave. Footnotes
1

Rollo, pp. 29-38. Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona, and Bienvenido L. Reyes concurring.
2 3 4 5

Id. at 59-70. Id. at 40-41. The Bases Conversion and Development Act of 1992.

SEC. 12. Subic Special Economic Zone. Subject to the concurrence by resolution of the sangguniang panlungsod of the City of Olongapo and the sangguniang bayan of the Municipalities of Subic, Morong and Hermosa, there is hereby created a Special Economic and Freeport Zone consisting of the City of Olongapo and the Municipality of Subic, Province of Zambales ... The abovementioned zone shall be subject to the following policies: (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone (stress supplied). In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas. In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter (stress supplied).
6 7

Underlining supplied. SEC. 112. Refunds or Tax Credits of Input Tax (A) Zero-rated or Effectively Zero-rated Sales. 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: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
8

SEC. 106. Value-Added Tax on Sale of Goods or Properties. (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. The term export sales means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon
9

SEC. 12. (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.
10

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.The Commissioner may (A) Compromise the payment of any internal revenue tax, when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. ... (B) Abate or cancel a tax liability, when: (1) The tax or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the collection of the amount due. ... (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition ... No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty:.. ...
11

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

12 13 14 15

Rollo, p. 69. Id. at 38. Id. at 37. SEC. 107. Value-Added Tax on Importation of Goods. (A) In General.There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. (B) Transfer of Goods by Tax-exempt Persons.In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof.

16 17

Rollo, p. 11.

SEC. 105. Persons Liable.Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.
18

Deoferio, Jr. and Mamalateo, THE VALUE ADDED TAX IN THE PHILIPPINES 35-36 (1st ed. 2000).
19 20 21 22 23 24

Deoferio, Jr. and Mamalateo, op. cit. 117. BIR Revenue Regulations No. 7-95, Section 4.103-1. Ibid. Id. at Section 4.100-2. Vitug and Acosta. TAX LAW AND JURISPRUDENCE 241 (2nd ed. 2000).

BIR Revenue Regulations No. 1-95, or the "Rules and Regulations to Implement the Tax Incentives Provisions under Paragraphs (b) and (c) of Section 12, Republic Act No. 7227 Otherwise Known as the Bases Conversion and Development Act of 1992."

"Section 4. Exemptions and Incentives.A. All SBMA registered enterprises doing business within the Secured Area in the Zone shall enjoy the following: a. Exemption from customs and import duties and national internal revenue taxes on importations of raw materials for manufacture into finished products and capital goods and equipment needed for their business operation within the Secured Area . . . ... e. Purchases of raw materials, capital goods and equipment and services by the SBMA and SBF accredited enterprises from enterprises in the Customs Territory shall be considered effectively zero-rated for VAT purposes. . . " Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 153866 February 11, 2005 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent. DECISION PANGANIBAN, J.: Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or credit. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as follows: "WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit."3 The Facts The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows: "As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows: 1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu; 2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claims for refund or tax credit; 3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been
1

issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export. Such registration was made on 6 June 1997; 4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-083-000600-V issued on 2 April 1997; 5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent]; 6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu; 7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT refund. "The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for Review in order to toll the running of the two-year prescriptive period. "For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit: 1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary investigation/examination by [petitioners] Bureau; 2. Since taxes are presumed to have been collected in accordance with laws and regulations, the [respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x; 3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that: "A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund." 4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications; 5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As [respondents] business is not subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT taxable business. As such, [respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. 6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax. "On July 19, 2001, the Tax Court rendered a decision granting the claim for refund." 4 Ruling of the Court of Appeals The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not

of those under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT. Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95 were applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the administrative and judicial claims for its refund within the two-year prescriptive period. Such payments were -- to the extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet offset against any output VAT liability. Hence this Petition.5 Sole Issue Petitioner submits this sole issue for our consideration: "Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999." 6 The Courts Ruling The Petition is unmeritorious. Sole Issue: Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT No doubt, as a PEZA-registered enterprise within a special economic zone, 7 respondent is entitled to the fiscal incentives and benefits8 provided for in either PD 669 or EO 226.10 It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 722711 and 7844.12 Preferential Tax Treatment Under Special Laws If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries, spare parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked, assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly in such activities.13 Even so, respondent would enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange and financial assistance; and exemption from export taxes, local taxes and licenses.14 Comparatively, the same exemption from internal revenue laws and regulations applies if EO 22615 is chosen. Under this law, respondent shall further be entitled to an income tax holiday; additional deduction for labor expense; simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw materials; and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment and spare parts, export taxes, duties, imposts and fees, 16 local taxes and licenses, and real property taxes.17 A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw materials, capital and equipment18 -- is, ipso facto, also accorded to the zone19 under RA 7916. Furthermore, the latter law -- notwithstanding other existing laws, rules and regulations to the contrary -- extends20 to that zone the provision stating that no local or national taxes shall be imposed therein.21 No exchange control policy shall be applied; and free markets for foreign exchange, gold, securities and future shall be allowed and maintained. 22 Banking and finance shall also be liberalized under minimum Bangko Sentral regulation with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign banks.23

In the same vein, respondent benefits under RA 7844 from negotiable tax credits 24 for locallyproduced materials used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also enjoys preferential credit facilities 25 and exemption from PD 1853.26 From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment.27 It is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the transactions involving such tax are not exempt, petitioner as a VATregistered person,28 however, is entitled to their credits. Nature of the VAT and the Tax Credit Method Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business29 as they pass along the production and distribution chain, the tax being limited only to the value added30 to such goods, properties or services by the seller, transferor or lessor.31 It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.32 As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption.33 In either case, though, the same conclusion is arrived at. The law34 that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been drawn from the tax credit method.35 Such method adopted the mechanics and self-enforcement features of the VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and Canada.36 Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.37 If at the end of a taxable quarter the output taxes 38 charged by a seller39 are equal to the input taxes40 passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid.41 If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. 42 Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods,43 any excess over the output taxes shall instead be refunded 44 to the taxpayer or credited45 against other internal revenue taxes.46 Zero-Rated and Effectively Zero-Rated Transactions Although both are taxable and similar in effect, zero-rated transactions differ from effectively zerorated transactions as to their source. Zero-rated transactions generally refer to the export sale of goods and supply of services. 47 The tax rate is set at zero.48 When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, 49 but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Effectively zero-rated transactions, however, refer to the sale of goods 50 or supply of services51 to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. 52 Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Zero Rating and Exemption In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from either one of them is not. Applying the destination principle53 to the exportation of goods, automatic zero rating 54 is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such

seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales.55 Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers. In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.56 But in an exemption there is only partial relief,57 because the purchaser is not allowed any tax refund of or credit for input taxes paid.58 Exempt Transaction >and Exempt Party The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction.59 An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of the party to the transaction.60 Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid. An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VAT. 61 Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer. As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the seller to the purchaser of the goods, properties or services. 62 While the liability is imposed on one person, the burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt. Special laws may certainly exempt transactions from the VAT.63 However, the Tax Code provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which respondent was registered. The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register. Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent,64 depending again on the application of the destination principle.65 If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -for use or consumption outside the Philippines, these shall be subject to 0 percent. 66 If entered into with a purchaser for use or consumption in the Philippines, then these shall be subject to 10 percent,67 unless the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated. Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate, 68 because the ecozone within which it is registered is managed and operated by the PEZA as a separate customs territory.69 This means that in such zone is created the legal fiction of foreign territory.70 Under the cross-border principle71 of the VAT system being enforced by the Bureau of Internal Revenue (BIR),72 no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the VAT, 73 then the same rule holds for such exports from the national territory -- except specifically declared areas -- to an ecozone. Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports to a foreign country; conversely, sales by a PEZA-registered entity to a VATregistered person in the customs territory are deemed imports from a foreign country. 74 An ecozone -- indubitably a geographical territory of the Philippines -- is, however, regarded in law as

foreign soil.75 This legal fiction is necessary to give meaningful effect to the policies of the special law creating the zone.76 If respondent is located in an export processing zone 77 within that ecozone, sales to the export processing zone, even without being actually exported, shall in fact be viewed as constructively exported under EO 226.78 Considered as export sales,79 such purchase transactions by respondent would indeed be subject to a zero rate. 80 Tax Exemptions Broad and Express Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish. Moreover, the exemption is both express and pervasive for the following reasons: First, RA 7916 states that "no taxes, local and national, shall be imposed on business establishments operating within the ecozone."81 Since this law does not exclude the VAT from the prohibition, it is deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in cases not excepted; that is, a thing not being excepted must be regarded as coming within the purview of the general rule. Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be passed on and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law. That no VAT shall be imposed directly upon business establishments operating within the ecozone under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum . When anything is prohibited directly, it is also prohibited indirectly. Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property taxes that presently are imposed on land owned by developers. 82 This similar and repeated prohibition is an unambiguous ratification of the laws intent in not imposing local or national taxes on business enterprises within the ecozone. Third, foreign and domestic merchandise, raw materials, equipment and the like "shall not be subject to x x x internal revenue laws and regulations" under PD 66 83 -- the original charter of PEZA (then EPZA) that was later amended by RA 7916. 84 No provisions in the latter law modify such exemption. Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately redounds to the benefit of the national economy by enticing more business investments and creating more employment opportunities. 85 Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those prohibited by law -- "shall not be subject to x x x internal revenue laws and regulations x x x"86 if brought to the ecozones restricted area87 for manufacturing by registered export enterprises,88 of which respondent is one. These rules also apply to all enterprises registered with the EPZA prior to the effectivity of such rules.89 Fifth, export processing zone enterprises registered90 with the Board of Investments (BOI) under EO 226 patently enjoy exemption from national internal revenue taxes on imported capital equipment reasonably needed and exclusively used for the manufacture of their products; 91 on required supplies and spare part for consigned equipment; 92 and on foreign and domestic merchandise, raw materials, equipment and the like -- except those prohibited by law -- brought into the zone for manufacturing.93 In addition, they are given credits for the value of the national internal revenue taxes imposed on domestic capital equipment also reasonably needed and exclusively used for the manufacture of their products, 94 as well as for the value of such taxes imposed on domestic raw materials and supplies that are used in the manufacture of their export

products and that form part thereof.95 Sixth, the exemption from local and national taxes granted under RA 7227 96 are ipso facto accorded to ecozones.97 In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of the ecozone.98 And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the production of export goods,99 and for locally produced raw materials, capital equipment and spare parts used by exporters of non-traditional products 100 -- shall also be continuously enjoyed by similar exporters within the ecozone.101 Indeed, the latter exporters are likewise entitled to such tax exemptions and credits. Tax Refund as Tax Exemption To be sure, statutes that grant tax exemptions are construed strictissimi juris102 against the taxpayer103 and liberally in favor of the taxing authority.104 Tax refunds are in the nature of such exemptions.105 Accordingly, the claimants of those refunds bear the burden of proving the factual basis of their claims; 106 and of showing, by words too plain to be mistaken, that the legislature intended to exempt them. 107 In the present case, all the cited legal provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the challenge. Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions themselves. 108 Nonetheless, its exemption as an entity and the non-exemption of its transactions lead to the same result for the following considerations: First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or administer such laws109 will have to be adopted. Their prior tax issuances have held inconsistent positions brought about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on consumption and the application of the destination principle.110 Revenue Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly provides that any VAT-registered suppliers sale of goods, property or services from the customs territory to any registered enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA registration -- is legally entitled to a zero rate. 111 Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very soul. In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of export processing zones, seeks "to encourage and promote foreign commerce as a means of x x x strengthening our export trade and foreign exchange position, of hastening industrialization, of reducing domestic unemployment, and of accelerating the development of the country."112 RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special economic zones, "the government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and social development of the country x x x through the establishment, among others, of special economic zones x x x that shall effectively attract legitimate and productive foreign investments." 113 Under EO 226, the "State shall encourage x x x foreign investments in industry x x x which shall x x x meet the tests of international competitiveness[,] accelerate development of less developed regions of the country[,] and result in increased volume and value of exports for the economy." 114 Fiscal incentives that are cost-efficient and simple to administer shall be devised and extended to significant projects "to compensate for market imperfections, to reward performance contributing to economic development,"115 and "to stimulate the establishment and assist initial operations of the enterprise."116 Wisely accorded to ecozones created under RA 7916117 was the governments policy -- spelled out earlier in RA 7227 -- of converting into alternative productive uses 118 the former military

reservations and their extensions,119 as well as of providing them incentives120 to enhance the benefits that would be derived from them121 in promoting economic and social development.122 Finally, under RA 7844, the State declares the need "to evolve export development into a national effort"123 in order to win international markets. By providing many export and tax incentives, 124 the State is able to drive home the point that exporting is indeed "the key to national survival and the means through which the economic goals of increased employment and enhanced incomes can most expeditiously be achieved."125 The Tax Code itself seeks to "promote sustainable economic growth x x x; x x x increase economic activity; and x x x create a robust environment for business to enable firms to compete better in the regional as well as the global market." 126 After all, international competitiveness requires economic and tax incentives to lower the cost of goods produced for export. State actions that affect global competition need to be specific and selective in the pricing of particular goods or services.127 All these statutory policies are congruent to the constitutional mandates of providing incentives to needed investments,128 as well as of promoting the preferential use of domestic materials and locally produced goods and adopting measures to help make these competitive. 129 Tax credits for domestic inputs strengthen backward linkages. Rightly so, "the rule of law and the existence of credible and efficient public institutions are essential prerequisites for sustainable economic development."130 VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund Registration is an indispensable requirement under our VAT law. 131 Petitioner alleges that respondent did register for VAT purposes with the appropriate Revenue District Office. However, it is now too late in the day for petitioner to challenge the VAT-registered status of respondent, given the latters prior representation before the lower courts and the mode of appeal taken by petitioner before this Court. The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or indirectly, in manufacturing. 132 EO 226 even reiterates this privilege among the incentives it gives to such enterprises.133 Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered used in the VAT business, and no VAT refund or credit is due.134 This is a non sequitur. By the VATs very nature as a tax on consumption, the capital goods and services respondent has purchased are subject to the VAT, although at zero rate. Registration does not determine taxability under the VAT law. Moreover, the facts have already been determined by the lower courts. Having failed to present evidence to support its contentions against the income tax holiday privilege of respondent,135 petitioner is deemed to have conceded. It is a cardinal rule that "issues and arguments not adequately and seriously brought below cannot be raised for the first time on appeal." 136 This is a "matter of procedure"137 and a "question of fairness."138 Failure to assert "within a reasonable time warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it."139 The BIR regulations additionally requiring an approved prior application for effective zero rating 140 cannot prevail over the clear VAT nature of respondents transactions. The scope of such regulations is not "within the statutory authority x x x granted by the legislature. 141 First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any more than interpret the latter. 142 The courts will not countenance one that overrides the statute it seeks to apply and implement. 143 Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayers transactions to be considered effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because an application therefor was not made or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or

agents who, without fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or agents. 144 Second, grantia argumenti that such an application is required by law, there is still the presumption of regularity in the performance of official duty. 145 Respondents registration carries with it the presumption that, in the absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof given. Besides, it is also presumed that the law has been obeyed146 by both the administrative officials and the applicant. Third, even though such an application was not made, all the special laws we have tackled exempt respondent not only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and attain global competitiveness as envisioned in those laws. A VAT-registered status, as well as compliance with the invoicing requirements, 147 is sufficient for the effective zero rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as already clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT exemption would be determined, not by their nature, but by the taxpayers negligence -- a result not at all contemplated. Administrative convenience cannot thwart legislative mandate. Tax Refund or Credit in Order Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order. As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax regime. The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, 148 for EO 226149 also has provisions to contend with. These two regimes are in fact incompatible and cannot be availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it from all taxes. Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for a certain number of years, depending on its registration as a pioneer or a nonpioneer enterprise. Besides, the remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable upon business establishments within the ecozone cannot outrightly determine a VAT exemption. Being subject to VAT, payments erroneously collected thereon may then be refunded or credited. Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916, Section 24 thereof does not preclude the VAT. One can, therefore, counterargue that such provision merely exempts respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on consumption, not on business. Although respondent as an entity is exempt, the transactions it enters into are not necessarily so. The VAT payments made in excess of the zero rate that is imposable may certainly be refunded or credited. Compliance with All Requisites for VAT Refund or Credit As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or credit.150 First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which this Court held that the petitioner therein was registered as a non-VAT taxpayer.151 Hence, for being merely VAT-exempt, the petitioner in that case cannot claim any VAT refund or credit. Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not been offset against any output taxes. Although enterprises registered with

the BOI after December 31, 1994 would no longer enjoy the tax credit incentives on domestic capital equipment -- as provided for under Article 39(d), Title III, Book I of EO 226 152 -- starting January 1, 1996, respondent would still have the same benefit under a general and express exemption contained in both Article 77(1), Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227, extended to the ecozones by RA 7916. There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national and local taxes, but also to grant them tax credits. This fact was revealed by the sponsorship speeches in Congress during the second reading of House Bill No. 14295, which later became RA 7916, as shown below: "MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local taxes; x x x tax credit for locally-sourced inputs x x x." xxxxxxxxx "MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment conducive for investors, the bill offers incentives such as the exemption from local and national taxes, x x x tax credits for locally sourced inputs x x x." 153 And third, no question as to either the filing of such claims within the prescriptive period or the validity of the VAT returns has been raised. Even if such a question were raised, the tax exemption under all the special laws cited above is broad enough to cover even the enforcement of internal revenue laws, including prescription.154 Summary To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit. WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs. SO ORDERED. Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur. Footnotes
1 2

Rollo, pp. 8-20.

Id., pp. 21-30. Thirteenth Division. Penned by Justice Mercedes Gozo-Dadole, with the concurrence of Justices Salvador J. Valdez Jr. (chair) and Amelita G. Tolentino (member).
3 4 5

CA Decision, p. 10; rollo, p. 30. Bold types and caps in the original. CA Decision, pp. 2-4; rollo, pp. 22-24. Citations omitted.

The Petition was deemed submitted for decision on April 3, 2003, upon receipt by the Court of petitioners Memorandum, signed by Assistant Solicitors General Cecilio O. Estoesta and Fernanda Lampas Peralta and Associate Solicitor Romeo D. Galzote. Respondents Memorandum, signed by Attys. Dennis G. Dimagiba and Franklin A. Prestousa, was filed on March 7, 2003.
6

Petitioners Memorandum, p. 5; rollo, p. 99. Original in upper case.

Referred to as ecozone, it is a selected area with highly developed, or which has the potential to be developed into, agro-industrial, industrial, tourist/recreational, commercial, banking, investment and financial centers. 4(a), Chapter I of RA 7916, otherwise known as "The Special Economic Zone Act of 1995."
8 9

35, Chapter III of RA 7916.

PD 66 is the law creating the Export Processing Zone Authority or EPZA. See 1st paragraph of 23, Chapter III of RA 7916.
10

EO 226, in Article 1 thereof, is also known as the "Omnibus Investments Code" of 1987. See 1st paragraph of 23, Chapter III of RA 7916.
11

RA 7227, in 1 thereof, is also known as the "Bases Conversion and Development Act of 1992." See 51, Chapter VI of RA 7916.
12

RA 7844, in 1 thereof, is also known as the "Export Development Act of 1994." See 2nd paragraph of 23, Chapter III of RA 7916.
13 14 15 16

17(1) of PD 66. 18 of PD 66. Article 77(1), Book VI of EO 226.

Article 39 of EO 226, certain paragraphs of which are expressly repealed by the 2nd paragraph of 20 of RA 7716, otherwise known as the "Expanded Value Added Tax Law," deemed effective May 27, 1994. See Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., 406 SCRA 178, 187, July 15, 2003.
17 18 19 20 21 22 23 24 25 26

Article 78 of EO 226. (b) of the 2nd paragraph of 12 of RA 7227. 51, Chapter VI of RA 7916. 51, Chapter VI of RA 7916. (c) of the 2nd paragraph of 12 of RA 7227. (d) of the 2nd paragraph of 12 of RA 7227. Referred to as the Central Bank under (e) of the 2nd paragraph of 12 of RA 7227. 17 of RA 7844. 16 of RA 7844. See 2nd paragraph of 23, Chapter III of RA 7916.

PD 1853 was the law that took effect in 1983, requiring deposits of duties upon the opening of letters of credit to cover imports.
27 28

2nd paragraph of 4, Chapter I of RA 7916.

A "VAT-registered person" is a taxable person who has registered for VAT purposes under 236 of the Tax Code. Deoferio and Mamalateo, The Value Added Tax in the Philippines (1st ed., 2000), p. 265. See 9th paragraph of 4.107-1(a) of Revenue Regulations No. (RR) 7-95, implemented beginning January 1, 1996, as amended by 6 of RR 6-97, effective January 1, 1997.
29 30

105 to 109 of RA 8424, as amended, otherwise known as the Tax Code.

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. , 163 SCRA 371, 378379, June 30, 1988.
31 32 33

De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 131. 2nd paragraph of 105 of the Tax Code.

Deoferio Jr. and Mamalateo, The Value Added Tax in the Philippines (1st ed., 2000), pp. 33 & 36.

34 35

EO 273. Vitug, J. and Acosta, Tax Law and Jurisprudence (2nd ed., 2000), p. 227.

See 193(d) of the National Internal Revenue Code of 1977 as further amended by 1 of Pres. Decree No. 1358 dated April 21, 1978, wherein the tax credit method, instead of the cost deduction method, was mandated to be applied in computing the VAT due.
36 37 38

Deoferio Jr. and Mamalateo, supra, p. 34. Id., pp. 34-35.

"Output taxes" refer to the VAT due on the sale or lease of taxable goods, properties or services by a VAT-registered or VAT-registrable person. See last paragraph of 110(A)(3) and 236 of the Tax Code.
39 40

Presumed to be VAT-registered.

By "input taxes" is meant the VAT due from or paid by a VAT-registered person in the course of trade or business on the importation of goods or local purchases of goods or services, including the lease or use of property from a VAT-registered person. See penultimate paragraph of 110(A)(3) of the Tax Code.
41

110(B) of the Tax Code. 110(B) of the Tax Code.

VAT-registered persons shall pay the VAT on a monthly basis. 114(A) of the Tax Code.
42 43

These are goods or properties with estimated useful lives greater than one year and which are treated as depreciable assets under 34(F) [formerly 29(f)] of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services. 3rd paragraph of 4.106-1(b) of RR 7-95. These goods also refer to "capital assets" as this term is defined in 39(A)(1) of the Tax Code.
44 45 46 47 48 49 50 51 52 53

De Leon, p. 135. Deoferio Jr. and Mamalateo, supra, p. 244. Subject to the provisions of 106, 108 and 112 of the Tax Code. De Leon, p. 133. Deoferio Jr. and Mamalateo, supra, p. 190. De Leon, p. 133. 106(A)(2)(c) of the Tax Code. 108(B)(3) of the Tax Code. Deoferio Jr. and Mamalateo, supra, p. 215.

Under this principle, goods and services are taxed only in the country where these are consumed. Thus, exports are zero-rated, but imports are taxed. Id., p. 43.
54

In business parlance, "automatic zero rating" refers to the standard zero rating as provided for in the Tax Code.
55 56 57 58 59 60

Deoferio Jr. and Mamalateo, supra, p. 189. Id., p. 43. Id., p. 121. De Leon, pp. 133 & 135. Deoferio Jr. and Mamalateo, supra, p. 118. Id., p. 132.

61 62 63 64 65 66 67 68 69

Id., pp. 132-133. De Leon, p. 132. 109(q) of the Tax Code. Deoferio Jr. and Mamalateo, supra, p. 187. Id., p. 69. 106(A)(2) of the Tax Code. 106(A)(1) of the Tax Code. 106(A)(2)(c) of the Tax Code. 1st paragraph of 8, Chapter I of RA 7916.

A "customs territory" means the national territory of the Philippines outside of the proclaimed boundaries of the ecozones, except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports. 2.g, Rule 1, Part I of the "Rules and Regulations to Implement Republic Act No. 7916, otherwise known as The Special Economic Zone Act of 1995."
70 71

Deoferio Jr. and Mamalateo, supra, p. 227.

This principle is not clearly defined by any law or administrative issuance. See Id., p. 227.
72

2 of Revenue Memorandum Circular No. (RMC) 74-99 dated October 15, 1999.

This circular is an example of an agency statement of general applicability that takes the form of a revenue tax issuance "bearing on internal revenue tax rules and regulations." Commissioner of Internal Revenue v. CA, 329 Phil. 987, 1009, August 29, 1996, per Vitug, J., citing RMC 10-86. See 2(2), Chapter 1, Book VII of Executive Order No. (EO) 292, otherwise known as the "Administrative Code of 1987" dated July 25, 1987.
73 74 75

106(A)(2)(a) of the Tax Code. See Deoferio Jr. and Mamalateo, supra, p. 201.

This zone is akin to the former army bases or installations within the Philippines. Saura Import and Export Co., Inc. v. Meer, 88 Phil. 199, 202, February 26, 1951.
76 77

Deoferio Jr. and Mamalateo, supra, p. 199.

An "export processing zone" is a specialized industrial estate located physically and/or administratively outside customs territory, predominantly oriented to export production, and may be contained in an ecozone. 4(a) and (d), Chapter I of RA 7916.
78

Article 23, Chapter I, Title I, Book I of EO 226. See 2.mm.2), Rule I, Part I of the "Rules and Regulations to Implement Republic Act No. 7916, otherwise known as The Special Economic Zone Act of 1995."
79 80 81 82 83 84

Article 77(2), Book VI of EO 226. 106(A)(2)(a)(5) of the Tax Code. 24, Chapter III of RA 7916. 24, Chapter III of RA 7916, as amended by 4 of RA 8748 dated June 1, 1999. 17(1) of PD 66.

Estate of Salud Jimenez v. Philippine Export Processing Zone , 349 SCRA 240, 260261, January 16, 2001. See 4th paragraph, 11, Chapter II of RA 7916.
85

Commissioner of Customs v. Philippine Phosphate Fertilizer Corp., GR No. 144440 , September 1, 2004, p. 7.
86

1, Rule VIII, Part V and Rule XV of the "Rules and Regulations to Implement Republic

Act No. 7916, otherwise known as The Special Economic Zone Act of 1995."
87

A "restricted area" is a specific area within an ecozone that is classified and/or fencedin as an export processing zone. 2.h, Rule I, Part I of the "Rules and Regulations to Implement Republic Act No. 7916, otherwise known as The Special Economic Zone Act of 1995."
88

A "registered export enterprise" is one that is registered with the PEZA, and that engages in manufacturing activities within the purview of the PEZA law for the exportation of its production. 2.i, Rule I, Part I of the "Rules and Regulations to Implement Republic Act No. 7916, otherwise known as The Special Economic Zone Act of 1995."
89

1, Rule XXV of the "Rules and Regulations to Implement Republic Act No. 7916, otherwise known as The Special Economic Zone Act of 1995." See 56, Chapter VI of RA 7916.
90 91

Article 11, Chapter I, Book I of EO 226.

Article 39(c), Title III, Book I of EO 226, expressly repealed by the 2nd paragraph of 20 of RA 7716. Consequently, enterprises registered with the BOI after December 31, 1994 will no longer enjoy the incentives provided under said article starting January 1, 1996.
92 93 94

Article 39(m), Title III, Book I of EO 226. Article 77(1), Book VI of EO 226.

Article 39(d), Title III, Book I of EO 226, also expressly repealed by the 2nd paragraph of 20 of RA 7716. Consequently, enterprises registered with the BOI after December 31, 1994 will no longer enjoy the incentives provided under said article starting January 1, 1996.
95 96 97 98 99

Article 39(k), Title III, Book I of EO 226. 1st paragraph of 12(c) of RA 7227. 51, Chapter VI of RA 7916. 2nd paragraph of 12(c) of RA 7227. 16(c), Article III of RA 7844. 16(e), Article III of RA 7844. 2nd paragraph of 23, Chapter III of RA 7916.

100 101 102

Commissioner of Internal Revenue v. General Foods (Phils.), Inc. , 401 SCRA 545, 550, April 24, 2003.
103

Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436, 461, November 25, 2003
104 105 106 107

Agpalo, Statutory Construction (2nd ed., 1990), p. 217. BPI Leasing Corp. v. CA, 416 SCRA 4, 14, November 18, 2003. Paseo Realty & Development Corp. v. CA, GR No. 119286 , October 13, 2004, p. 14.

Surigao Consolidated Mining Co., Inc. v. Collector of Internal Revenue , 119 Phil. 33, 37, December 26, 1963.
108 109 110 111 112

Deoferio Jr. and Mamalateo, supra, p. 155. Agpalo, supra, pp. 82-83. Deoferio Jr. and Mamalateo, supra, p. 218. 3(3) of Revenue Memorandum Circular No. (RMC) 74-99. 1 and 2 of PD 66.

113 114 115 116 117 118 119 120 121 122 123 124 125 126

2nd paragraph of 2, Chapter I of RA 7916. Article 2.1, Chapter I of EO 226. Article 2.3, Chapter I of EO 226. Article 2.8, Chapter I of EO 226. 51, Chapter VI of RA 7916. Tiu v. CA, 361 Phil. 229, 242, January 20, 1999. 1st paragraph of 2, RA 7227. 12 and 15 of RA 7227. John Hay Peoples Alternative Coalition v. Lim, 414 SCRA 356, 369, October 24, 2003. 2nd paragraph of 2, RA 7227. 1st paragraph of 2, Article I of RA 7844. 4(c) of Article I , 16, and 17 of RA 7844. 2nd paragraph of 2, Article I of RA 7844.

2 of the Tax Code, as amended by RA 8761 effective January 1, 2000; and by RA 9010, the effectivity of which has been retroacted to January 1, 2001.
127

American Society of International Law Proceedings, "Indigenous People and the Global Trade Regime," 96 Asilproc 279, 281, March 16, 2002.
128 129 130

20 of Article II of the 1987 Constitution. 2nd paragraph of 1 and 12 of Article XII of the 1987 Constitution.

Schwab, extract from the Preface of the Global Competitiveness Report 2003-2004, www.weforum.org, last visited January 27, 2005, 9:05am PST.
131 132 133 134 135 136 137

236 of the Tax Code. 17(1) of PD 66 and 56, Chapter VI of RA 7916. Article 77(1), Book VI of EO 226. Petitioners Memorandum, p. 9; rollo, p. 103. CA Decision, p. 7; rollo, p. 27; and CTA Decision, p. 5, rollo, p. 35. Magnolia Dairy Products Corp. v. NLRC, 322 Phil. 508, 517, per Francisco, J.

Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corp., 204 SCRA 377, 383, December 2, 1991, per Feliciano, J.
138

Ibid. See Advertising Associates, Inc. v. Collector of Internal Revenue , 97 Phil. 636, 641, September 30, 1955.
139

Atlas Consolidated Mining & Development Corp. v. Commissioner of Internal Revenue , 102 SCRA 246, 259, January 27, 1981, per De Castro, J.
140 141

4.107-1(d) of RR 7-95. Commissioner of Internal Revenue v. Solidbank Corp., supra, p. 448, per Panganiban, Vitug and Acosta, supra, p. 56. Id., p. 57. Spouses Morandarte v. CA, GR No. 123586, August 12, 2004, p. 15. 3(m) of Rule 131 of the Rules of Court. 3(ff) of Rule 131 of the Rules of Court.

J.
142 143 144 145 146

147 148 149 150

113(A) of the Tax Code. 24, Chapter III of RA 7916, as amended by 4 of RA 8748. 1st paragraph, 23, Chapter III of RA 7916.

As a matter of principle, it is inadvisable to set aside such a conclusion, because by the very nature of its functions and sans abuse or improvident exercise of its authority, the Tax Court is "dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject x x x." Paseo Realty & Development Corp. v. CA; supra, per Tinga, J., p. 8.
151

Contex Corp. v. Hon. Commissioner of Internal Revenue, GR No. 151135 , July 2, 2004, p. 11.
152

This provision has been expressly repealed by the 2nd paragraph of 20 of RA 7716. See note 94.
153

Legislative Archives, Committee Report No. 01027, House of Representatives, December 14, 1994, pp. 00132 & 00141.
154

Commissioner of Customs v. Philippine Phosphate Fertilizer Corp. ; supra, pp. 9-10. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-66838 December 2, 1991 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX APPEALS, respondents. T.A. Tejada & C.N. Lim for private respondent. RESOLUTION FELICIANO, J.:p For the taxable year 1974 ending on 30 June 1974, and the taxable year 1975 ending 30 June 1975, private respondent Procter and Gamble Philippine Manufacturing Corporation ("P&G-Phil.") declared dividends payable to its parent company and sole stockholder, Procter and Gamble Co., Inc. (USA) ("P&G-USA"), amounting to P24,164,946.30, from which dividends the amount of P8,457,731.21 representing the thirty-five percent (35%) withholding tax at source was deducted. On 5 January 1977, private respondent P&G-Phil. filed with petitioner Commissioner of Internal Revenue a claim for refund or tax credit in the amount of P4,832,989.26 claiming, among other things, that pursuant to Section 24 (b) (1) of the National Internal Revenue Code ("NITC"), 1 as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only fifteen percent (15%) (and not thirty-five percent [35%]) of the dividends. There being no responsive action on the part of the Commissioner, P&G-Phil., on 13 July 1977, filed a petition for review with public respondent Court of Tax Appeals ("CTA") docketed as CTA Case No. 2883. On 31 January 1984, the CTA rendered a decision ordering petitioner Commissioner to refund or grant the tax credit in the amount of P4,832,989.00. On appeal by the Commissioner, the Court through its Second Division reversed the decision of the CTA and held that:

(a) P&G-USA, and not private respondent P&G-Phil., was the proper party to claim the refund or tax credit here involved; (b) there is nothing in Section 902 or other provisions of the US Tax Code that allows a credit against the US tax due from P&GUSA of taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) which represents the difference between the regular tax of thirty-five percent (35%) on corporations and the tax of fifteen percent (15%) on dividends; and (c) private respondent P&G-Phil. failed to meet certain conditions necessary in order that "the dividends received by its nonresident parent company in the US (P&G-USA) may be subject to the preferential tax rate of 15% instead of 35%." These holdings were questioned in P&G-Phil.'s Motion for Re-consideration and we will deal with them seriatim in this Resolution resolving that Motion. I 1. There are certain preliminary aspects of the question of the capacity of P&G-Phil. to bring the present claim for refund or tax credit, which need to be examined. This question was raised for the first time on appeal, i.e., in the proceedings before this Court on the Petition for Review filed by the Commissioner of Internal Revenue. The question was not raised by the Commissioner on the administrative level, and neither was it raised by him before the CTA. We believe that the Bureau of Internal Revenue ("BIR") should not be allowed to defeat an otherwise valid claim for refund by raising this question of alleged incapacity for the first time on appeal before this Court. This is clearly a matter of procedure. Petitioner does not pretend that P&G-Phil., should it succeed in the claim for refund, is likely to run away, as it were, with the refund instead of transmitting such refund or tax credit to its parent and sole stockholder. It is commonplace that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular No. 1-88 of this Court in exactly the same way that private litigants are held to such compliance, save only in respect of the matter of filing fees from which the Republic of the Philippines is exempt by the Rules of Court. More importantly, there arises here a question of fairness should the BIR, unlike any other litigant, be allowed to raise for the first time on appeal questions which had not been litigated either in the lower court or on the administrative level. For, if petitioner had at the earliest possible opportunity, i.e., at the administrative level, demanded that P&G-Phil. produce an express authorization from its parent corporation to bring the claim for refund, then P&G-Phil. would have been able forthwith to secure and produce such authorization before filing the action in the instant case. The action here was commenced just before expiration of the two (2)-year prescriptive period. 2. The question of the capacity of P&G-Phil. to bring the claim for refund has substantive dimensions as well which, as will be seen below, also ultimately relate to fairness. Under Section 306 of the NIRC, a claim for refund or tax credit filed with the Commissioner of Internal Revenue is essential for maintenance of a suit for recovery of taxes allegedly erroneously or illegally assessed or collected: Sec. 306. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, 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 of Internal Revenue; 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 years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: . . . (Emphasis supplied) Section 309 (3) of the NIRC, in turn, provides: Sec. 309. Authority of Commissioner to Take Compromises and to Refund Taxes.The Commissioner may: xxx xxx xxx (3) credit or refund taxes erroneously or illegally received, . . . No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty. (As amended by P.D. No. 69) (Emphasis supplied) Since the claim for refund was filed by P&G-Phil., the question which arises is: is P&G-Phil. a "taxpayer" under Section 309 (3) of the NIRC? The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." 2 It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made " personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable 3 for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." 4 The terms liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him. In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, 5 this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent: The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer . With respect to the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law. 6 (Emphasis supplied) If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, is in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence

an action for such refund. We believe that, even now, there is nothing to preclude the BIR from requiring P&G-Phil. to show some written or telexed confirmation by P&G-USA of the subsidiary's authority to claim the refund or tax credit and to remit the proceeds of the refund., or to apply the tax credit to some Philippine tax obligation of, P&G-USA, before actual payment of the refund or issuance of a tax credit certificate. What appears to be vitiated by basic unfairness is petitioner's position that, although P&G-Phil. is directly and personally liable to the Government for the taxes and any deficiency assessments to be collected, the Government is not legally liable for a refund simply because it did not demand a written confirmation of P&G-Phil.'s implied authority from the very beginning. A sovereign government should act honorably and fairly at all times, even vis-a-vis taxpayers. We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim. II 1. We turn to the principal substantive question before us: the applicability to the dividend remittances by P&G-Phil. to P&G-USA of the fifteen percent (15%) tax rate provided for in the following portion of Section 24 (b) (1) of the NIRC: (b) Tax on foreign corporations. (1) Non-resident corporation. A foreign corporation not engaged in trade and business in the Philippines, . . ., shall pay a tax equal to 35% of the gross income receipt during its taxable year from all sources within the Philippines, as . . . dividends . . . Provided, still further, that on dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends, which shall be collected and paid as provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation, is domiciled shall allow a credit against the tax due from the nonresident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this Section . . . The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation, goes down to fifteen percent (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. In other words, in the instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed paid in the Philippines" applicable against the US taxes of P&GUSA. The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines" must, as a minimum, reach an amount equivalent to twenty (20) percentage points which represents the difference between the regular thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax rate. It is important to note that Section 24 (b) (1), NIRC, does not require that the US must give a "deemed paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred divided tax rate of fifteen percent (15%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty (20) percentage points of dividend tax waived by the Philippines. The NIRC only requires that the US "shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines. 2. The question arises: Did the US law comply with the above requirement? The relevant provisions of the US Intemal Revenue Code ("Tax Code") are the following:

Sec. 901 Taxes of foreign countries and possessions of United States . (a) Allowance of credit. If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the applicable limitation of section 904 , be credited with the amounts provided in the applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid under sections 902 and 960. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against the tax imposed by section 531 (relating to the tax on accumulated earnings), against the additional tax imposed for the taxable year under section 1333 (relating to war loss recoveries) or under section 1351 (relating to recoveries of foreign expropriation losses), or against the personal holding company tax imposed by section 541. (b) Amount allowed. Subject to the applicable limitation of section 904, the following amounts shall be allowed as the credit under subsection (a): (a) Citizens and domestic corporations. In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and xxx xxx xxx Sec. 902. Credit for corporate stockholders in foreign corporation. (A) Treatment of Taxes Paid by Foreign Corporation. For purposes of this subject, a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall xxx xxx xxx (2) to the extent such dividends are paid by such foreign corporation out of accumulated profits [as defined in subsection (c) (1) (b)] of a year for which such foreign corporation is a less developed country corporation, be deemed to have paid the same proportion of any income, war profits, or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States on or with respect to such accumulated profits, which the amount of such dividends bears to the amount of such accumulated profits. xxx xxx xxx (c) Applicable Rules (1) Accumulated profits defined. For purposes of this section,

the term "accumulated profits" means with respect to any foreign corporation, (A) for purposes of subsections (a) (1) and (b) (1), the amount of its gains, profits, or income computed without reduction by the amount of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income by any foreign country. . . .; and (B) for purposes of subsections (a) (2) and (b) (2), the amount of its gains, profits, or income in excess of the income, war profits, and excess profits taxes imposed on or with respect to such profits or income. The Secretary or his delegate shall have full power to determine from the accumulated profits of what year or years such dividends were paid, treating dividends paid in the first 20 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shows otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earning. . . . (Emphasis supplied) Close examination of the above quoted provisions of the US Tax Code 7 shows the following: a. US law (Section 901, Tax Code) grants P&G-USA a tax credit for the amount of the dividend tax actually paid (i.e., withheld) from the dividend remittances to P&G-USA; b. US law (Section 902, US Tax Code) grants to P&G-USA a "deemed paid' tax credit 8 for a proportionate part of the corporate income tax actually paid to the Philippines by P&GPhil. The parent-corporation P&G-USA is "deemed to have paid" a portion of the Philippine corporate income tax although that tax was actually paid by its Philippine subsidiary, P&G-Phil., not by P&G-USA. This "deemed paid" concept merely reflects economic reality, since the Philippine corporate income tax was in fact paid and deducted from revenues earned in the Philippines, thus reducing the amount remittable as dividends to P&G-USA. In other words, US tax law treats the Philippine corporate income tax as if it came out of the pocket, as it were, of P&G-USA as a part of the economic cost of carrying on business operations in the Philippines through the medium of P&G-Phil. and here earning profits. What is, under US law, deemed paid by P&G- USA are not "phantom taxes" but instead Philippine corporate income taxes actually paid here by P&G-Phil ., which are very real indeed. It is also useful to note that both (i) the tax credit for the Philippine dividend tax actually withheld, and (ii) the tax credit for the Philippine corporate income tax actually paid by P&G Phil. but "deemed paid" by P&G-USA, are tax credits available or applicable against the US corporate income tax of P&G-USA. These tax credits are allowed because of the US congressional desire to avoid or reduce double taxation of the same income stream. 9 In order to determine whether US tax law complies with the requirements for applicability of the reduced or preferential fifteen percent (15%) dividend tax rate under Section 24 (b) (1), NIRC, it is necessary: a. to determine the amount of the 20 percentage points dividend tax waived by the Philippine government under Section 24 (b) (1), NIRC, and which hence goes to P&G-USA; b. to determine the amount of the "deemed paid" tax credit which

US tax law must allow to P&G-USA; and c. to ascertain that the amount of the "deemed paid" tax credit allowed by US law is at least equal to the amount of the dividend tax waived by the Philippine Government. Amount (a), i.e., the amount of the dividend tax waived by the Philippine government is arithmetically determined in the following manner: P100.00 Pretax net corporate income earned by P&G-Phil. x 35% Regular Philippine corporate income tax rate P35.00 Paid to the BIR by P&G-Phil. as Philippine corporate income tax. P100.00 -35.00 P65.00 Available for remittance as dividends to P&G-USA P65.00 Dividends remittable to P&G-USA x 35% Regular Philippine dividend tax rate under Section 24 (b) (1), NIRC P22.75 Regular dividend tax P65.00 Dividends remittable to P&G-USA x 15% Reduced dividend tax rate under Section 24 (b) (1), NIRC P9.75 Reduced dividend tax P22.75 Regular dividend tax under Section 24 (b) (1), NIRC -9.75 Reduced dividend tax under Section 24 (b) (1), NIRC P13.00 Amount of dividend tax waived by Philippine ===== government under Section 24 (b) (1), NIRC. Thus, amount (a) above is P13.00 for every P100.00 of pre-tax net income earned by P&G-Phil. Amount (a) is also the minimum amount of the "deemed paid" tax credit that US tax law shall allow if P&G-USA is to qualify for the reduced or preferential dividend tax rate under Section 24 (b) (1), NIRC. Amount (b) above, i.e., the amount of the "deemed paid" tax credit which US tax law allows under Section 902, Tax Code, may be computed arithmetically as follows: P65.00 Dividends remittable to P&G-USA - 9.75 Dividend tax withheld at the reduced (15%) rate P55.25 Dividends actually remitted to P&G-USA P35.00 Philippine corporate income tax paid by P&G-Phil. to the BIR Dividends actually remitted by P&G-Phil. to P&G-USA P55.25 = x P35.00 = P29.75 10 Amount of accumulated P65.00 ====== profits earned by P&G-Phil. in excess of income tax Thus, for every P55.25 of dividends actually remitted (after withholding at the rate of 15%) by P&G-Phil. to its US parent P&G-USA, a tax credit of P29.75 is allowed by Section 902 US Tax

Code for Philippine corporate income tax "deemed paid" by the parent but actually paid by the wholly-owned subsidiary. Since P29.75 is much higher than P13.00 (the amount of dividend tax waived by the Philippine government), Section 902, US Tax Code, specifically and clearly complies with the requirements of Section 24 (b) (1), NIRC. 3. It is important to note also that the foregoing reading of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of Sections 901 and 902 as shown by administrative rulings issued by the BIR. The first Ruling was issued in 1976, i.e., BIR Ruling No. 76004, rendered by then Acting Commissioner of Intemal Revenue Efren I. Plana, later Associate Justice of this Court, the relevant portion of which stated: However, after a restudy of the decision in the American Chicle Company case and the provisions of Section 901 and 902 of the U.S. Internal Revenue Code, we find merit in your contention that our computation of the credit which the U.S. tax law allows in such cases is erroneous as the amount of tax "deemed paid" to the Philippine government for purposes of credit against the U.S. tax by the recipient of dividends includes a portion of the amount of income tax paid by the corporation declaring the dividend in addition to the tax withheld from the dividend remitted. In other words, the U.S. government will allow a credit to the U.S. corporation or recipient of the dividend, in addition to the amount of tax actually withheld, a portion of the income tax paid by the corporation declaring the dividend. Thus, if a Philippine corporation wholly owned by a U.S. corporation has a net income of P100,000, it will pay P25,000 Philippine income tax thereon in accordance with Section 24(a) of the Tax Code. The net income, after income tax, which is P75,000, will then be declared as dividend to the U.S. corporation at 15% tax, or P11,250, will be withheld therefrom. Under the aforementioned sections of the U.S. Internal Revenue Code, U.S. corporation receiving the dividend can utilize as credit against its U.S. tax payable on said dividends the amount of P30,000 composed of: (1) The tax "deemed paid" or indirectly paid on the dividend arrived at as follows: P75,000 x P25,000 = P18,750 100,000 ** (2) The amount of 15% of P75,000 withheld = 11,250 P30,000 The amount of P18,750 deemed paid and to be credited against the U .S. tax on the dividends received by the U.S. corporation from a Philippine subsidiary is clearly more than 20% requirement of Presidential Decree No. 369 as 20% of P75,000.00 the dividends to be remitted under the above example, amounts to P15,000.00 only. In the light of the foregoing, BIR Ruling No. 75-005 dated September 10, 1975 is hereby amended in the sense that the dividends to be remitted by your client to its parent company shall be subject to the withholding tax at the rate of 15% only. This ruling shall have force and effect only for as long as the present pertinent provisions of the U.S. Federal Tax Code, which are the bases of the ruling, are not revoked, amended and modified, the effect of which will reduce the percentage of tax deemed paid and creditable against the U.S. tax on dividends remitted by a foreign corporation to a U.S. corporation. (Emphasis supplied)

The 1976 Ruling was reiterated in, e.g., BIR Ruling dated 22 July 1981 addressed to Basic Foods Corporation and BIR Ruling dated 20 October 1987 addressed to Castillo, Laman, Tan and Associates. In other words, the 1976 Ruling of Hon. Efren I. Plana was reiterated by the BIR even as the case at bar was pending before the CTA and this Court. 4. We should not overlook the fact that the concept of "deemed paid" tax credit, which is embodied in Section 902, US Tax Code, is exactly the same "deemed paid" tax credit found in our NIRC and which Philippine tax law allows to Philippine corporations which have operations abroad (say, in the United States) and which, therefore, pay income taxes to the US government. Section 30 (c) (3) and (8), NIRC, provides: (d) Sec. 30. Deductions from Gross Income.In computing net income, there shall be allowed as deductions . . . (c) Taxes. . . . xxx xxx xxx (3) Credits against tax for taxes of foreign countries. If the taxpayer signifies in his return his desire to have the benefits of this paragraphs, the tax imposed by this Title shall be credited with . . . (a) Citizen and Domestic Corporation. In the case of a citizen of the Philippines and of domestic corporation, the amount of net income, war profits or excess profits, taxes paid or accrued during the taxable year to any foreign country. (Emphasis supplied) Under Section 30 (c) (3) (a), NIRC, above, the BIR must give a tax credit to a Philippine corporation for taxes actually paid by it to the US governmente.g., for taxes collected by the US government on dividend remittances to the Philippine corporation. This Section of the NIRC is the equivalent of Section 901 of the US Tax Code. Section 30 (c) (8), NIRC, is practically identical with Section 902 of the US Tax Code, and provides as follows: (8) Taxes of foreign subsidiary. For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits: Provided, That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. The term "accumulated profits" when used in this subsection reference to a foreign corporation, means the amount of its gains, profits, or income in excess of the income, war-profits, and excess-profits taxes imposed upon or with respect to such profits or income; and the Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid; treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation, the income, war-profits, and excess-profits taxes of which are determined on the

basis of an accounting period of less than one year, the word "year" as used in this subsection shall be construed to mean such accounting period. (Emphasis supplied) Under the above quoted Section 30 (c) (8), NIRC, the BIR must give a tax credit to a Philippine parent corporation for taxes "deemed paid" by it, that is, e.g., for taxes paid to the US by the US subsidiary of a Philippine-parent corporation. The Philippine parent or corporate stockholder is "deemed" under our NIRC to have paid a proportionate part of the US corporate income tax paid by its US subsidiary , although such US tax was actually paid by the subsidiary and not by the Philippine parent. Clearly, the "deemed paid" tax credit which, under Section 24 (b) (1), NIRC, must be allowed by US law to P&G-USA, is the same "deemed paid" tax credit that Philippine law allows to a Philippine corporation with a wholly- or majority-owned subsidiary in (for instance) the US. The "deemed paid" tax credit allowed in Section 902, US Tax Code, is no more a credit for "phantom taxes" than is the "deemed paid" tax credit granted in Section 30 (c) (8), NIRC. III 1. The Second Division of the Court, in holding that the applicable dividend tax rate in the instant case was the regular thirty-five percent (35%) rate rather than the reduced rate of fifteen percent (15%), held that P&G-Phil. had failed to prove that its parent, P&G-USA, had in fact been given by the US tax authorities a "deemed paid" tax credit in the amount required by Section 24 (b) (1), NIRC. We believe, in the first place, that we must distinguish between the legal question before this Court from questions of administrative implementation arising after the legal question has been answered. The basic legal issue is of course, this: which is the applicable dividend tax rate in the instant case: the regular thirty-five percent (35%) rate or the reduced fifteen percent (15%) rate? The question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid" tax credit in the required amount, relates to the administrative implementation of the applicable reduced tax rate. In the second place, Section 24 (b) (1), NIRC, does not in fact require that the "deemed paid" tax credit shall have actually been granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). As noted several times earlier, Section 24 (b) (1), NIRC, merely requires, in the case at bar, that the USA " shall allow a credit against the tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . . ." There is neither statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the US Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable. Section 24 (b) (1), NIRC, does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies when a particular (reduced) tax rate is legally applicable . In the third place, the position originally taken by the Second Division results in a severe practical problem of administrative circularity. The Second Division in effect held that the reduced dividend tax rate is not applicable until the US tax credit for "deemed paid" taxes is actually given in the required minimum amount by the US Internal Revenue Service to P&G-USA. But, the US "deemed paid" tax credit cannot be given by the US tax authorities unless dividends have actually been remitted to the US, which means that the Philippine dividend tax, at the rate here applicable, was actually imposed and collected. 11 It is this practical or operating circularity that is in fact avoided by our BIR when it issues rulings that the tax laws of particular foreign jurisdictions (e.g., Republic of Vanuatu 12 Hongkong, 13 Denmark, 14 etc.) comply with the requirements set out in Section 24 (b) (1), NIRC, for applicability of the fifteen percent (15%) tax rate. Once such a ruling is rendered, the Philippine subsidiary begins to withhold at the reduced dividend tax rate. A requirement relating to administrative implementation is not properly imposed as a condition for the applicability, as a matter of law, of a particular tax rate. Upon the other hand, upon the determination or recognition of the applicability of the reduced tax rate, there is nothing to prevent the BIR from issuing implementing regulations that would require P&G Phil., or any Philippine

corporation similarly situated, to certify to the BIR the amount of the "deemed paid" tax credit actually subsequently granted by the US tax authorities to P&G-USA or a US parent corporation for the taxable year involved. Since the US tax laws can and do change, such implementing regulations could also provide that failure of P&G-Phil. to submit such certification within a certain period of time, would result in the imposition of a deficiency assessment for the twenty (20) percentage points differential. The task of this Court is to settle which tax rate is applicable, considering the state of US law at a given time. We should leave details relating to administrative implementation where they properly belong with the BIR. 2. An interpretation of a tax statute that produces a revenue flow for the government is not, for that reason alone, necessarily the correct reading of the statute. There are many tax statutes or provisions which are designed, not to trigger off an instant surge of revenues, but rather to achieve longer-term and broader-gauge fiscal and economic objectives. The task of our Court is to give effect to the legislative design and objectives as they are written into the statute even if, as in the case at bar, some revenues have to be foregone in that process. The economic objectives sought to be achieved by the Philippine Government by reducing the thirty-five percent (35%) dividend rate to fifteen percent (15%) are set out in the preambular clauses of P.D. No. 369 which amended Section 24 (b) (1), NIRC, into its present form: WHEREAS, it is imperative to adopt measures responsive to the requirements of a developing economy foremost of which is the financing of economic development programs; WHEREAS, nonresident foreign corporations with investments in the Philippines are taxed on their earnings from dividends at the rate of 35%; WHEREAS, in order to encourage more capital investment for large projects an appropriate tax need be imposed on dividends received by non-resident foreign corporations in the same manner as the tax imposed on interest on foreign loans; xxx xxx xxx (Emphasis supplied) More simply put, Section 24 (b) (1), NIRC, seeks to promote the in-flow of foreign equity investment in the Philippines by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor. The foreign investor, however, would not benefit from the reduction of the Philippine dividend tax rate unless its home country gives it some relief from double taxation (i.e., second-tier taxation) (the home country would simply have more "post-R.P. tax" income to subject to its own taxing power) by allowing the investor additional tax credits which would be applicable against the tax payable to such home country. Accordingly, Section 24 (b) (1), NIRC, requires the home or domiciliary country to give the investor corporation a "deemed paid" tax credit at least equal in amount to the twenty (20) percentage points of dividend tax foregone by the Philippines, in the assumption that a positive incentive effect would thereby be felt by the investor. The net effect upon the foreign investor may be shown arithmetically in the following manner: P65.00 Dividends remittable to P&G-USA (please see page 392 above - 9.75 Reduced R.P. dividend tax withheld by P&G-Phil. P55.25 Dividends actually remitted to P&G-USA P55.25 x 46% Maximum US corporate income tax rate P25.415US corporate tax payable by P&G-USA without tax credits P25.415 - 9.75 US tax credit for RP dividend tax withheld by P&G-Phil.

at 15% (Section 901, US Tax Code) P15.66 US corporate income tax payable after Section 901 tax credit. P55.25 - 15.66 P39.59 Amount received by P&G-USA net of R.P. and U.S. ===== taxes without "deemed paid" tax credit. P25.415 - 29.75 "Deemed paid" tax credit under Section 902 US Tax Code (please see page 18 above) - 0 - US corporate income tax payable on dividends ====== remitted by P&G-Phil. to P&G-USA after Section 902 tax credit. P55.25 Amount received by P&G-USA net of RP and US ====== taxes after Section 902 tax credit. It will be seen that the "deemed paid" tax credit allowed by Section 902, US Tax Code, could offset the US corporate income tax payable on the dividends remitted by P&G-Phil. The result, in fine, could be that P&G-USA would after US tax credits, still wind up with P55.25, the full amount of the dividends remitted to P&G-USA net of Philippine taxes. In the calculation of the Philippine Government, this should encourage additional investment or re-investment in the Philippines by P&G-USA. 3. It remains only to note that under the Philippines-United States Convention "With Respect to Taxes on Income," 15 the Philippines, by a treaty commitment, reduced the regular rate of dividend tax to a maximum of twenty percent (20%) of the gross amount of dividends paid to US parent corporations: Art 11. Dividends xxx xxx xxx (2) The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed (a) 25 percent of the gross amount of the dividend; or (b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. xxx xxx xxx (Emphasis supplied) The Tax Convention, at the same time, 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] .16 This is, of course, precisely the "deemed paid" tax credit provided for in Section 902, US Tax Code, discussed above. Clearly, there is here on the part of the Philippines a deliberate undertaking to reduce the regular dividend tax rate of twenty percent (20%) is a maximum rate, there is still a differential or additional reduction of five (5) percentage points which compliance of US law (Section 902) with the requirements of Section 24 (b) (1),

NIRC, makes available in respect of dividends from a Philippine subsidiary. We conclude that private respondent P&G-Phil, is entitled to the tax refund or tax credit which it seeks. WHEREFORE, for all the foregoing, the Court Resolved to GRANT private respondent's Motion for Reconsideration dated 11 May 1988, to SET ASIDE the Decision of the and Division of the Court promulgated on 15 April 1988, and in lieu thereof, to REINSTATE and AFFIRM the Decision of the Court of Tax Appeals in CTA Case No. 2883 dated 31 January 1984 and to DENY the Petition for Review for lack of merit. No pronouncement as to costs. Narvasa, Gutierrez, Jr., Grio-Aquino, Medialdea and Romero, JJ., concur. Fernan, C.J., is on leave.

Separate Opinions CRUZ, J., concurring: I join Mr. Justice Feliciano in his excellent analysis of the difficult issues we are now asked to resolve. As I understand it, the intention of Section 24 (b) of our Tax Code is to attract foreign investors to this country by reducing their 35% dividend tax rate to 15% if their own state allows them a deemed paid tax credit at least equal in amount to the 20% waived by the Philippines. This tax credit would offset the tax payable by them on their profits to their home state. In effect, both the Philippines and the home state of the foreign investors reduce their respective tax "take" of those profits and the investors wind up with more left in their pockets. Under this arrangement, the total taxes to be paid by the foreign investors may be confined to the 35% corporate income tax and 15% dividend tax only, both payable to the Philippines, with the US tax liability being offset wholly or substantially by the US "deemed paid" tax credits. Without this arrangement, the foreign investors will have to pay to the local state (in addition to the 35% corporate income tax) a 35% dividend tax and another 35% or more to their home state or a total of 70% or more on the same amount of dividends. In this circumstance, it is not likely that many such foreign investors, given the onerous burden of the two-tier system, i.e., local state plus home state, will be encouraged to do business in the local state. It is conceded that the law will "not trigger off an instant surge of revenue," as indeed the tax collectible by the Republic from the foreign investor is considerably reduced. This may appear unacceptable to the superficial viewer. But this reduction is in fact the price we have to offer to persuade the foreign company to invest in our country and contribute to our economic development. The benefit to us may not be immediately available in instant revenues but it will be realized later, and in greater measure, in terms of a more stable and robust economy. BIDIN, J., concurring: I agree with the opinion of my esteemed brother, Mr. Justice Florentino P. Feliciano. However, I wish to add some observations of my own, since I happen to be the ponente in Commissioner of Internal Revenue v. Wander Philippines, Inc. (160 SCRA 573 [1988]), a case which reached a conclusion that is diametrically opposite to that sought to be reached in the instant Motion for Reconsideration. 1. In page 5 of his dissenting opinion, Mr. Justice Edgardo L. Paras argues that the failure of petitioner Commissioner of Internal Revenue to raise before the Court of Tax Appeals the issue of who should be the real party in interest in claiming a refund cannot prejudice the government, as such failure is merely a procedural defect; and that moreover, the government can never be in

estoppel, especially in matters involving taxes. In a word, the dissenting opinion insists that errors of its agents should not jeopardize the government's position. The above rule should not be taken absolutely and literally; if it were, the government would never lose any litigation which is clearly not true. The issue involved here is not merely one of procedure; it is also one of fairness: whether the government should be subject to the same stringent conditions applicable to an ordinary litigant. As the Court had declared in Wander: . . . To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. . . . (160 SCRA at 566-577) Had petitioner been forthright earlier and required from private respondent proof of authority from its parent corporation, Procter and Gamble USA, to prosecute the claim for refund, private respondent would doubtless have been able to show proof of such authority. By any account, it would be rank injustice not at this stage to require petitioner to submit such proof. 2. In page 8 of his dissenting opinion, Paras, J., stressed that private respondent had failed: (1) to show the actual amount credited by the US government against the income tax due from P & G USA on the dividends received from private respondent; (2) to present the 1975 income tax return of P & G USA when the dividends were received; and (3) to submit any duly authenticated document showing that the US government credited the 20% tax deemed paid in the Philippines. I agree with the main opinion of my colleague, Feliciano J., specifically in page 23 et seq. thereof, which, as I understand it, explains that the US tax authorities are unable to determine the amount of the "deemed paid" credit to be given P & G USA so long as the numerator of the fraction, i.e., dividends actually remitted by P & G-Phil. to P & G USA, is still unknown. Stated in other words, until dividends have actually been remitted to the US (which presupposes an actual imposition and collection of the applicable Philippine dividend tax rate), the US tax authorities cannot determine the "deemed paid" portion of the tax credit sought by P & G USA. To require private respondent to show documentary proof of its parent corporation having actually received the "deemed paid" tax credit from the proper tax authorities, would be like putting the cart before the horse. The only way of cutting through this (what Feliciano, J., termed) "circularity" is for our BIR to issue rulings (as they have been doing) to the effect that the tax laws of particular foreign jurisdictions, e.g., USA, comply with the requirements in our tax code for applicability of the reduced 15% dividend tax rate. Thereafter, the taxpayer can be required to submit, within a reasonable period, proof of the amount of "deemed paid" tax credit actually granted by the foreign tax authority. Imposing such a resolutory condition should resolve the knotty problem of circularity. 3. Page 8 of the dissenting opinion of Paras, J., further declares that tax refunds, being in the nature of tax exemptions, are to be construed strictissimi juris against the person or entity claiming the exemption; and that refunds cannot be permitted to exist upon "vague implications." Notwithstanding the foregoing canon of construction, the fundamental rule is still that a judge must ascertain and give effect to the legislative intent embodied in a particular provision of law. If a statute (including a tax statute reducing a certain tax rate) is clear, plain and free from ambiguity, it must be given its ordinary meaning and applied without interpretation. In the instant case, the dissenting opinion of Paras, J., itself concedes that the basic purpose of Pres. Decree No. 369, when it was promulgated in 1975 to amend Section 24(b), [11 of the National Internal Revenue Code, was "to decrease the tax liability" of the foreign capital investor and thereby to promote more inward foreign investment. The same dissenting opinion hastens to add, however, that the granting of a reduced dividend tax rate "is premised on reciprocity." 4. Nowhere in the provisions of P.D. No. 369 or in the National Internal Revenue Code itself would one find reciprocity specified as a condition for the granting of the reduced dividend tax rate in Section 24 (b), [1], NIRC. Upon the other hand, where the law-making authority intended to impose a requirement of reciprocity as a condition for grant of a privilege, the legislature does

so expressly and clearly. For example, the gross estate of non-citizens and non-residents of the Philippines normally includes intangible personal property situated in the Philippines, for purposes of application of the estate tax and donor's tax. However, under Section 98 of the NIRC (as amended by P.D. 1457), no taxes will be collected by the Philippines in respect of such intangible personal property if the law or the foreign country of which the decedent was a citizen and resident at the time of his death allows a similar exemption from transfer or death taxes in respect of intangible personal property located in such foreign country and owned by Philippine citizens not residing in that foreign country. There is no statutory requirement of reciprocity imposed as a condition for grant of the reduced dividend tax rate of 15% Moreover, for the Court to impose such a requirement of reciprocity would be to contradict the basic policy underlying P.D. 369 which amended Section 24(b), [1], NIRC, P.D. 369 was promulgated in the effort to promote the inflow of foreign investment capital into the Philippines. A requirement of reciprocity, i.e., a requirement that the U.S. grant a similar reduction of U.S. dividend taxes on remittances by the U.S. subsidiaries of Philippine corporations, would assume a desire on the part of the U.S. and of the Philippines to attract the flow of Philippine capital into the U.S.. But the Philippines precisely is a capital importing, and not a capital exporting country. If the Philippines had surplus capital to export, it would not need to import foreign capital into the Philippines. In other words, to require dividend tax reciprocity from a foreign jurisdiction would be to actively encourage Philippine corporations to invest outside the Philippines, which would be inconsistent with the notion of attracting foreign capital into the Philippines in the first place. 5. Finally, in page 15 of his dissenting opinion, Paras, J., brings up the fact that: Wander cited as authority a BIR ruling dated May 19, 1977, which requires a remittance tax of only 15%. The mere fact that in this Procter and Gamble case, the BIR desires to charge 35% indicates that the BIR ruling cited in Wander has been obviously discarded today by the BIR. Clearly, there has been a change of mind on the part of the BIR. As pointed out by Feliciano, J., in his main opinion, even while the instant case was pending before the Court of Tax Appeals and this Court, the administrative rulings issued by the BIR from 1976 until as late as 1987, recognized the "deemed paid" credit referred to in Section 902 of the U.S. Tax Code. To date, no contrary ruling has been issued by the BIR. For all the foregoing reasons, private respondent's Motion for Reconsideration should be granted and I vote accordingly. PARAS, J., dissenting: I dissent. The decision of the Second Division of this Court in the case of "Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corporation, et al.," G.R. No. 66838, promulgated on April 15, 1988 is sought to be reviewed in the Motion for Reconsideration filed by private respondent. Procter & Gamble Philippines (PMC-Phils., for brevity) assails the Court's findings that: (a) private respondent (PMC-Phils.) is not a proper party to claim the refund/tax credit; (b) there is nothing in Section 902 or other provision of the US Tax Code that allows a credit against the U.S. tax due from PMC-U.S.A. of taxes deemed to have been paid in the Phils. equivalent to 20% which represents the difference between the regular tax of 35% on corporations and the tax of 15% on dividends; (c) private respondent failed to meet certain conditions necessary in order that the dividends received by the non-

resident parent company in the U.S. may be subject to the preferential 15% tax instead of 35%. (pp. 200-201, Motion for Reconsideration) Private respondent's position is based principally on the decision rendered by the Third Division of this Court in the case of "Commissioner of Internal Revenue vs. Wander Philippines, Inc. and the Court of Tax Appeals," G.R. No. 68375, promulgated likewise on April 15, 1988 which bears the same issues as in the case at bar, but held an apparent contrary view. Private respondent advances the theory that since the Wander decision had already become final and executory it should be a precedent in deciding similar issues as in this case at hand. Yet, it must be noted that the Wander decision had become final and executory only by reason of the failure of the petitioner therein to file its motion for reconsideration in due time. Petitioner received the notice of judgment on April 22, 1988 but filed a Motion for Reconsideration only on June 6, 1988, or after the decision had already become final and executory on May 9, 1988. Considering that entry of final judgment had already been made on May 9, 1988, the Third Division resolved to note without action the said Motion. Apparently therefore, the merits of the motion for reconsideration were not passed upon by the Court. The 1987 Constitution provides that a doctrine or principle of law previously laid down either en banc or in Division may be modified or reversed by the court en banc. The case is now before this Court en banc and the decision that will be handed down will put to rest the present controversy. It is true that private respondent, as withholding agent, is obliged by law to withhold and to pay over to the Philippine government the tax on the income of the taxpayer, PMC-U.S.A. (parent company). However, such fact does not necessarily connote that private respondent is the real party in interest to claim reimbursement of the tax alleged to have been overpaid. Payment of tax is an obligation physically passed off by law on the withholding agent, if any, but the act of claiming tax refund is a right that, in a strict sense, belongs to the taxpayer which is private respondent's parent company. The role or function of PMC-Phils., as the remitter or payor of the dividend income, is merely to insure the collection of the dividend income taxes due to the Philippine government from the taxpayer, "PMC-U.S.A.," the non-resident foreign corporation not engaged in trade or business in the Philippines, as "PMC-U.S.A." is subject to tax equivalent to thirty five percent (35%) of the gross income received from "PMC-Phils." in the Philippines "as . . . dividends . . ." (Sec. 24 [b], Phil. Tax Code). Being a mere withholding agent of the government and the real party in interest being the parent company in the United States, private respondent cannot claim refund of the alleged overpaid taxes. Such right properly belongs to PMC-U.S.A. It is therefore clear that as held by the Supreme Court in a series of cases, the action in the Court of Tax Appeals as well as in this Court should have been brought in the name of the parent company as petitioner and not in the name of the withholding agent. This is because the action should be brought under the name of the real party in interest. (See Salonga v. Warner Barnes, & Co., Ltd., 88 Phil. 125; Sutherland, Code Pleading, Practice, & Forms, p. 11; Ngo The Hua v. Chung Kiat Hua, L-17091, Sept. 30, 1963, 9 SCRA 113; Gabutas v. Castellanes, L-17323, June 23, 1965, 14 SCRA 376; Rep. v. PNB, L-16485, January 30, 1945). Rule 3, Sec. 2 of the Rules of Court provides: Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants. It is true that under the Internal Revenue Code the withholding agent may be sued by itself if no remittance tax is paid, or if what was paid is less than what is due. From this, Justice Feliciano claims that in case of an overpayment (or claim for refund) the agent must be given the right to sue the Commissioner by itself (that is, the agent here is also a real party in interest). He further claims that to deny this right would be unfair. This is not so. While payment of the tax due is an OBLIGATION of the agent the obtaining of a refund is a RIGHT. While every obligation has a

corresponding right (and vice-versa), the obligation to pay the complete tax has the corresponding right of the government to demand the deficiency; and the right of the agent to demand a refund corresponds to the government's duty to refund. Certainly, the obligation of the withholding agent to pay in full does not correspond to its right to claim for the refund. It is evident therefore that the real party in interest in this claim for reimbursement is the principal (the mother corporation) and NOT the agent. This suit therefore for refund must be DISMSSED. In like manner, petitioner Commissioner of Internal Revenue's failure to raise before the Court of Tax Appeals the issue relating to the real party in interest to claim the refund cannot, and should not, prejudice the government. Such is merely a procedural defect. It is axiomatic that the government can never be in estoppel, particularly in matters involving taxes. Thus, for example, the payment by the tax-payer of income taxes, pursuant to a BIR assessment does not preclude the government from making further assessments. The errors or omissions of certain administrative officers should never be allowed to jeopardize the government's financial position. (See: Phil. Long Distance Tel. Co. v. Coll. of Internal Revenue, 90 Phil. 674; Lewin v. Galang, L15253, Oct. 31, 1960; Coll. of Internal Revenue v. Ellen Wood McGrath, L-12710, L-12721, Feb. 28, 1961; Perez v. Perez, L-14874, Sept, 30, 1960; Republic v. Caballero, 79 SCRA 179; Favis v. Municipality of Sabongan, L-26522, Feb. 27, 1963). As regards the issue of whether PMC-U.S.A. is entitled under the U.S. Tax Code to a United States Foreign Tax Credit equivalent to at least 20 percentage paid portion spared or waived as otherwise deemed waived by the government, We reiterate our ruling that while apparently, a taxcredit is given, there is actually nothing in Section 902 of the U.S. Internal Revenue Code, as amended by Public Law-87-834 that would justify tax return of the disputed 15% to the private respondent. This is because the amount of tax credit purportedly being allowed is not fixed or ascertained, hence we do not know whether or not the tax credit contemplated is within the limits set forth in the law. While the mathematical computations in Justice Feliciano's separate opinion appear to be correct, the computations suffer from a basic defect, that is we have no way of knowing or checking the figure used as premises. In view of the ambiguity of Sec. 902 itself, we can conclude that no real tax credit was really intended. In the interpretation of tax statutes, it is axiomatic that as between the interest of multinational corporations and the interest of our own government, it would be far better, in the absence of definitive guidelines, to favor the national interest. As correctly pointed out by the Solicitor General: . . . the tax-sparing credit operates on dummy, fictional or phantom taxes, being considered as if paid by the foreign taxing authority, the host country. In the context of the case at bar, therefore, the thirty five (35%) percent on the dividend income of PMC-U.S.A. would be reduced to fifteen (15%) percent if & only if reciprocally PMC-U.S.A's home country, the United States, not only would allow against PMC-U.SA.'s U.S. income tax liability a foreign tax credit for the fifteen (15%) percentage-point portion of the thirty five (35%) percent Phil. dividend tax actually paid or accrued but also would allow a foreign tax "sparing" credit for the twenty (20%)' percentage-point portion spared, waived, forgiven or otherwise deemed as if paid by the Phil. govt. by virtue of the "tax credit sparing" proviso of Sec. 24(b), Phil. Tax Code." (Reply Brief, pp. 23-24; Rollo, pp. 239240). Evidently, the U.S. foreign tax credit system operates only on foreign taxes actually paid by U.S. corporate taxpayers, whether directly or indirectly. Nowhere under a statute or under a tax treaty, does the U.S. government recognize much less permit any foreign tax credit for spared or ghost taxes, as in reality the U.S. foreign-tax credit mechanism under Sections 901-905 of the U.S. Intemal Revenue Code does not apply to phantom dividend taxes in the form of dividend taxes waived, spared or otherwise considered "as if" paid by any foreign taxing authority, including that of the Philippine government. Beyond, that, the private respondent failed: (1) to show the actual amount credited by the U.S. government against the income tax due from PMC-U.S.A. on the dividends received from private

respondent; (2) to present the income tax return of its parent company for 1975 when the dividends were received; and (3) to submit any duly authenticated document showing that the U.S. government credited the 20% tax deemed paid in the Philippines. Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law . . . and cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Rogan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co. Inc. v. Commissioner of Custom, 44 SCRA 122). Thus, when tax exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well founded doubt is fatal to the claim (Farrington v. Tennessee & Country Shelby, 95 U.S. 679, 686; Manila Electric Co. v. Vera, L-29987, Oct. 22, 1975; Manila Electric Co. v. Tabios, L-23847, Oct. 22, 1975, 67 SCRA 451). It will be remembered that the tax credit appertaining to remittances abroad of dividend earned here in the Philippines was amplified in Presidential Decree No. 369 promulgated in 1975, the purpose of which was to "encourage more capital investment for large projects." And its ultimate purpose is to decrease the tax liability of the corporation concerned. But this granting of a preferential right is premised on reciprocity, without which there is clearly a derogation of our country's financial sovereignty. No such reciprocity has been proved, nor does it actually exist. At this juncture, it would be useful to bear in mind the following observations: The continuing and ever-increasing transnational movement of goods and services, the emergence of multinational corporations and the rise in foreign investments has brought about tremendous pressures on the tax system to strengthen its competence and capability to deal effectively with issues arising from the foregoing phenomena. International taxation refers to the operationalization of the tax system on an international level. As it is, international taxation deals with the tax treatment of goods and services transferred on a global basis, multinational corporations and foreign investments. Since the guiding philosophy behind international trade is free flow of goods and services, it goes without saying that the principal objective of international taxation is to see through this ideal by way of feasible taxation arrangements which recognize each country's sovereignty in the matter of taxation, the need for revenue and the attainment of certain policy objectives. The institution of feasible taxation arrangements, however, is hard to come by. To begin with, international tax subjects are obviously more complicated than their domestic counter-parts. Hence, the devise of taxation arrangements to deal with such complications requires a welter of information and data build-up which generally are not readily obtainable and available. Also, caution must be exercised so that whatever taxation arrangements are set up, the same do not get in the way of free flow of goods and services, exchange of technology, movement of capital and investment initiatives. A cardinal principle adhered to in international taxation is the avoidance of double taxation. The phenomenon of double taxation (i.e., taxing an item more than once) arises because of global movement of goods and services. Double taxation also occurs because of overlaps in tax jurisdictions resulting in the taxation of taxable items by the country of source or location (source or situs rule) and the taxation of the same items by the country of residence or nationality of the taxpayer (domiciliary or nationality principle). An item may, therefore, be taxed in full in the country of source because it originated there, and in another country because the recipient is a resident or citizen of that country. If the taxes in both countries are substantial and no tax relief is offered, the resulting double taxation would serve as a discouragement to the activity that gives rise to the taxable item. As a way out of double taxation, countries enter into tax treaties. A tax treaty 1 is a bilateral convention (but may be made multilateral) entered into between sovereign states for purposes of

eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual trade and investment, and according fair and equitable tax treatment to foreign residents or nationals. 2 A more general way of mitigating the impact of double taxation is to recognize the foreign tax either as a tax credit or an item of deduction. Whether the recipient resorts to tax credit or deduction is dependent on the tax advantage or savings that would be derived therefrom. A principal defect of the tax credit system is when low tax rates or special tax concessions are granted in a country for the obvious reason of encouraging foreign investments. For instance, if the usual tax rate is 35 percent but a concession rate accrues to the country of the investor rather than to the investor himself To obviate this, a tax sparing provision may be stipulated. With tax sparing, taxes exempted or reduced are considered as having been fully paid. To illustrate: "X" Foreign Corporation income 100 Tax rate (35%) 35 RP income 100 Tax rate (general, 35% concession rate, 15%) 15 1. "X" Foreign Corp. Tax Liability without Tax Sparing "X" Foreign Corporation income 100 RP income 100 Total Income 200 "X" tax payable 70 Less: RP tax 15 Net "X" tax payable 55 2. "X" Foreign Corp. Tax Liability with Tax Sparing "X" Foreign Corp. income 100 RP income 100 Total income 200 "X" Foreign Corp. tax payable 70 Less: RP tax (35% of 100, the difference of 20% between 35% and 15%, deemed paid to RP) Net "X" Foreign Corp. tax payable 35 By way of resume, We may say that the Wander decision of the Third Division cannot, and should not result in the reversal of the Procter & Gamble decision for the following reasons: 1) The Wander decision cannot serve as a precedent under the doctrine of stare decisis. It was promulgated on the same day the decision of the Second Division was promulgated, and while Wander has attained finality this is simply because no motion for reconsideration thereof was filed within a reasonable period. Thus, said Motion for Reconsideration was theoretically never taken into account by said Third Division. 2) Assuming that stare decisis can apply, We reiterate what a former noted jurist Mr. Justice Sabino Padilla aptly said: "More pregnant than anything else is that the court shall be right." We hereby cite settled doctrines from a treatise on Civil Law: We adhere in our country to the doctrine of stare decisis (let it stand, et non quieta movere) for reasons of stability in the law. The doctrine, which is really "adherence to precedents," states that once a case has been decided one way, then another case, involving exactly the same point at issue, should be decided in the same manner. Of course, when a case has been decided erroneously such an error must not be

perpetuated by blind obedience to the doctrine of stare decisis. No matter how sound a doctrine may be, and no matter how long it has been followed thru the years, still if found to be contrary to law, it must be abandoned. The principle of stare decisis does not and should not apply when there is a conflict between the precedent and the law (Tan Chong v. Sec. of Labor, 79 Phil. 249). While stability in the law is eminently to be desired, idolatrous reverence for precedent, simply, as precedent, no longer rules. More pregnant than anything else is that the court shall be right (Phil. Trust Co. v. Mitchell, 59 Phil. 30). 3) Wander deals with tax relations between the Philippines and Switzerland, a country with which we have a pending tax treaty; our Procter & Gamble case deals with relations between the Philippines and the United States, a country with which we had no tax treaty, at the time the taxes herein were collected. 4) Wander cited as authority a BIR Ruling dated May 19, 1977, which requires a remittance tax of only 15%. The mere fact that in this Procter and Gamble case the B.I.R. desires to charge 35% indicates that the B.I.R. Ruling cited in Wander has been obviously discarded today by the B.I.R. Clearly, there has been a change of mind on the part of the B.I.R. 5) Wander imposes a tax of 15% without stating whether or not reciprocity on the part of Switzerland exists. It is evident that without reciprocity the desired consequences of the tax credit under P.D. No. 369 would be rendered unattainable. 6) In the instant case, the amount of the tax credit deductible and other pertinent financial data have not been presented, and therefore even were we inclined to grant the tax credit claimed, we find ourselves unable to compute the proper amount thereof. 7) And finally, as stated at the very outset, Procter & Gamble Philippines or P.M.C. (Phils.) is not the proper party to bring up the case. ACCORDINGLY, the decision of the Court of Tax Appeals should be REVERSED and the motion for reconsideration of our own decision should be DENIED. Melencio-Herrera, Padilla, Regalado and Davide, Jr., JJ., concur.

# Separate Opinions CRUZ, J., concurring: I join Mr. Justice Feliciano in his excellent analysis of the difficult issues we are now asked to resolve. As I understand it, the intention of Section 24(b) of our Tax Code is to attract foreign investors to this country by reducing their 35% dividend tax rate to 15% if their own state allows them a deemed paid tax credit at least equal in amount to the 20% waived by the Philippines. This tax credit would offset the tax payable by them on their profits to their home state. In effect, both the Philippines and the home state of the foreign investors reduce their respective tax "take" of those profits and the investors wind up with more left in their pockets. Under this arrangement, the total taxes to be paid by the foreign investors may be confined to the 35% corporate income tax and 15% dividend tax only, both payable to the Philippines, with the US tax hability being offset wholly or substantially by the Us "deemed paid' tax credits. Without this arrangement, the foreign investors will have to pay to the local state (in addition to the 35% corporate income tax) a 35% dividend tax and another 35% or more to their home state or a total of 70% or more on the same amount of dividends. In this circumstance, it is not likely that many such foreign investors, given the onerous burden of the two-tier system, i.e., local state plus home state, will be encouraged to do business in the local state. It is conceded that the law will "not trigger off an instant surge of revenue," as indeed the tax collectible by the Republic from the foreign investor is considerably reduced. This may appear

unacceptable to the superficial viewer. But this reduction is in fact the price we have to offer to persuade the foreign company to invest in our country and contribute to our economic development. The benefit to us may not be immediately available in instant revenues but it will be realized later, and in greater measure, in terms of a more stable and robust economy. BIDIN, J., concurring: I agree with the opinion of my esteemed brother, Mr. Justice Florentino P. Feliciano. However, I wish to add some observations of my own, since I happen to be the ponente in Commissioner of Internal Revenue v. Wander Philippines, Inc. (160 SCRA 573 [1988]), a case which reached a conclusion that is diametrically opposite to that sought to be reached in the instant Motion for Reconsideration. 1. In page 5 of his dissenting opinion, Mr. Justice Edgardo L. Paras argues that the failure of petitioner Commissioner of Internal Revenue to raise before the Court of Tax Appeals the issue of who should be the real party in interest in claiming a refund cannot prejudice the government, as such failure is merely a procedural defect; and that moreover, the government can never in estoppel, especially in matters involving taxes. In a word, the dissenting opinion insists that errors of its agents should not jeopardize the government's position. The above rule should not be taken absolutely and literally; if it were, the government would never lose any litigation which is clearly not true. The issue involved here is not merely one of procedure; it is also one of fairness: whether the government should be subject to the same stringent conditions applicable to an ordinary litigant. As the Court had declared in Wander: . . . To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. ... (160 SCRA at 566-577) Had petitioner been forthright earlier and required from private respondent proof of authority from its parent corporation, Procter and Gamble USA, to prosecute the claim for refund, private respondent would doubtless have been able to show proof of such authority. By any account, it would be rank injustice not at this stage to require petitioner to submit such proof. 2. In page 8 of his dissenting opinion, Paras, J., stressed that private respondent had failed: (1) to show the actual amount credited by the US government against the income tax due from P & G USA on the dividends received from private respondent; (2) to present the 1975 income tax return of P & G USA when the dividends were received; and (3) to submit any duly authenticated document showing that the US government credited the 20% tax deemed paid in the Philippines. I agree with the main opinion of my colleagues, Feliciano J., specifically in page 23 et seq. thereof, which, as I understand it, explains that the US tax authorities are unable to determine the amount of the "deemed paid" credit to be given P & G USA so long as the numerator of the fraction, i.e., dividends actually remitted by P & G-Phil. to P & G USA, is still unknown. Stated in other words, until dividends have actually been remitted to the US (which presupposes an actual imposition and collection of the applicable Philippine dividend tax rate), the US tax authorities cannot determine the "deemed paid" portion of the tax credit sought by P & G USA. To require private respondent to show documentary proof of its parent corporation having actually received the "deemed paid" tax credit from the proper tax authorities, would be like putting the cart before the horse. The only way of cutting through this (what Feliciano, J., termed) "circularity" is for our BIR to issue rulings (as they have been doing) to the effect that the tax laws of particular foreign jurisdictions, e.g., USA, comply with the requirements in our tax code for applicability of the reduced 15% dividend tax rate. Thereafter, the taxpayer can be required to submit, within a reasonable period, proof of the amount of "deemed paid" tax credit actually granted by the foreign tax authority. Imposing such a resolutory condition should resolve the knotty problem of circularity. 3. Page 8 of the dissenting opinion of Paras, J., further declares that tax refunds, being in the

nature of tax exemptions, are to be construed strictissimi juris against the person or entity claiming the exemption; and that refunds cannot be permitted to exist upon "vague implications." Notwithstanding the foregoing canon of construction, the fundamental rule is still that a judge must ascertain and give effect to the legislative intent embodied in a particular provision of law. If a statute (including a tax statute reducing a certain tax rate) is clear, plain and free from ambiguity, it must be given its ordinary meaning and applied without interpretation. In the instant case, the dissenting opinion of Paras, J., itself concedes that the basic purpose of Pres. Decree No. 369, when it was promulgated in 1975 to amend Section 24(b), [11 of the National Internal Revenue Code, was "to decrease the tax liability" of the foreign capital investor and thereby to promote more inward foreign investment. The same dissenting opinion hastens to add, however, that the granting of a reduced dividend tax rate "is premised on reciprocity." 4. Nowhere in the provisions of P.D. No. 369 or in the National Internal Revenue Code itself would one find reciprocity specified as a condition for the granting of the reduced dividend tax rate in Section 24 (b), [1], NIRC. Upon the other hand. where the law-making authority intended to impose a requirement of reciprocity as a condition for grant of a privilege, the legislature does so expressly and clearly. For example, the gross estate of non-citizens and non-residents of the Philippines normally includes intangible personal property situated in the Philippines, for purposes of application of the estate tax and donor's tax. However, under Section 98 of the NIRC (as amended by P.D. 1457), no taxes will be collected by the Philippines in respect of such intangible personal property if the law or the foreign country of which the decedent was a citizen and resident at the time of his death allows a similar exemption from transfer or death taxes in respect of intangible personal property located in such foreign country and owned by Philippine citizens not residing in that foreign country. There is no statutory requirement of reciprocity imposed as condition for grant of the reduced dividend tax rate of 15% Moreover, for the Court to impose such a requirement of reciprocity would be to contradict the basic policy underlying P.D. 369 which amended Section 24(b), [1], NIRC, P.D. 369 was promulgated in the effort to promote the inflow of foreign investment capital into the Philippines. A requirement of reciprocity, i.e., a requirement that the U.S. grant a similar reduction of U.S. dividend taxes on remittances by the U.S. subsidiary of Philippine corporations, would assume a desire on the part of the U.S. and of the Philippines to attract the flow of Philippine capital into the U.S.. But the Philippines precisely is a capital importing, and not a capital exporting country. If the Philippines had surplus capital to export, it would not need to import foreign capital into the Philippines. In other words, to require dividend tax reciprocity from a foreign jurisdiction would be to actively encourage Philippine corporations to invest outside the Philippines, which would be inconsistent with the notion of attracting foreign capital into the Philippines in the first place. 5. Finally, in page 15 of his dissenting opinion, Paras, J., brings up the fact that: Wander cited as authority a BIR ruling dated May 19, 1977, which requires a remittance tax of only 15%. The mere fact that in this Procter and Gamble case, the BIR desires to charge 35% indicates that the BIR ruling cited in Wander has been obviously discarded today by the BIR. Clearly, there has been a change of mind on the part of the BIR. As pointed out by Feliciano, J., in his main opinion, even while the instant case was pending before the Court of Tax Appeals and this Court, the administrative rulings issued by the BIR from 1976 until as late as 1987, recognized the "deemed paid" credit referred to in Section 902 of the U.S. Tax Code. To date, no contrary ruling has been issued by the BIR. For all the foregoing reasons, private respondent's Motion for Reconsideration should be granted and I vote accordingly. PARAS, J., dissenting: I dissent.

The decision of the Second Division of this Court in the case of "Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corporation, et al.," G.R. No. 66838, promulgated on April 15,1988 is sought to be reviewed in the Motion for Reconsideration filed by private respondent. Procter & Gamble Philippines (PMC-Phils., for brevity) assails the Court's findings that: (a) private respondent (PMC-Phils.) is not a proper party to claim the refund/tax aredit; (b) there is nothing in Section 902 or other provision of the US Tax Code that allows a credit against the U.S. tax due from PMC-U.S.A. of taxes deemed to have been paid in the Phils. equivalent to 20% which represents the difference between the regular tax of 35% on corporations and the tax of 15% on dividends; (c) private respondent failed to meet certain conditions necessary in order that the dividends received by the nonresident parent company in the U.S. may be subject to the preferential 15% tax instead of 35%. (pp, 200-201, Motion for Reconsideration) Private respondent's position is based principally on the decision rendered by the Third Division of this Court in the case of "Commissioner of Internal Revenue vs. Wander Philippines, Inc. and the Court of Tax Appeals," G.R. No. 68375, promulgated likewise on April 15, 1988 which bears the same issues as in the case at bar, but held an apparent contrary view. Private respondent advances the theory that since the Wander decision had already become final and executory it should be a precedent in deciding similar issues as in this case at hand. Yet, it must be noted that the Wander decision had become final and executory only by reason of the failure of the petitioner therein to file its motion for reconsideration in due time. Petitioner received the notice of judgment on April 22, 1988 but filed a Motion for Reconsideration only on June 6, 1988, or after the decision had already become final and executory on May 9, 1988. Considering that entry of final judgment had already been made on May 9, 1988, the Third Division resolved to note without action the said Motion. Apparently therefore, the merits of the motion for reconsideration were not passed upon by the Court. The 1987 Constitution provides that a doctrine or principle of law previously laid down either en banc or in Division may be modified or reversed by the court en banc. The case is now before this Court en banc and the decision that will be handed down will put to rest the present controversy. It is true that private respondent, as withholding agent, is obliged by law to withhold and to pay over to the Philippine government the tax on the income of the taxpayer, PMC-U.S.A. (parent company). However, such fact does not necessarily connote that private respondent is the real party in interest to claim reimbursement of the tax alleged to have been overpaid. Payment of tax is an obligation physically passed off by law on the withholding agent, if any, but the act of claiming tax refund is a right that, in a strict sense, belongs to the taxpayer which is private respondent's parent company. The role or function of PMC-Phils., as the remitter or payor of the dividend income, is merely to insure the collection of the dividend income taxes due to the Philippine government from the taxpayer, "PMC-U.S.A.," the non-resident foreign corporation not engaged in trade or business in the Philippines, as "PMC-U.S.A." is subject to tax equivalent to thirty five percent (35%) of the gross income received from "PMC-Phils." in the Philippines "as ... dividends ..."(Sec. 24[b],Phil. Tax Code). Being a mere withholding agent of the government and the real party in interest being the parent company in the United States, private respondent cannot claim refund of the alleged overpaid taxes. Such right properly belongs to PMC-U.S.A. It is therefore clear that as held by the Supreme Court in a series of cases, the action in the Court of Tax Appeals as well as in this Court should have been brought in the name of the parent company as petitioner and not in the name of the withholding agent. This is because the action should be brought under the name of the real party in interest. (See Salonga v. Warner Barnes, & Co., Ltd., 88 Phil. 125; Sutherland, Code Pleading, Practice, & Forms, p. 11; Ngo The Hua v.

Chung Kiat Hua, L-17091, Sept. 30, 1963, 9 SCRA 113; Gabutas v. Castellanes, L-17323, June 23, 1965, 14 SCRA 376; Rep. v. PNB, I, 16485, January 30, 1945). Rule 3, Sec. 2 of the Rules of Court provides: Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants. It is true that under the Internal Revenue Code the withholding agent may be sued by itself if no remittance tax is paid, or if what was paid is less than what is due. From this, Justice Feliciano claims that in case of an overpayment (or claim for refund) the agent must be given the right to sue the Commissioner by itself (that is, the agent here is also a real party in interest). He further claims that to deny this right would be unfair. This is not so. While payment of the tax due is an OBLIGATION of the agent, the obtaining of a refund la a RIGHT. While every obligation has a corresponding right (and vice-versa), the obligation to pay the complete tax has the corresponding right of the government to demand the deficiency; and the right of the agent to demand a refund corresponds to the government's duty to refund. Certainly, the obligation of the withholding agent to pay in full does not correspond to its right to claim for the refund. It is evident therefore that the real party in interest in this claim for reimbursement is the principal (the mother corporation) and NOT the agent. This suit therefore for refund must be DISMSSED. In like manner, petitioner Commissioner of Internal Revenue's failure to raise before the Court of Tax Appeals the issue relating to the real party in interest to claim the refund cannot, and should not, prejudice the government. Such is merely a procedural defect. It is axiomatic that the government can never be in estoppel, particularly in matters involving taxes. Thus, for example, the payment by the tax-payer of income taxes, pursuant to a BIR assessment does not preclude the government from making further assessments. The errors or omissions of certain administrative officers should never be allowed to jeopardize the government's financial position. (See: Phil. Long Distance Tel. Co. v. Con. of Internal Revenue, 9(, Phil. 674; Lewin v. Galang, L15253, Oct. 31, 1960; Coll. of Internal Revenue v. Ellen Wood McGrath, L-12710, L-12721, Feb. 28,1961; Perez v. Perez, L-14874, Sept. 30,1960; Republic v. Caballero, 79 SCRA 179; Favis v. Municipality of Sabongan, L-26522, Feb. 27,1963). As regards the issue of whether PMC-U.S.A. is entitled under the U.S. Tax Code to a United States Foreign Tax Credit equivalent to at least 20 percentage paid portion spared or waived as otherwise deemed waived by the government, We reiterate our ruling that while apparently, a taxcredit is given, there is actually nothing in Section 902 of the U.S. Internal Revenue Code, as amended by Public Law-87-834 that would justify tax return of the disputed 15% to the private respondent. This is because the amount of tax credit purportedly being allowed is not fixed or ascertained, hence we do not know whether or not the tax credit contemplated is within the limits set forth in the law. While the mathematical computations in Justice Feliciano's separate opinion appear to be correct, the computations suffer from a basic defect, that is we have no way of knowing or checking the figure used as premises. In view of the ambiguity of Sec. 902 itself, we can conclude that no real tax credit was really intended. In the interpretation of tax statutes, it is axiomatic that as between the interest of multinational corporations and the interest of our own government, it would be far better, in the absence of definitive guidelines, to favor the national interest. As correctly pointed out by the Solicitor General: . . . the tax-sparing credit operates on dummy, fictional or phantom taxes, being considered as if paid by the foreign taxing authority, the host country. In the context of the case at bar, therefore, the thirty five (35%) percent on the dividend income of PMC-U.S.A. would be reduced to fifteen (15%) percent if & only if reciprocally PMC-U.S.A's home country, the United States, not only would

allow against PMC-U.SA.'s U.S. income tax liability a foreign tax credit for the fifteen (15%) percentage-point portion of the thirty five (35%) percent Phil. dividend tax actually paid or accrued but also would allow a foreign tax 'sparing' credit for the twenty (20%)' percentage-point portion spared, waived, forgiven or otherwise deemed as if paid by the Phil. govt. by virtue of . he "tax credit sparing" proviso of Sec. 24(b), Phil. Tax Code." (Reply Brief, pp. 23-24; Rollo, pp. 239240). Evidently, the U.S. foreign tax credit system operates only on foreign taxes actually paid by U.S. corporate taxpayers, whether directly or indirectly. Nowhere under a statute or under a tax treaty, does the U.S. government recognize much less permit any foreign tax credit for spared or ghost taxes, as in reality the U.S. foreign-tax credit mechanism under Sections 901-905 of the U.S. Internal Revenue Code does not apply to phantom dividend taxes in the form of dividend taxes waived, spared or otherwise considered "as if' paid by any foreign taxing authority, including that of the Philippine government. Beyond, that, the private respondent failed: (1) to show the actual amount credited by the U.S. government against the income tax due from PMC-U.S.A. on the dividends received from private respondent; (2) to present the income tax return of its parent company for 1975 when the dividends were received; and (3) to submit any duly authenticated document showing that the U.S. government credited the 20% tax deemed paid in the Philippines. Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify, his claim by the clearest grant of organic or statute law... and cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. v. Llanes. 49 Phil. 466; Northern Phil Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Rogan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co. Inc. v. Commissioner of Custom, 44 SCRA 122' Thus, when tax exemption is claimed. it must be shown indubitably to exist, for every presumption is against it, and a well founded doubt is fatal to the claim (Farrington v. Tennessee & Country Shelby, 95 U.S. 679, 686; Manila Electric Co. v. Vera. L-29987. Oct. 22. 1975: Manila Electric Co. v. Vera, L-29987, Oct. 22, 1975; Manila Electric Co. v. Tabios, L-23847, Oct. 22, 1975, 67 SCRA 451). It will be remembered that the tax credit appertaining to remittances abroad of dividend earned here in the Philippines was amplified in Presidential Decree 4 No. 369 promulgated in 1975, the purpose of which was to "encourage more capital investment for large projects." And its ultimate purpose it to decrease the tax liability of the corporation concerned. But this granting of a preferential right is premised on reciprocity, without which there is clearly a derogation of our country's financial sovereignty. No such reciprocity has been proved, nor does it actually exist. At this juncture, it would be useful to bear in mind the following observations: The continuing and ever-increasing transnational movement of goods and services, the emergence of multinational corporations and the rise in foreign investments has brought about tremendous pressures on the tax system to strengthen its competence and capability to deal effectively with issues arising from the foregoing phenomena. International taxation refers to the operationalization of the tax system on an international level. As it is, international taxation deals with the tax treatment of goods and services transferred on a global basis, multinational corporations and foreign investments. Since the guiding philosophy behind international trade is free flow of goods and services, it goes without saying that the principal objective of international taxation is to see through this ideal by way of feasible taxation arrangements which recognize each country's sovereignty in the matter of taxation, the need for revenue and the attainment of certain policy objectives. The institution of feasible taxation arrangements, however, is hard to come by. To begin with, international tax subjects are obviously more complicated than their domestic counter-parts. Hence, the devise of taxation arrangements to deal with such complications requires a welter of

information and data buildup which generally are not readily obtainable and available. Also, caution must be exercised so that whatever taxation arrangements are set up, the same do not get in the way of free flow of goods and services, exchange of technology, movement of capital and investment initiatives. A cardinal principle adhered to in international taxation is the avoidance of double taxation. The phenomenon of double taxation (i.e., taxing an item more than once) arises because of global movement of goods and services. Double taxation also occurs because of overlaps in tax jurisdictions resulting in the taxation of taxable items by the country of source or location (source or situs rule) and the taxation of the same items by the country of residence or nationality of the taxpayer (domiciliary or nationality principle). An item may, therefore, be taxed in full in the country of source because it originated there, and in another country because the recipient is a resident or citizen of that country. If the taxes in both countries are substantial and no tax relief is offered, the resulting double taxation would serve as a discouragement to the activity that gives rise to the taxable item. As a way out of double taxation, countries enter into tax treaties. A tax treaty 1 is a bilateral convention (but may be made multilateral) entered into between sovereign states for purposes of eliminating double taxation on income and capital, preventing fiscal evasion, promoting mutual trade and investment, and according fair and equitable tax treatment to foreign residents or nationals. 2 A more general way of mitigating the impact of double taxation is to recognize the foreign tax either as a tax credit or an item of deduction. Whether the recipient resorts to tax credit or deduction is dependent on the tax advantage or savings that would be derived therefrom. A principal defect of the tax credit system is when low tax rates or special tax concessions are granted in a country for the obvious reason of encouraging foreign investments. For instance, if the usual tax rate is 35 percent but a concession rate accrues to the country of the investor rather than to the investor himself To obviate this, a tax sparing provision may be stipulated. With tax sparing, taxes exempted or reduced are considered as having been frilly paid. To illustrate: "X" Foreign Corporation income 100 Tax rate (35%) 35 RP income 100 Tax rate (general, 35% concession rate, 15%) 15 1. "X" Foreign Corp. Tax Liability without Tax Sparing "X" Foreign Corporation income 100 RP income 100 Total Income 200 "X" tax payable 70 Less: RP tax 15 Net "X" tax payable 55 2. "X" Foreign Corp. Tax Liability with Tax Sparing "X" Foreign Corp. income 100 RP income 100 Total income 200 "X" Foreign Corp. tax payable 70 Less: RP tax (35% of 100, the difference of 20% between 35% and 15%, deemed paid to RP) Net "X" Foreign Corp. tax payable 35

By way of resume, We may say that the Wander decision of the Third Division cannot, and should not result in the reversal of the Procter & Gamble decision for the following reasons: 1) The Wander decision cannot serve as a precedent under the doctrine of stare decisis. It was promulgated on the same day the decision of the Second Division was promulgated, and while Wander has attained finality this is simply because no motion for reconsideration thereof was filed within a reasonable period. Thus, said Motion for Reconsideration was theoretically never taken into account by said Third Division. 2) Assuming that stare decisis can apply, We reiterate what a former noted jurist Mr. Justice Sabino Padilla aptly said: "More pregnant than anything else is that the court shall be right." We hereby cite settled doctrines from a treatise on Civil Law: We adhere in our country to the doctrine of stare decisis (let it stand, et non quieta movere) for reasons of stability in the law. The doctrine, which is really 'adherence to precedents,' states that once a case has been decided one way, then another case, involving exactly the same point at issue, should be decided in the same manner. Of course, when a case has been decided erroneously such an error must not be perpetuated by blind obedience to the doctrine of stare decisis. No matter how sound a doctrine may be, and no matter how long it has been followed thru the years, still if found to be contrary to law, it must be abandoned. The principle of stare decisis does not and should not apply when there is a conflict between the precedent and the law (Tan Chong v. Sec. of Labor, 79 Phil. 249). While stability in the law is eminently to be desired, idolatrous reverence for precedent, simply, as precedent, no longer rules. More pregnant than anything else is that the court shall be right (Phil. Trust Co. v. Mitchell, 69 Phil. 30). 3) Wander deals with tax relations between the Philippines and Switzerland, a country with which we have a pending tax treaty; our Procter & Gamble case deals with relations between the Philippines and the United States, a country with which we had no tax treaty, at the time the taxes herein were collected. 4) Wander cited as authority a BIR Ruling dated May 19, 1977, which requires a remittance tax of only 15%. The mere fact that in this Procter and Gamble case the B.I.R. desires; to charge 35% indicates that the B.I.R. Ruling cited in Wander has been obviously discarded today by the B.I.R. Clearly, there has been a change of mind on the part of the B.I.R. 5) Wander imposes a tax of 15% without stating whether or not reciprocity on the part of Switzerland exists. It is evident that without reciprocity the desired consequences of the tax credit under P.D. No. 369 would be rendered unattainable. 6) In the instant case, the amount of the tax credit deductible and other pertinent financial data have not been presented, and therefore even were we inclined to grant the tax credit claimed, we find ourselves unable to compute the proper amount thereof. 7) And finally, as stated at the very outset, Procter & Gamble Philippines or P.M.C. (Phils.) is not the proper party to bring up the case. ACCORDINGLY, the decision of the Court of Tax Appeals should be REVERSED and the motion for reconsideration of our own decision should be DENIED. Melencio-Herrera, Padilla, Regalado and Davide, Jr., JJ., concur. # Footnotes 1 We refer here (unless otherwise expressly indicated) to the provisions of the NIRC as they existed during the relevant taxable years and at the time the claim for refund was made. We shall hereafter refer simply to the NIRC. 2 Section 20 (n), NIRC (as renumbered and re-arranged by Executive Order No. 273, 1 January 1988).

3 E.g., Section 51 (e), NIRC: Sec. 51. Returns and payment of taxes withheld at source.. . . xxx xxx xxx (e) Surcharge and interest for failure to deduct and withhold. If the withholding agent, in violation of the provisions of the preceding section and implementing regulations thereunder, fails to deduct and withhold the amount of tax required under said section and regulations, he shall be liable to pay in addition to the tax required to be deducted and withheld, a surcharge of fifty per centum if the failure is due to willful neglect or with intent to defraud the Government, or twenty-five per centum if the failure is not due to such causes, plus interest at the rate of fourteen per centum per annum from the time the tax is required to be withheld until the date of assessment. xxx xxx xxx Section 251 (Id.): Sec. 251. Failure of a withholding agent to collect and remit tax. Any person required to collect, account for, and remit any tax imposed by this Code who willfully fails to collect such tax, or account for and remit such tax, or willfully assists in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this Chapter, be liable to a penalty equal to the total amount of the tax not collected, or not accounted for and remitted. (Emphasis supplied) 4 Houston Street Corporation v. Commissioner of Internal Revenue, 84 F. 2nd. 821 (1936); Bank of America v. Anglim, 138 F. 2nd. 7 (1943). 5 15 SCRA 1 (1965). 6 15 SCRA at 4. 7 The following detailed examination of the tenor and import of Sections 901 and 902 of the US Tax Code is, regrettably, made necessary by the fact that the original decision of the Second Division overlooked those Sections in their entirety. In the original opinion in 160 SCRA 560 (1988), immediately after Section 902, US Tax Code is quoted, the following appears: "To Our mind, there is nothing in the aforecited provision that would justify tax return of the disputed 15% to the private respondent" (160 SCRA at 567). No further discussion of Section 902 was offered. 8 Sometimes also called a "derivative" tax credit or an "indirect" tax credit; Bittker and Ebb, United States Taxation of Foreign Income and Foreign Persons, 319 (2nd Ed., 1968). 9 American Chicle Co. v. U.S. 316 US 450, 86 L. ed. 1591 (1942); W.K. Buckley, Inc. v. C.I.R., 158 F. 2d. 158 (1946). 10 In his dissenting opinion, Paras, J. writes that "the amount of the tax credit purportedly being allowed is not fixed or ascertained, hence we do not know whether or not the tax credit contemplated is within the limits set forth in the law" (Dissent, p. 6) Section 902 US Tax Code does not specify particular fixed amounts or percentages as tax credits; what it does specify in Section 902(A) (2) and (C) (1) (B) is a proportion expressed in the fraction: dividends actually remitted by P&G-Phil. to P&G-USA amount of accumulated profits earned by P&G-Phil. in excess of income tax The actual or absolute amount of the tax credit allowed by Section 902 will

obviously depend on the actual values of the numerator and the denominator used in the fraction specified. The point is that the establishment of the proportion or fraction in Section 902 renders the tax credit there allowed determinate and determinable. ** The denominator used by Com. Plana is the total pre-tax income of the Philippine subsidiary. Under Section 902 (c) (1) (B), US Tax Code, quoted earlier, the denominator should be the amount of income of the subsidiary in excess of [Philippine] income tax. 11 The US tax authorities cannot determine the amount of the "deemed paid" credit to be given because the correct proportion cannot be determined: the numerator of the fraction is unknown, until remittance of the dividends by P&GPhil. is in fact effected. Please see computation, supra, p. 17. 12 BIR Ruling dated 21 March 1983, addressed to the Tax Division, Sycip, Gorres, Velayo and Company. 13 BIR Ruling dated 13 October 1981, addressed to Mr. A.R. Sarvino, ManagerSecurities, Hongkong and Shanghai Banking Corporation. 14 BIR Ruling dated 31 January 1983, addressed to the Tax Division, Sycip, Gorres, Velayo and Company. 15 Text in 7 Philippine Treaty Series 523; signed on 1 October 1976 and effective on 16 October 1982 upon ratification by both Governments and exchange of instruments of ratification. 16 Art. 23 (1), Tax Convention; the same treaty imposes a similar obligation upon the Philippines to give to the Philippine parent of a US subsidiary a tax credit for the appropriate amount of US taxes paid by the US subsidiary. (Art. 23[2], id) Thus, Sec. 902 US Tax Code and Sec. 30(c) (8), NIRC, have been in effect been converted into treaty commitments of the United States and the Philippines, respectively, in respect of US and Philippine corporations. PARAS, J., dissenting: 1 There are two types of credit systems. The first, is the underlying credit system which requires the other contracting state to credit not only the 15% Philippine tax into company dividends but also the 35% Philippine tax on corporations in respect of profits out of which such dividends were paid. The Philippine corporation is assured of sufficient creditable taxes to cover their total tax liabilities in their home country and in effect will no longer pay taxes therein. The other type provides that if any tax relief is given by the Philippines pursuant to its own development program, the other contracting state will grant credit for the amount of the Philippine tax which would have been payable but for such relief. 2 The Philippines, for one, has entered into a number of tax treaties in pursuit of the foregoing objectives. The extent of tax treaties entered into by the Philippines may be seen from the following tabulation: Table 1 RP Tax Treaties RP-West Germany RP-Malaysia RP-Nigeria, Netherlands and Ratified on Jan. 1, 1985 Ratified on Jan. 1, 1985 Concluded in September, October and November, 1985,

Spain

respectively (documents ready for signature)

RP-Yugoslavia

Negotiated in Belgrade, Sept. 30-Oct. 4,1985

Pending Ratification RP-Italy RP-Brazil RP-East Germany RP-Korea Pending Signature RP Sweden (renegotiated) RP Romania RP Sri Lanka RP Norway RP India RP Nigeria RP Netherlands RP Spain

Signed Dec. 5, 1980 Sept. 29, 1983 Feb. 17, 1984 Feb. 21, 1984 Negotiations conluded on May 11, 1978 Feb. 1, 1983 30,477.00 Nov. 11, 1983 30,771.00 Sept. 27, 1985 Oct. 8, 1985 Nov. 22, 1985 Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

Ratified Nov. 28, 1983

G.R. No. L-68375 April 15, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WANDER PHILIPPINES, INC. AND THE COURT OF TAX APPEALS, respondents. The Solicitor General for petitioner. Felicisimo R. Quiogue and Cirilo P. Noel for respondents. BIDIN, J.: This is a petition for review on certiorari of the January 19, 1984 Decision of the Court of Tax Appeals * in C.T.A. Case No.2884, entitled Wander Philippines, Inc. vs. Commissioner of Internal

Revenue, holding that Wander Philippines, Inc. is entitled to the preferential rate of 15% withholding tax on the dividends remitted to its foreign parent company, the Glaro S.A. Ltd. of Switzerland, a non-resident foreign corporation. Herein private respondent, Wander Philippines, Inc. (Wander, for short), is a domestic corporation organized under Philippine laws. It is wholly-owned subsidiary of the Glaro S.A. Ltd. (Glaro for short), a Swiss corporation not engaged in trade or business in the Philippines. On July 18, 1975, Wander filed its withholding tax return for the second quarter ending June 30, 1975 and remitted to its parent company, Glaro dividends in the amount of P222,000.00, on which 35% withholding tax thereof in the amount of P77,700.00 was withheld and paid to the Bureau of Internal Revenue. Again, on July 14, 1976, Wander filed a withholding tax return for the second quarter ending June 30, 1976 on the dividends it remitted to Glaro amounting to P355,200.00, on wich 35% tax in the amount of P124,320.00 was withheld and paid to the Bureau of Internal Revenue. On July 5, 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for refund and/or tax credit in the amount of P115,400.00, contending that it is liable only to 15% withholding tax in accordance with Section 24 (b) (1) of the Tax Code, as amended by Presidential Decree Nos. 369 and 778, and not on the basis of 35% which was withheld and paid to and collected by the government. Petitioner herein, having failed to act on the above-said claim for refund, on July 15, 1977, Wander filed a petition with respondent Court of Tax Appeals. On October 6, 1977, petitioner file his Answer. On January 19, 1984, respondent Court of Tax Appeals rendered a Decision, the decretal portion of which reads: WHEREFORE, respondent is hereby ordered to grant a refund and/or tax credit to petitioner in the amount of P115,440.00 representing overpaid withholding tax on dividends remitted by it to the Glaro S.A. Ltd. of Switzerland during the second quarter of the years 1975 and 1976. On March 7, 1984, petitioner filed a Motion for Reconsideration but the same was denied in a Resolution dated August 13, 1984. Hence, the instant petition. Petitioner raised two (2) assignment of errors, to wit: I ASSUMING THAT THE TAX REFUND IN THE CASE AT BAR IS ALLOWABLE AT ALL, THE COURT OF TAX APPEALS ERRED INHOLDING THAT THE HEREIN RESPONDENT WANDER PHILIPPINES, INC. IS ENTITLED TO THE SAID REFUND. II THE COURT OF TAX APPEALS ERRED IN HOLDING THAT SWITZERLAND, THE HOME COUNTRY OF GLARO S.A. LTD. (THE PARENT COMPANY OF THE HEREIN RESPONDENT WANDER PHILIPPINES, INC.), GRANTS TO SAID GLARO S.A. LTD. AGAINST ITS SWISS INCOME TAX LIABILITY A TAX CREDIT EQUIVALENT TO THE 20 PERCENTAGE-POINT PORTION (OF THE 35 PERCENT PHILIPPINE DIVIDEND TAX) SPARED OR WAIVED OR OTHERWISE DEEMED AS IF PAID IN THE PHILIPPINES UNDER SECTION 24 (b) (1) OF THE PHILIPPINE TAX CODE. The sole issue in this case is whether or not private respondent Wander is entitled to the preferential rate of 15% withholding tax on dividends declared and remitted to its parent corporation, Glaro. From this issue, two questions were posed by petitioner: (1) Whether or not Wander is the proper party to claim the refund; and (2) Whether or not Switzerland allows as tax credit the "deemed paid" 20% Philippine Tax on such dividends.

Petitioner maintains and argues that it is Glaro the tax payer, and not Wander, the remitter or payor of the dividend income and a mere withholding agent for and in behalf of the Philippine Government, which should be legally entitled to receive the refund if any. It will be noted, however, that Petitioner's above-entitled argument is being raised for the first time in this Court. It was never raised at the administrative level, or at the Court of Tax Appeals. To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Courtwhich is supposed to review administrative determinationswould not review, but determine and decide for the first time, a question not raised at the administrative forum. Thus, it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal (Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue, 112 SCRA 136; Pampanga Sugar Dev. Co., Inc. vs. CIR, 114 SCRA 725; Garcia vs. Court of Appeals, 102 SCRA 597; Matialonzo vs. Servidad, 107 SCRA 726, In any event, the submission of petitioner that Wander is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact that it became a withholding agent of the government which was not by choice but by compulsion under Section 53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by aliens who are outside the taxing jurisdiction of this Court (Commissioner of Internal Revenue vs. Malayan Insurance Co., Inc., 21 SCRA 944). In fact, Wander may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid withholding tax on dividends paid or remitted by Glaro. Closely intertwined with the first assignment of error is the issue of whether or not Switzerland, the foreign country where Glaro is domiciled, grants to Glaro a tax credit against the tax due it, equivalent to 20%, or the difference between the regular 35% rate of the preferential 15% rate. The dispute in this issue lies on the fact that Switzerland does not impose any income tax on dividends received by Swiss corporation from corporations domiciled in foreign countries. Section 24 (b) (1) of the Tax Code, as amended by P.D. 369 and 778, the law involved in this case, reads: Sec. 1. The first paragraph of subsection (b) of Section 24 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: (b) Tax on foreign corporations. 1) Non-resident corporation. A foreign corporation not engaged in trade or business in the Philippines, including a foreign life insurance company not engaged in the life insurance business in the Philippines, shall pay a tax equal to 35% of the gross income received during its taxable year from all sources within the Philippines, as interest (except interest on foreign loans which shall be subject to 15% tax), dividends, premiums, annuities, compensations, remuneration for technical services or otherwise, emoluments or other fixed or determinable, annual, periodical or casual gains, profits, and income, and capital gains: ... Provided, still further That on dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled

shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends as provided in this section: ... From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends. In the instant case, Switzerland did not impose any tax on the dividends received by Glaro. Accordingly, Wander claims that full credit is granted and not merely credit equivalent to 20%. Petitioner, on the other hand, avers the tax sparing credit is applicable only if the country of the parent corporation allows a foreign tax credit not only for the 15 percentage-point portion actually paid but also for the equivalent twenty percentage point portion spared, waived or otherwise deemed as if paid in the Philippines; that private respondent does not cite anywhere a Swiss law to the effect that in case where a foreign tax, such as the Philippine 35% dividend tax, is spared waived or otherwise considered as if paid in whole or in part by the foreign country, a Swiss foreign-tax credit would be allowed for the whole or for the part, as the case may be, of the foreign tax so spared or waived or considered as if paid by the foreign country. While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax or the dividends received by Glaro from the Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent Court, to deny private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369, amending Section 24 (b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations" interest here and discourage them from investing capital in our country. Besides, it is significant to note that the conclusion reached by respondent Court is but a confirmation of the May 19, 1977 ruling of petitioner that "since the Swiss Government does not impose any tax on the dividends to be received by the said parent corporation in the Philippines, the condition imposed under the above-mentioned section is satisfied. Accordingly, the withholding tax rate of 15% is hereby affirmed." Moreover, as a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, which is not present in the instant case. WHEREFORE, the petition filed is DISMISSED for lack of merit. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur. Footnotes * Penned by Associate Judge Constants C. Roaquin and concurred to by Amante Filler, Presiding Judge; and Alex Z. Reyes, Associate Judge. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. L-68375 April 15, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WANDER PHILIPPINES, INC. AND THE COURT OF TAX APPEALS, respondents. The Solicitor General for petitioner. Felicisimo R. Quiogue and Cirilo P. Noel for respondents. BIDIN, J.: This is a petition for review on certiorari of the January 19, 1984 Decision of the Court of Tax Appeals * in C.T.A. Case No.2884, entitled Wander Philippines, Inc. vs. Commissioner of Internal Revenue, holding that Wander Philippines, Inc. is entitled to the preferential rate of 15% withholding tax on the dividends remitted to its foreign parent company, the Glaro S.A. Ltd. of Switzerland, a non-resident foreign corporation. Herein private respondent, Wander Philippines, Inc. (Wander, for short), is a domestic corporation organized under Philippine laws. It is wholly-owned subsidiary of the Glaro S.A. Ltd. (Glaro for short), a Swiss corporation not engaged in trade or business in the Philippines. On July 18, 1975, Wander filed its withholding tax return for the second quarter ending June 30, 1975 and remitted to its parent company, Glaro dividends in the amount of P222,000.00, on which 35% withholding tax thereof in the amount of P77,700.00 was withheld and paid to the Bureau of Internal Revenue. Again, on July 14, 1976, Wander filed a withholding tax return for the second quarter ending June 30, 1976 on the dividends it remitted to Glaro amounting to P355,200.00, on wich 35% tax in the amount of P124,320.00 was withheld and paid to the Bureau of Internal Revenue. On July 5, 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for refund and/or tax credit in the amount of P115,400.00, contending that it is liable only to 15% withholding tax in accordance with Section 24 (b) (1) of the Tax Code, as amended by Presidential Decree Nos. 369 and 778, and not on the basis of 35% which was withheld and paid to and collected by the government. Petitioner herein, having failed to act on the above-said claim for refund, on July 15, 1977, Wander filed a petition with respondent Court of Tax Appeals. On October 6, 1977, petitioner file his Answer. On January 19, 1984, respondent Court of Tax Appeals rendered a Decision, the decretal portion of which reads: WHEREFORE, respondent is hereby ordered to grant a refund and/or tax credit to petitioner in the amount of P115,440.00 representing overpaid withholding tax on dividends remitted by it to the Glaro S.A. Ltd. of Switzerland during the second quarter of the years 1975 and 1976. On March 7, 1984, petitioner filed a Motion for Reconsideration but the same was denied in a Resolution dated August 13, 1984. Hence, the instant petition. Petitioner raised two (2) assignment of errors, to wit: I ASSUMING THAT THE TAX REFUND IN THE CASE AT BAR IS ALLOWABLE AT ALL, THE COURT OF TAX APPEALS ERRED INHOLDING THAT THE HEREIN RESPONDENT WANDER PHILIPPINES, INC. IS ENTITLED TO THE SAID REFUND. II THE COURT OF TAX APPEALS ERRED IN HOLDING THAT SWITZERLAND, THE HOME COUNTRY OF GLARO S.A. LTD. (THE PARENT COMPANY OF THE HEREIN RESPONDENT

WANDER PHILIPPINES, INC.), GRANTS TO SAID GLARO S.A. LTD. AGAINST ITS SWISS INCOME TAX LIABILITY A TAX CREDIT EQUIVALENT TO THE 20 PERCENTAGE-POINT PORTION (OF THE 35 PERCENT PHILIPPINE DIVIDEND TAX) SPARED OR WAIVED OR OTHERWISE DEEMED AS IF PAID IN THE PHILIPPINES UNDER SECTION 24 (b) (1) OF THE PHILIPPINE TAX CODE. The sole issue in this case is whether or not private respondent Wander is entitled to the preferential rate of 15% withholding tax on dividends declared and remitted to its parent corporation, Glaro. From this issue, two questions were posed by petitioner: (1) Whether or not Wander is the proper party to claim the refund; and (2) Whether or not Switzerland allows as tax credit the "deemed paid" 20% Philippine Tax on such dividends. Petitioner maintains and argues that it is Glaro the tax payer, and not Wander, the remitter or payor of the dividend income and a mere withholding agent for and in behalf of the Philippine Government, which should be legally entitled to receive the refund if any. It will be noted, however, that Petitioner's above-entitled argument is being raised for the first time in this Court. It was never raised at the administrative level, or at the Court of Tax Appeals. To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Courtwhich is supposed to review administrative determinationswould not review, but determine and decide for the first time, a question not raised at the administrative forum. Thus, it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal (Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue, 112 SCRA 136; Pampanga Sugar Dev. Co., Inc. vs. CIR, 114 SCRA 725; Garcia vs. Court of Appeals, 102 SCRA 597; Matialonzo vs. Servidad, 107 SCRA 726, In any event, the submission of petitioner that Wander is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact that it became a withholding agent of the government which was not by choice but by compulsion under Section 53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by aliens who are outside the taxing jurisdiction of this Court (Commissioner of Internal Revenue vs. Malayan Insurance Co., Inc., 21 SCRA 944). In fact, Wander may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid withholding tax on dividends paid or remitted by Glaro. Closely intertwined with the first assignment of error is the issue of whether or not Switzerland, the foreign country where Glaro is domiciled, grants to Glaro a tax credit against the tax due it, equivalent to 20%, or the difference between the regular 35% rate of the preferential 15% rate. The dispute in this issue lies on the fact that Switzerland does not impose any income tax on dividends received by Swiss corporation from corporations domiciled in foreign countries. Section 24 (b) (1) of the Tax Code, as amended by P.D. 369 and 778, the law involved in this case, reads: Sec. 1. The first paragraph of subsection (b) of Section 24 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: (b) Tax on foreign corporations. 1) Non-resident corporation. A foreign corporation not engaged in trade or business in the Philippines, including a foreign life insurance company not engaged in the life insurance business in the Philippines, shall

pay a tax equal to 35% of the gross income received during its taxable year from all sources within the Philippines, as interest (except interest on foreign loans which shall be subject to 15% tax), dividends, premiums, annuities, compensations, remuneration for technical services or otherwise, emoluments or other fixed or determinable, annual, periodical or casual gains, profits, and income, and capital gains: ... Provided, still further That on dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends as provided in this section: ... From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends. In the instant case, Switzerland did not impose any tax on the dividends received by Glaro. Accordingly, Wander claims that full credit is granted and not merely credit equivalent to 20%. Petitioner, on the other hand, avers the tax sparing credit is applicable only if the country of the parent corporation allows a foreign tax credit not only for the 15 percentage-point portion actually paid but also for the equivalent twenty percentage point portion spared, waived or otherwise deemed as if paid in the Philippines; that private respondent does not cite anywhere a Swiss law to the effect that in case where a foreign tax, such as the Philippine 35% dividend tax, is spared waived or otherwise considered as if paid in whole or in part by the foreign country, a Swiss foreign-tax credit would be allowed for the whole or for the part, as the case may be, of the foreign tax so spared or waived or considered as if paid by the foreign country. While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax or the dividends received by Glaro from the Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent Court, to deny private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369, amending Section 24 (b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations" interest here and discourage them from investing capital in our country. Besides, it is significant to note that the conclusion reached by respondent Court is but a confirmation of the May 19, 1977 ruling of petitioner that "since the Swiss Government does not impose any tax on the dividends to be received by the said parent corporation in the Philippines, the condition imposed under the above-mentioned section is satisfied. Accordingly, the withholding tax rate of 15% is hereby affirmed." Moreover, as a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, which is not present in the instant case. WHEREFORE, the petition filed is DISMISSED for lack of merit. SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur. Footnotes * Penned by Associate Judge Constants C. Roaquin and concurred to by Amante Filler, Presiding Judge; and Alex Z. Reyes, Associate Judge. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24221 December 11, 1967 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. INSULAR LUMBER COMPANY and COURT OF TAX APPEALS, respondents. Ross, Selph and Carrascoso for respondent. Office of the Solicitor General for petitioner. BENGZON, J.P., J.: A New York, U.S.A. corporation license to do business in the Philippines, Insular Lumber Company is engaged in logging operations in Fabrica, Sagay, Negros Occidental. In 1958 it purchased from Standard-Vacuum Oil Co., 292,274.76 liters of refined and manufactured oils and fuels which it subsequently used, during the same year, in its logging operations. The specific tax imposed thereon by Section 142 of the Tax Code in the amount of P21,452.42 was duly paid by Standard-Vacuum Oil Co., before their removal from the oil distillery. On February 23, 1961 or about three (3) years later, Insular Lumber Company filed a claim with the Commissioner of Internal Revenue for the refund of amount of P5,363.22 representing 25% of the specific tax of P21.452.42 paid by Standard-Vacuum on the aforesaid oils. The claim was predicated on the following proviso found in Section 5, Republic Act 1435: itc-alf . . . Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in sub-paragraphs one and two of section one hereof, amending section one hundred forty-two of the Internal Revenue Code: . . . On September 28, 1961 the Commissioner denied the claim for having been interposed beyond the two-year period provided for in Section 306 of the Tax Code. On February 17, 1962, after its motion for reconsiderations was denied by the Commissioner, Insular Lumber Company appealed to the Court of Tax Appeals. On January 13, 1965 the Court of Tax Appeals rendered the following judgment: WHEREFORE, the decision appealed from is reversed, and respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner Insular Lumber Company the amount of P5,363.22, representing 25% of the specific tax paid on the manufactured oils and fuels used by it in its logging and timber operations during the year 1958. No costs. From said judgment, the Commissioner has appealed to this Court. The main issue is whether or not the right to file the instant claim for refund, has prescribed. Appellant supports the affirmative view for the reason that the claim in question, which was filed on February 23, 1961, was made more than two years from 1958 the year the tax was paid and the year the mineral oils and fuels were used citing Sections 306 and 309 of the Tax Code, which read: Sec. 306. Recovery of tax erroneously or illegally collected. No suit or proceeding shall

be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected or of any penalty claimed to have been collected without authority, 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 of Internal Revenue; 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 years from the date of payment of the tax or penalty. itc-alf Sec. 309. Authority of Commissioner to make compromises and to refund taxes . The Commissioner of Internal Revenue may compromise any civil or other case arising under this Code or other law or part of law administered by the Bureau of Internal Revenue, may credit or refund taxes erroneously or illegally received, or penalties imposed without authority, and may remit before payment any tax that appears to be unjustly assessed or excessive. He shall refund the value of internal revenue stamps when the same are returned in good condition by the purchaser, and may, in his discretion, redeem or exchange unused stamps that have been rendered unfit for use, and may refund their value upon proof of destruction. The authority of the Commissioner of Internal Revenue to credit or refund taxes or penalties under this section can only be exercised if the claim for credit or refund is made in writing and filed with him within two years after the payment of the tax or penalty. On the other hand, appellees subscribe to the view that Sections 306 and 309, quoted above, apply to refund of taxes erroneously or illegally collected; and that since in this case the collection of the tax was not erroneous or illegal, said sections should not be applied herein. Appellees rely on Muller & Phipps (Manila) Ltd. v. Collector of Internal Revenue , 103 Phil. 145. Sections 306 and 309 of the National Internal Revenue Code were intended to govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the National Internal Revenue Code. Thus, this Court stated that "this provision", referring to Section 306, "which is mandatory, is not subject to qualification, and, hence, it applies regardless of the conditions under which payment has been made."1 And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Section 142 of the National Internal Revenue Code, is beyond the scope of Sections 306, and 309 is to thwart the aforesaid intention and spirit underlying said provisions. Note that the case at bar is not the only instance in the Tax Code when a tax is initially collected legally, but later becomes refundable to the taxpayer by the happening of a supervening cause. Section 146 grants refund of specific tax on negative films, unprinted positive films and reversal films of sixteen millimeters or less used in amateur photography. The second paragraph of Section 182 (B) (2), as amended by Republic Act 1856, allows refund of occupation tax paid in excess of the rates in effect prior to January 1, 1957. Section 53 (2) (d) authorizes refund of the excess of the tax withheld at source at rates therein provided over the tax subsequently determined in the income tax return. In all those instances the law specifically subjects the refund to the provisions of Section 309. Section 142 (d), as amended by Republic Act 755, allows refund of 50% of the specific tax on denatured alcohol used for motive power in agriculture and aviation during the five years from June 18, 1952. In said instance, however, like in the case at bar, the law does not state that such refund shall be subject to Section 309. Said silence notwithstanding, the intention is clear that refunds of internal revenue taxes are generally governed by Sections 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the two-year prescriptive period provided for in Section 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the Commissioner of Internal Revenue, and the subsequent appeal to the Court of Tax Appeals must be instituted, within the said two-year period.2 In this case, it was the use in 1958 of the manufactured mineral oils and fuels in the operation of

its forest concession which gave Insular Lumber Company the right to claim refund of 25% of the specific tax paid thereon. The claim for refund was filed with the Commissioner of Internal Revenue on February 23, 1961 and the petition for review was filed in the Court of Tax Appeals on February 17, 1962.itc-alf Both the aforesaid dates are more than two years after 1958, the year the oils and fuels were actually used. Consequently, the right to claim refund of the tax in question has prescribed. The effect of the lower court's decision would be to subject the right to file a similar claim for refund with the Commissioner of Internal Revenue to a prescriptive period of ten years as provided for in paragraph (2) of Article 1144 of the Civil Code. Considering that under Section 337 of the Tax Code the taxpayer is required to keep his books and records for only five years, the Commissioner will have no way of verifying with the books and records of the taxpayer any claim filed after the fifth year. Certainly, the legislators did not intend to so handicap the Commissioner, for whose benefit the period of limitations was obviously devised. Moreover, public policy demands that tax adjustments be made as early and expeditiously as possible. The reason is that it is on taxes that the government depends for its operation and that any uncertainty or controversy on those matters will somehow impair the smooth functioning of the governmental machinery. Lengthening, therefore, of the period of limitations on refund from two to ten years would be adverse to public policy. Finally when our legislators codified our internal revenue laws in 1939 they intended to concentrate national tax matters Tax Code. For Us to look elsewhere for provisions governing taxes would be to veer away from such legislative intent. In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund, The ruling in Muller & Phipps is accordingly modified.itc-alf WHEREFORE, the decision appealed from is reversed, and the petition for refund is dismissed on the ground of prescription. No costs. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Footnotes
1

Guagua Electric Light Plant Co. v. Collector of Internal Revenue and Court of Tax Appeals, L-14421, April 29, 1961, 59 OG (Supp. 27) 4207, 4210, cited in Gonzales v. Court of Tax Appeals and Collector of Internal Revenue, L-14532-33, May 26, 1965.
2

J.P. Kiener & Co., Ltd. v. Court of Tax Appeals, 92 Phil. 945; College of Oral and Dental Surgery v. Court of Tax Appeals, 102 Phil. 912. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-13453 February 29, 1960 ALLISON J. GIBBS and ESTHER K. GIBBS, petitioners, vs. COLLECTOR OF INTERNAL REVENUE and COURT of TAX APPEALS, respondents. Ozaeta, Gibbs and Ozaeta for the petitioners. Office of the Solicitor General Edilberto Barot, Solicitor Felicisimo R. Rosete and Special Atty. Jose G. Azurin for the respondents. BARRERA, J.: From the resolution of respondent Court of Tax Appeals (in C.T.A. Case No. 418) dismissing, for

lack of jurisdiction, their petition for review and refund of income taxes paid, petitioners Allison J. Gibbs and Esther K. Gibbs, interposed the present petition for review. On March 14, 1956, petitioners protested the deficiency income tax assessment in the amount of P12,284.00, exclusive of surcharge and interest, for the year 1950, issued against them by the respondent Collector of Internal Revenue, on the ground that said deficiency assessment was based on a disallowance of bad debts and losses claimed in their income tax return for 1950. On August 28, 1956, respondent Collector rejected petitioners' protest and reiterated his demand. On October 3, 1956, petitioners sent a check in the amount of P12,284.00 (Check No. C-643963) to respondent Collector as payment of said deficiency assessment, at the same time demanding the immediate refund of the amount paid. On October 26, 1956, respondent Collector denied the request for refund, and required petitioners to pay the amounts of P1,469.04 and P1,997.26 as surcharge, interest, and compromise penalty. Notice of said denial was received by petitioners on November 14, 1956. On September 27, 1957, petitioners filed with respondent Court a petition for review and refund, with a motion for suspension of collection of penalties. On October 7, 1957, respondent Collector filed a motion to dismiss, on the ground that the petition was filed beyond the 30-day period provided under Section 11, in relation to Section 7, of Republic Act No. 1125, which motion, was opposed by petitioners on October 24, 1957. On December 2, 1957, respondent court dismissed the petition, in a resolution which, in part, reads: Petitioners paid the tax in question on October 3, 1956, at the same time asking for the refund of the same. He received the letter of respondent denying said request for refund on November 14, 1956. Pursuant to Section 11 of Republic Act No. 1125, petitioners had only 30 days from November 14, 1956, or up to December 15, 1956, within which to file their appeal to this Court. However, petitioners appealed from the aforesaid decision of respondent only on September 27, 1957, more than ten (10) months from November 14, 1956. Obviously, the appeal has been filed beyond the 30-day period set by law. Petitioners contend that Section 306 of the Revenue Code provides that judicial proceedings may be instituted for recovery of an internal revenue tax within two years from the date of payment. This was so before the enactment of Republic Act No. 1125 . . .petitioners should have appealed to this Court within 30 days from November 14, 1956, that is, not later than December 15, 1956, pursuant to Section 11 of Republic Act No. 1125. As the appeal was filed on September 27, 1957, we have no jurisdiction to entertain the same. On December 11, 1957, petitioners filed a motion for reconsideration of said order, but the same was denied by respondent court on January 31, 1958. Hence, this petition for review. The only issue to be resolved in this case is whether or not petitioners' appeal (petition for review and refund) from the decision of respondent Collector of Internal Revenue, was filed with respondent Court of Tax Appeals within the statutory period. Section 7 of Republic Act No. 1125,1 in part, provides: SEC. 7. Jurisdiction.The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue ; . . . (Emphasis supplied.) And Section 11 of the same Act, in part, states that: SEC. 11. Who may appeal; effect of appeal.Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue , the

Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. . . . (Emphasis supplied.) It is not disputed that petitioners received on November 14, 1956, notice of respondent Collector's decision denying their request for a refund of the deficiency assessment paid by them. Pursuant to the above-quoted provision of Section 11 of Republic Act 1125, they had 30 days from said date within which to file their appeal (petition for review and refund) with respondent court. However, they filed said appeal only on September 27, 1957, or more than ten (10) months thereafter, much beyond the aforementioned 30-day period within which to file the same. Consequently, respondent court had acquired no jurisdiction to entertain said appeal and the dismissal of the same was proper. Petitioners, however, contend that although their appeal was filed beyond said 30-day period, respondent court still had jurisdiction over the same, by virtue of the provision of Section 306 of the National Internal Revenue Code,2 which reads: SEC. 306. Recovery of tax erroneously or illegally collected.No suit or proceeding shall be maintained in any court for the recovery of any national internal-revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, 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 Collector of Internal Revenue ; but such suit or proceeding may be maintained, whether or not such tax penalty, or sum has been paid under protest or duress. It any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty. (Emphasis supplied.) The contention is devoid of any merit. In the case of Johnston Lumber Co., Inc. vs. Court of Tax Appeals, et al. 101 Phil., 654; 54 Off. Gaz. [16] 5226, we held: It is the contention of petitioner that the aforequoted provisions cannot stand side by side because, whereas Section 306 of the Tax Code required the filing of a claim before an action in court may be maintained, Republic Act No. 1125 which confers jurisdiction upon the Court of Tax Appeals to take cognizance of appeals from the decisions of the Collector of Internal Revenue does not require any more the filing of said claim but merely provides that said appeal may be filed within 30 days from receipt of such decision or ruling. A careful analysis of the provisions of both enactments would negative the assertion of petitioner. The specific provision of Republic Act No. 1125 regarding appeal (Section 11) was intended to cope with a situation where the taxpayer, upon receipt of a decision or ruling of the Collector of Internal Revenue, elects to appeal to the Court of Tax Appeals instead of paying the tax. For this reason, the latter part of said Section 11, provides that no such appeal would suspend the payment of the tax demanded by the Government, unless for special reasons, the Court of Tax Appeals would deem it fit to restrain said collection. Section 306, of the Tax Code, on the other hand, contemplates of a case wherein the taxpayer paid the tax, whether under protest or not, and later on decides to go to court for its recovery. We can, therefore, conclude that where payment has already been made and the taxpayer is merely asking for its refund, he must first file with the Collector of Internal Revenue a claim for refund before taking the matter to the Court, as required by Section 306 of the National Internal Revenue Code and that appeals from decisions or rulings of the Collector of Internal Revenue to the Court of Tax Appeals must always be perfected within 30 days after the receipt of the decision or ruling that is being appealed, as required by Section 11 of Republic Act No. 1125. We see no conflict between the aforementioned sections of said laws. (Emphasis supplied.) Under the above ruling, it is clear that 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 requirements 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 said 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 said 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.3 In the case of a taxpayer who has not yet paid the tax and who is protesting the assessment made by the Collector of Internal Revenue, he must file his appeal with the Court of Tax Appeals within 30 days from his receipt of the Collector's assessment, as required by said Section 11 of Republic Act No. 1125. Otherwise, his failure to comply with said statutory requirement would bar his appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain or determine the same. We do not find the cases of Collector of Internal Revenue vs. Avelino, et al. (100 Phil., 327; 53 Off. Gaz. 645) and Collector of Internal Revenue vs. Zulueta, et al. (100 Phil., 872; 53 Off. Gaz. [19] 6532) invoked by petitioners applicable to the instant case. The issue presented in both cited cases was whether or not the Court of Tax Appeals may enjoin the Collector of Internal Revenue from collecting through summary administrative methods, the income tax liabilities of Messrs. Avelino and Zulueta, 3 years after the filing of their income tax returns, and not whether their petition for review was seasonably filed with said court, in accordance with Section 11 of Republic Act No. 1125, or Section 306 of the National Internal Revenue Code. Furthermore, the instant case involves a refund of taxes paid, while the cited cases involved the legality of the collection of taxes by summary administrative methods. Appellants, in their supplemental brief, urge two additional grounds for the revocation of respondent court's decision. It is claimed that since the letter-decision dated October 26, 1956 denying their request for refund of the deficiency income tax paid by them, was signed not by the Collector, but merely by the Deputy Collector of Internal Revenue, it could not be considered as a final decision on their said request. They cite as authority, Section 309 of the National Internal Revenue Code reading partly: SEC. 309. Authority of Collector to make compromise and to refund taxes. The Collector of Internal Revenue may compromise any civil or other case arising under this Code or other law or part of law administered by the Bureau of Internal Revenue, may credit or refund taxes erroneously or illegally received, or penalties imposed without authority, and may remit before payment any tax that appears to be unjustly assessed or excessive. xxx xxx xxx The authority of the Collector of Internal Revenue to credit or refund taxes or penalties, under this section can only be exercised if the claim for credit or refund is made in writing and filed with him within two years after the payment of the tax or penalty. (Emphasis supplied.) and No. 9 of Paragraph 4, Section 7, as amended, of the Internal Revenue Manual on Audit and Investigation Procedure and General Circular No. V-182, providing: 9. The authority to remit before payment any tax that appears to be unjustly assessed or excessive, or credit or refund taxes erroneously or illegally received under Section 309 of the National Internal Revenue Code shall be exercised exclusively by the Collector of Internal Revenue. (Emphasis supplied.) Appellants contend that under the above-quoted provisions, only the Collector has the authority to deal in refund cases. This is fallacious. In the first place, the cited provisions refer to the authority of the Collector of Internal Revenue to compromise, or to credit or refund taxes erroneously or illegally received, that is, when the action, in a manner of speaking, is against the Government. In

such case, the authority is vested exclusively in the Collector himself. The purpose is to assure that no improper compromise, credit, or refund is made to the prejudice of the Government. But in the case before us, the action taken by the Deputy Collector in his letter of October 26, 1956, was precisely to deny the request for refund and demand the payment of the deficiency tax from petitioners. Certainly, this is well within the authority of the Deputy Collector and is final and binding unless revoked by the Collector. The other point raised that the letter of October 26 is not final because in addition to denying the refund it demanded payment of surcharges and interests is, likewise, without merit. The ruling in the case of St. Stephen's Association, et al. vs. Collector of Internal Revenue (104 Phil., 314; 55 Off. Gaz. [13] 2243) cited by petitioners, is inapplicable to the instant case, for there the Collector wrote two letters to the taxpayers, one on April 6, 1955, denying their first request for the withdrawal and cancellation of the assessment, and another on July 11, 1955, denying their second request and stating in its last paragraph: "This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within the same period, in accordance with the provisions of Republic Act No. 1125." Undoubtedly, this second letter, and not the first was the final decision of the Collector in that case, because it finally resolved the then pending petition for reconsideration filed by the taxpayers. In the instant case, after the letter of October 26, 1956 denying petitioners' request for refund, no further action was taken either by petitioners or the Collector, both parties treating the letter-decision as final. In fact, petitioner's next move was to file their petition for review and refund with respondent court. The Collector, on the other hand, consequent to his understanding that said letter-decision was final, filed his motion to dismiss with respondent court, on the ground that petitioners' petition was filed out of time and, therefore, the court acquired no jurisdiction to entertain the same. Wherefore, finding no error in the decision of the court a quo, the same is hereby affirmed, with costs against the petitioners. So ordered. Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Gutierrez David, JJ., concur. Footnotes
1 2 3

Effective June 16, 1954. Com. Act No. 466, as amended.

U.S. vs. Michel, 282 U.S. 656, 51 S. Ct. 284; P. J. Kiener & Co., Ltd. vs. David, 92 Phil., 945, 49 Off. Gaz. [5] 1852, College of Oral & Dental Surgery vs. Court of Tax Appeals, 102 Phil., 912; 54 Off. Gaz. [29] 7055). Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 107434 October 10, 1997 CITIBANK, N.A., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. PANGANIBAN, J.: The law 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. 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? This is the question raised in this petition for review on certiorari of the Court of Appeals 1 Decision 2 promulgated on May 27, 1992 and Resolution 3 promulgated on October 27, 1992 in CA-G.R. No. SP-26555, reversing the decision of the Court of Tax Appeals which allowed the tax refund. The Facts The facts, as found by Respondent Court, are undisputed. 4 From the pleadings and supporting papers on hand, it can be gathered that Citibank N.A. Philippine Branch (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), to wit: 1979 First quarter P60,690.97 Second quarter 69,897.08 Third quarter 69,160.89 Fourth quarter 70,160.56 P270,160.56 1980 First quarter P78,370.22 Second quarter 69,049.37 Third quarter 79,139.60 Fourth quarter 72,270.10 P298,829.29 On April 15, 1980, Citibank filed its corporate income tax returns for the year ended December 31, 1979 (Exh. "E:), showing a net loss of P74,854,916.00 and its tax credits totalled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year's operation resulted in a loss. (Exh. & "E-1 & E-2"). The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979 (Exhs. "E-3" & "E-4"). For the year ended December 31, 1980, Citibank's corporate income tax returns (Exh. "EC"), filed on April 15, 1981, showed a net loss of P77,071,790.00 for income tax purposes. Its available tax credit (refundable) at the end of 1980 amounting to P11,532,855.00 (Exh. "BC-1" & "BC-2") was not utilized or applied. The said available tax credits did not include the amounts withheld by Citibank's tenants from rental payments in 1980 but the rental payments for that year were declared as part of its gross income included in its annual income tax returns (Exh. "BC-3"). On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829, respectively, or a total of P568,989.85; and on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund, docketed as CTA Case No. 3378. 5

On August 30, 1981, the Court of Tax Appeals adjudged Citibank's entitlement to the tax refund sought for, representing the 5% tax withheld and paid on Citibank's rental income for 1979 and 1980. . . . In its decision 6 granting a refund to petitioner, 7 the Court of Tax Appeals rejected Respondent Commissioner's argument that the claim was not seasonably filed: WHEREFORE, respondent is hereby ordered to grant the refund of the amount sought by the petitioner. No costs. Not satisfied, the Commissioner appealed to the Court of Appeals. In due course, Respondent Court issued the assailed Decision and Resolution, ruling that the five percent tax withheld by tenants from the rental income of Citibank for the years 1979 and 1980 was in accordance with Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulation No. 13-78, as amended) and did not involve illegally or erroneously collected taxes. The dispositive portion of the Decision reads: 8 WHEREFORE, the appealed judgment of August 30, 1991, adjudging Citibank, N.A., Philippine Branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax on Citibank's rental income for the taxable years 1979 and 1980 is hereby REVERSED. No pronouncement as to costs. Respondent Court denied the motion for reconsideration of the petitioner-bank in the assailed Resolution, the dispositive portion of which reads: 9 WHEREFORE, for want of merit, the motion for reconsideration, dated June 19, 1992, of respondent Citibank, N.A. is hereby DENIED. SO ORDERED. Hence, this petition under Rule 45 of the Rules of Court. The Issues The appellate court ruled that it was not enough for petitioner to show its lack of income tax liability against which the five percent withholding tax could be credited. Petitioner should have also shown that the withholding tax was illegally or erroneously collected and remitted by the tenants. On the other hand, petitioner counters that Respondent Court failed to grasp "two fundamental concepts in the present income tax system, namely: (1) the yearly computation of the corporate income tax and (2) the nature of the creditable withholding tax." In the main, petitioner thus raises the following issues: (1) For creditable withholding tax to be refundable, when should the illegality or error in its assessment or collection be reckoned: at the time of withholding or at the end of the taxable year? (2) Where the income tax returns show that no income tax is payable to the government, is a creditable withholding tax, as contradistinguished from a final tax, refundable (or creditable) at the end of the taxable year? The Court's Ruling The petition is meritorious. First Issue: Determination of the Illegality or Error in Assessment or Collection Tax refunds are allowed under Section 230 of the National Internal Revenue Code: 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 penalty claimed to have been collected without authority 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 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. Petitioner maintains that it is entitled to a refund of the five percent creditable withholding tax in 1979 and 1980, since its operations resulted in a net loss and thus did not have any income tax liability for such years. Respondent Court refused to allow the claim for refund for the reason that the taxes were "not illegally or erroneously collected:" 10 It is decisively clear that the instant claim for tax refund under scrutiny does not involve illegally or erroneously collected taxes. It involves the 5% tax withheld by tenants from the rental income of Citibank for the years 1979 and 1980, in accordance with Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulation No. 13-78 as amended) . . . It is thus evident that the tenants or lessee of Citibank were required by law to withhold and pay to BIR 5% of their rental and, therefore, such withholding taxes were not illegally or erroneously collected. It was the burden of Citibank to prove that the taxes it asked to be refunded were illegally or erroneously collected; an onus probandi Citibank utterly failed to discharge. We disagree with the Court of Appeals. In several cases, we have already ruled that 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. 11 For instance, in the recent case of Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 12 the Court held: . . . When applied to taxpayers 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 60 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 quantify what is due the government nor what should be refunded to the corporation. This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns. xxx xxx xxx 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. Private respondent being a corporation, Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year prescriptive period for refunds. . . . In the present case, there is no question that the taxes were withheld in accordance with Section 1(c), Rev. Reg. No. 13-78. 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. The question arises: whether the taxes withheld remained legal and correct at the end of each taxable year. We hold in the negative. The withholding tax system was devised for two main reasons: first, to provide the taxpayer a

convenient manner to meet his probable income tax liability; and second, to ensure the collection of the income tax which could otherwise be lost or substantially reduced through failure to file the corresponding returns. 13 To these, a third reason may be added: to improve the government's cash flow. Under Section 53 a-f of the tax code which was in effect at the time this case ripened, withholding of tax at source was mandated in cases of: (a) tax free covenant bonds, (b) payments of interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual, periodical, or casual gains, profits and income, and capital gains of non-resident aliens and foreign corporations; (c) dividends from a domestic corporation and royalties received by resident individuals and corporation; (d) certain dividends; (e) interest on bank deposit; and (f) other items of income payable to resident individuals or corporations. Section 53-f was amended by Presidential Decree No. 1351, delegating to the Secretary of Finance the power to require the withholding of a tax, as follows: Sec. 1. Section 53 (f) of the National Internal Revenue Code of 1997 is hereby amended to read as follows: (f) The Secretary of Finance may, upon recommendation of the Commissioner of Internal Revenue, require also the withholding of a tax on the same items of income payable to persons (natural or juridical) residing in the Philippines by the same persons mentioned in paragraph (b) (1) of this Section at the rate of not less than 2-1/2% but not more than 35% thereof which shall be credited against the income tax liability of the taxpayer for the taxable year. Pursuant to said P.D. No. 1351 and in accordance with Section 4 in relation to Section 326 14 of the National Internal Revenue Code, the Commissioner promulgated on September 7, 1978, Revenue Regulations No. 13-78 to implement the withholding of creditable income taxes from certain types of income. Rev. Reg. No. 13-78 requires that a certain percentage of income be deducted and withheld by a payor, who is constituted as the withholding agent, and paid to the revenue district officer or BIR collection agent. Section 1 of this revenue regulation provides: Sec. 1. Income payments subject to withholding tax and rates prescribed therein . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: (a) xxx xxx xxx (b) xxx xxx xxx (c) Rentals. When the gross rental or other payment required to be made as a condition to the continued use or possession of property, whether real or personal, to which the payor or obligor has not taken or is not taking title or in which he has no equity, exceeds five hundred pesos (P500.00) five per centum (5%). xxx xxx xxx Under this system, income is viewed as a flow and is measured over a period of time known as an "accounting period." An accounting period covers twelve months, subdivided into four equal segments known as "quarters." Income realized within the taxpayer's annual accounting period (fiscal or calendar year) becomes the basis for the computation of the gross income and the tax liability. 16 The same basic principles apply under the prevailing tax laws. Under the present tax code, the types of income subject to withholding tax in Section 53, now Section 50, is simplified into three categories: (a) withholding of final tax on certain incomes; (b) withholding of creditable tax at source; and (c) tax free covenant bonds. Accordingly, the withheld amounts equivalent to five percent of the gross rental are remitted to the BIR and are considered creditable withholding taxes under Section 53-f, i.e., creditable against income tax liability for that year. The taxes withheld, as ruled in Gibbs vs. Commissioner of
15

Internal Revenue, 17 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. 18 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. 19 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 Commissioner of Internal Revenue vs. TMX Sales, Inc., 20 this Court ruled that the payments of quarterly income taxes (per Section 68, NIRC) should 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. The same holds true in the case of the withholding of creditable tax at source. Withholding taxes are "deposits" which are subject to adjustments at the proper time when the complete tax liability is determined. 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. Second Issue: Onus of Disputing a Claim for Refund In general, there is no disagreement that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 21 Tax refunds, like tax exemptions, are construed strictly against the taxpayer. The mechanics of a tax refunds provided in Rev. Reg. No. 13-78: Sec. 8. Claims for tax credit or refund. Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement, duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid and the amount of tax withheld

therefrom. A refund claimant is required to prove the inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding. However, detailed proof of the truthfulness of each and every item in the income tax return is nor required. That function is lodged in the commissioner of internal revenue by the NIRC which requires the commissioner to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return. 22 In San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue, 23 the Court held that the internal revenue branch of government must investigate and confirm the claims for tax refund or credit before taxpayers may avail themselves of this option. The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are true and correct. 24 In fact, even without petitioner's tax claim, the commissioner can proceed to examine the books, records of the petitioner-bank, or any data which may be relevant or material in accordance with Section 16 of the present NIRC. In the case in hand, Respondent Commissioner examined petitioner's income tax returns and presumably found no false declaration in them, because he did not allege any such false declaration before Respondent Court and the Court of Tax Appeals (CTA). In the CTA, Respondent Commissioner's refusal to refund was based on the argument that the claim filed on October 31, 1981 was time-barred. It bears stressing that this issue was not raised in the appeal before us. The issue of operational losses was not raised until the appeal before Respondent Court was filed on February 5, 1992. By such time, at least a decade had already passed since the pertinent books and accounting records of petitioner-bank were closed. Section 235 of the Tax Code requires the preservation of the books of account and records only "for a period beginning from the last entry in each book until the last day prescribed by Section 203." Section 203 provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in Court without an assessment for the collection of such taxes shall begin after the expiration of such period. To expect petitioner to have its book and records on hand during the appeal was obviously unreasonable and violative of Section 235 in relation to Section 203 of the Tax Code. In addition, the Tax Code has placed several safety measures to prevent falsification of income tax returns which the Court recognized in Commissioner vs. TMX Sales, Inc.: 25 Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the books of accounts of companies or persons with gross quarterly sales or earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined yearly by an independent Certified Public Accountant and their income tax returns be accompanied by certified balance sheets, profit and loss statements, schedules listing income producing properties and the corresponding incomes therefrom and other related statements. It is generally recognized that before an accountant can make a certification on the financial statements or render an auditor's opinion, an audit of the books of accounts has to be conducted in accordance with generally accepted auditing standards. Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly, then it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been audited and adjusted, that is truly reflective of the results of the operations of a business enterprise. Thus, it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Therefore, the alleged irregularity in the declared operational losses is a matter which must be proven by competent evidence. In resisting the claims of petitioner, Respondent Commissioner set up the defense of the legality of the collection of the creditable withholding tax as well as prescription, instead of presenting an assessment of the proper tax liability of the petitioner. This fact leads us to the conclusion that the income tax returns were accepted as accurate and regular

by the BIR. After this case was filed, the Commissioner clarified on June 27, 1994, the onus probandi of a taxpayer claiming refund of overpaid withholding taxes, inter alia, in Revenue Regulation No. 1294, Section 10: Sec. 10. Claim for Tax Credit or Refund. (a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. (b) Excess Credits. A taxpayer's excess expanded withholding tax credits for the taxable quarter/taxable year shall automatically be allowed as a credit for purposes of filing his income tax return for the taxable quarter/taxable year immediately succeeding the taxable quarter/taxable year in which the aforesaid excess credit arose, provided, however, he submits with his income tax return a copy of his income tax return for the aforesaid previous taxable period showing the amount of his aforementioned excess withholding tax credits. If the taxpayer, in lieu of the aforesaid automatic application of his excess credit, wants a cash refund or a tax credit certificate for use in payment of his other national internal tax liabilities, he shall make a written request therefor. Upon filing of his request, the taxpayer's income tax return showing the excess expanded withholding tax credits shall be examined. The excess expanded withholding tax, if any, shall determined and refunded/credited to the taxpayerapplicant. The refunded/credit shall be made within a period of sixty (60) days from date of the taxpayer's request provided, however, that the taxpayerapplicant submitted for audit all his pertinent accounting records and that the aforesaid records established the veracity of his claim for a refund/credit of his excess expanded withholding tax credits. Prior to Rev. Reg. 12-94, the requisites for a refund were: (1) the income tax return for the previous year must show that income payment (rental in this case) was reported as part of the gross income; and (2) the withholding tax statement of the withholding tax agent must show that payment of the creditable withholding tax was made. However, even without this regulation, the commissioner may inspect the books of the taxpayer and reassess a taxpayer for deficiency tax payments under Sections 7, NICR. We stress that what was required under Rev. Reg. 12-94 was only a submission of records but the verification of the tax return remained the function of the commissioner. Worth emphasizing are these uncontested facts: (1) the amounts withheld were actually remitted to the BIR and (2) the final adjusted returns which the BIR did not question showed that, for 1979 and 1980, no income taxes from petitioner were due. Hence, under the principle of solutio indebiti provided in Art. 2154, Civil Code, 26 the BIR received something when "there [was] no right to demand it," and thus "the obligation to return arises." 27 Heavily militating against Respondent Commissioner is the ancient principle that no one, not even the state, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly held taxes. WHEREFORE, the assailed Decision is hereby REVERSED and the decision of the Court of Tax Appeals is REINSTATED. No costs. SO ORDERED. Narvasa, C.J., Romero, Melo and Francisco, JJ., concur. Footnotes 1 Special Tenth Division consisting of JJ. Fidel P. Purisima, chairman and

ponente, Minerva P. Gonzaga-Reyes and Fermin A. Martin, Jr. 2 Rollo, pp. 24-28. 3 Rollo, pp. 21-22. 4 Rollo, pp. 24-26. 5 Docketed as C.T.A. Case No. 3378. 6 Penned by Presiding Judge Alex Z. Reyes and concurred in by Associate Judges Constante C. Roaquin and Ernesto D. Acosta. 7 CA rollo, pp. 29-31. 8 Rollo, pp. 24-28. 9 Rollo, pp. 21-22. 10 Rollo, pp. 26-27. 11 Collector vs. Antonio Prieto, 2 SCRA 1007, 1016-1017, August 29, 1961; Gibbs vs. Commissioner of Internal Revenue, 15 SCRA 318, 325, November 29, 1965; Commissioner of Internal Revenue vs. Carlos Palanca, 18 SCRA 496, 504 October 29, 1966; ACCRA Investments Corporations vs. Court of Appeals, 204 SCRA 957, 963-964, December 20, 1991; Commissioner of Internal Revenue vs. TMX Sales, Inc., 205 SCRA 184, 192, January 15, 1992; and Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 244 SCRA 446, 453, May 29, 1995. 12 Supra, pp. 452-453, per Romero, J. 13 Cesar C. Rey, Tax Code Annotated, p. 243 citing the explanatory note to H. Bill No. 1127; and Commissioner of Internal Revenue vs. Malayan Ins. Co., Inc., 21 SCRA 944, 949, November 18, 1967. 14 Now, Section 4(j), NIRC. 15 Madrigal vs. Rafferty, 38 Phil. 414, 418 (1918). 16 Section 37, NIRC. 17 15 SCRA 318, 325, November 29, 1365, per Regala, J. 18 Commissioner of Internal Revenue vs. TMX Sales, Inc., supra, pp. 191-192; Collector vs. Prieto, supra; and ACCRA Investments Corp. vs. Commissioner, supra. 19 From the concurring opinion of J. Jose C. Vitug in Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., supra. 20 205 SCRA 184, January 15, 1992. 21 Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332, 336, May 26, 1995, per Puno, J. 22 Section 16 and 203, NLRC. 23 228 SCRA 135, 141, November 23, 1993, per Padilla, J. 24 Commissioner of Internal Revenue vs. Court of Tax Appeals, 234 SCRA 348, 357, July 21, 1994 per Regalado, J. 25 Supra, per Gutierrez, J. 26 Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. 27 Ramie Textiles, Inc. vs. Mathay, Sr., 89 SCRA 586, 591-592, April 30, 1979, per De Castro, J.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 155682 March 27, 2007 BANCO FILIPINO SAVINGS and MORTGAGE BANK, Petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Herein Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the May 28, 2002 Decision1 and October 16, 2002 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 554703 which affirmed the October 5, 1999 Decision4 of the Court of Tax Appeals (CTA) in CTA Case No. 5611. The facts are as stated by the CTA.5 In its Bureau of Internal Revenue (BIR) Form No. 1702 or Corporation/Partnership Annual Income Tax Return6 for fiscal year 1995, Banco Filipino Savings and Mortgage Bank (petitioner) declared a net operating loss of P211,476,241.00 and total tax credit of P13,103,918.00, representing the prior years excess tax credit of P11,481,342.00 and creditable withholding taxes of P1,622,576.00.7 On February 4, 1998, petitioner filed with the Commissioner of Internal Revenue (CIR) an administrative claim8 for refund of creditable taxes withheld for the year 1995 in the amount of P1,622,576.00. As the CIR failed to act on its claim, petitioner filed a Petition for Review 9 with the CTA on April 13, 1998. It attached to its Petition several documents, including: 1) Certificate of Income Tax Withheld on Compensation (BIR Form No. W-2) for the Year 1995 executed by Oscar Lozano covering P720.00 as tax withheld on rental income paid to petitioner (Exhibit "II"); 10 and 2) Monthly Remittance Return of Income Taxes Withheld under BIR Form No. 1743W issued by petitioner, indicating various amounts it withheld and remitted to the BIR (Exhibits "C" through "Z").11 In his Answer,12 respondent CIR interposed special and afirmative defenses, specifically that petitioners claim is not properly documented. The CTA issued the October 5, 1999 Decision granting only a portion of petitioners claim for refund, thus: WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE a Tax Credit Certificate in the amount of EIGHTEEN THOUSAND EIGHT HUNDRED EIGHTY FOUR PESOS AND FORTY CENTAVOS (P18,884.40) in favor of the Petitioner, representing overpaid income tax for the year 1995. SO ORDERED.13 The CTA allowed the P18,884.40-portion of petitioners claim for refund as these are covered by Exhibits "AA" through "HH",14 which are all in BIR Form No. 1743-750 (Certificate of Creditable Tax Withheld at Source) issued by various payors and reflecting taxes deducted and withheld on petitioner-payees income from the rental of its real properties. On the other hand, the CTA disallowed the P1,603,691.60-portion of petitioners claim for tax refund on the ground that its Exhibit "II" and Exhibits "C" through "Z" lack probative value as these are not in BIR Form No. 1743.1,15 the form required under Revenue Regulations No. 6-85 (as amended by Revenue Regulation No. 12-94), to support a claim for refund. 16 Petitioner filed a Petition for Review17 with the CA but the CA dismissed the same in the May 28,

2002 Decision assailed herein. Its Motion for Reconsideration was also denied. 18 Hence, herein Petition where the issues may be condensed into one: whether the CA erred in affirming the disallowance by the CTA of P1,603,691.60 of petitioners claim for tax refund on the ground that the latters Exhibit "II" and Exhibits "C" through "Z" lack probative value. The CA committed no error. 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; 19 2) it is shown on the return of the recipient that the income payment received was declared as part of the gross income;20 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. The third condition is specifically imposed under Section 10 of Revenue Regulation No. 6-85 (as amended), thus: Sec. 10. Claim for tax credit or refund. (a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom xxx. (Emphasis supplied) There is no doubt that petitioner complied with the first two requirements in that the claim it filed on January 30, 1998 was well within the two-year prescriptive period counted from the date of filing of its annual income tax return (Exhibit "A") on April 12, 1996; and that said return reflects the amount of P1,622,576.00 subject of the claim.21 The question is whether it complied with the third condition by presenting merely a Certificate of Income Tax Withheld on Compensation or BIR Form No. W-2 (Exhibit "II") and Monthly Remittance Return of Income Taxes Withheld under BIR Form No. 1743W (Exhibits "C" through "Z"). Petititioner 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. 22 The Court rejected a similar plea for liberality just recently in Far East Bank and Trust Company v. Court of Appeals.23 In that case, Far East Bank and Trust Company (FEBTC), acting as the surviving entity from a merger with Cavite Development Bank (CDB), filed a claim for refund of creditable taxes withheld by CDB from the sale of its acquired assets. FEBTC attached to its claim: a) confirmation receipts, payment orders and official receipts issued by the Central Bank and the BIR; b) Income Tax Returns supported by financial statements filed by FEBTC with the BIR; and c) a schedule prepared by FEBTC Accounting Department of the creditable withholding taxes of CDB. FEBTC did not, however, attach any BIR Form No. 1743.1. The CTA and CA disallowed FEBTCs claim for refund. The Court affirmed the CTA and CA, thus: As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official receipts and payment orders to support its case. Standing alone, however, these documents only establish that CDB withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the confirmation receipts relate to the creditable withholding taxes arising from the sale of the acquired properties. The claim that CDB had excess creditable withholding taxes can only be upheld if it were clearly and positively shown that the amounts on the various confirmation receipts were the amounts withheld by virtue of the sale of the acquired assets. On this point, the CA correctly pronounced: The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income tax returns are the same taxes withheld from CDBs income payments from the sale of its acquired assets. This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the tax paid, or at the very least, the

income payments from which the taxes paid were withheld are not reflected therein. If these are the only entries that are found on these proferred documents, We cannot begrudge the Respondent Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it declared, in part, in its Decision (Annex "A" of the Petition) that, "It can not well be said that the amounts paid and remitted to the BIR were for CDBs account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent x x x".24 (Emphasis ours) As to what evidence would establish the nature of the tax withheld and the income payment from which it was deducted, the Court held: Petitioner also asserts that the confusion or difficulty in the implementation of Revenue Memorandum Circular 7-90 was the reason why CDB took upon itself the task of withholding the taxes arising from the sale, to ensure accuracy. Assuming this were true, CDB should have, nevertheless, accomplished the necessary returns to clearly identify the nature of the payments made and file the same with the BIR. Section 2 of the circular clearly provides that the amount of withholding tax paid by a corporation to the BIR during the quarter on sales or exchanges of property and which are creditable against the corporations tax liability are evidenced by Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and 1743-B. On the other hand, Revenue Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding. Since no competent evidence was adduced by petitioner, the failure to offer these returns as evidence of the amount of petitioners entitlement during the trial phase of this case is fatal to its cause. x x x.25 (Emphasis supplied) 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. At the time material to this case, the requisite information regarding withholding taxes from the sale of acquired assets can be found in BIR Form No. 1743.1. As described in Section 6 26 of Revenue Regulations No. 6-85,27 BIR Form No. 1743.1 is a written statement issued by the payor as withholding agent showing the income or other payments made by the said withholding agent during a quarter or year and the amount of the tax deducted and withheld therefrom. It readily identifies the payor, the income payment and the tax withheld. It is complete in the relevant details which would aid the courts in the evaluation of any claim for refund of creditable withholding taxes. In relation to withholding taxes from rental income, the requisite information can be found in BIR Form No. 1743-750. Petitioner is well aware of this for its own Exhibits "AA" through "HH" are all in BIR Form No. 1743-750. As earlier stated, the CTA approved petitioners claim for refund to the extent of P18,884.40, which is the portion of its claim supported by its Exhibits "AA" through "HH." 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. As to petitioners Exhibit "II," while it was issued by a payor, the document does not state the amount and nature of the income payment. Hence, it cannot be verified from the document if the tax withheld is correct. Perhaps aware of the deficiencies in its evidence, petitioner also presented Exhibit "B" 28 which is a list of Miscellaneous Assets it sold to various persons. However, Exhibit "B" was prepared by petitioners own real estate department, and is therefore of doubtful credence. 29 Furthermore, there is nothing in Exhibit "B" which would link the the transactions described therein to the taxes

reflected in Exhibit "II" and Exhibits "C" through "Z". 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, 30 not even on a plea for liberality of which petitioner, by its own negligence, is undeserving. 31 WHEREFORE, the petition is DENIED for lack of merit. No costs. SO ORDERED. MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson ROMEO J. CALLEJO, SR. Associate Justice MINITA V. CHICO-NAZARIO Asscociate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice ATTE STATI O N I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice Foonotes
1

Penned by Associate Justice Cancio C. Garcia (now a member of this Court) and concurred in by Associate Justices Marina L. Buzon and Eliezer R. De Los Santos (now deceased); CA rollo, pp. 54-59.
2 3

Id. at 71.

Entitled "Banco Filipino Savings and Mortgage Bank, Petitioner, v. Commissioner of Internal Revenue and Court of Tax Appeals, Respondents."
4 5 6 7 8

Records, p. 159. CTA Decision, id. at 159-166. Exhibit "A", id. at 43. Exhibit "A-2", id. at 44. Exhibit "LL", id. at 6.

Id. at 1. Id. at 111. Id. at 77-100. Id. at 13. Id. at 166. Id. at 101-108. Also known as "Certificate of Creditable Income Tax Withheld at Source." CTA Decision, records, p. 165. CA rollo, p. 5. Id. at p. 71.

10 11 12 13 14 15 16 17 18 19

Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence, 329 (2006), citing Gibb v. Collector, 107 Phil. 230 (1960).
20

Calamba Steel Center, Inc. v. Commissioner on Internal Revenue, G.R. No. 151857, April 28, 2005, 457 SCRA 482.
21 22 23 24 25 26

CTA Decision, records, p. 139-140. Petition for Review, rollo, pp. 20-21. GR No. 129130, December 9, 2005, 477 SCRA 49. Id. at 54-55. Id. at 57.

Section 6. Statement of income payments made and taxes withheld.- Every withholding agent required to deduct and withhold taxes under these Regulations shall furnish each recipient, in respect to his or its receipts, during the calendar quarter or year a written statement (BIR Form No. 1743.1) showing the income or other payments made by the withholding agent during such quarter or year, and the amount of the tax deducted and withheld therefrom. Such statement (BIR Form No. 1743.1) shall be furnished the corporate payee not later than the 20th day following the close of the quarter in which payment was made or not later than March 1 of the following year in the case of individual payee. However, upon request, the payor shall be obliged to furnish such statement to the payee simultaneous with the income payment. The amount so withheld shall be allowed as a tax credit against the income tax liability of the payee in the taxable quarter or year in which the income was earned and received.
27 28 29 30

As amended by Revenue Regulation No. 12-94. Records, p. 76. Far East Bank and Trust Company v. Court of Appeals, supra note 25, at 52.

Paseo Realty and Development Corporation v. Court of Appeals , G.R. No. 119286, October 13, 2004, 440 SCRA 235, 242.
31

Norris v. Hon. Parentela, Jr., 446 Phil. 462, 472 (2003).