TAXATION 1 CASE DIGESTS

TAXATION CIR vs. BPI G.R. No. 134062 April 17, 2007 Corona, J.: FACTS: In October 28, 1988, petitioner assessed BPI of deficiency percentage and documentary stamp tax for the year 1986, in the total amount of P129,488,056.63. A letter reply by respondent was sent on December 10, 1988 stating among other: ... we shall inform you the taxpayers decision on whether to pay of protest the assessment, CTA ruled that BPI failed to protest on time under Sec 270 of NIRC of 1986. ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and un-appealable. RULING: In merely notifying BPI of his findings. CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424. The sentence the taxpayers shall be informed in writing of the law and the facts on which the assessment is made Was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Tax assessments by tax examiners are presumed correct and are 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 BIR examiner and approved by his superior officers will not be distributed. All presumptions are in favor of the correctness of tax assessments.

2 CIR v. PINEDA GR No. L-22734, September 15, 1967 21 SCRA 105 FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance. ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance. HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to

satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

3 VERA v. FERNANDEZ GR No. L-31364 March 30, 1979 89 SCRA 199 FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever. ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes? HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel.

4 CIR v. CA, CITY TRUST BANKING CORP. GR No. 86785, November 21, 1991 234 SCRA 348 FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by which the latter denied on the ground of prescription. Citytrust filed a petition for review before the CTA. The case was submitted for decision based solely on the pleadings and evidence submitted by the respondent because the CIR could not present any evidence by reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to grant the respondent's request for tax refund amounting to P 13.3 million. ISSUE: Failure of the CIR to present evidence to support the case of the government, should the respondent's claim be granted? HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for further proceedings and reception of evidence.

5 COMMISSIONER v. ALGUE, INC. GR No. L-28896, February 17, 1988 158 SCRA 9 FACTS: Private respondent corporation Algue, Inc. filed its income tax returns for 1958 and 1959 showing deductions, for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary expense.

ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the government? HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an xperimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

6 CIR v. YMCA GR No. 124043, October 14, 1998 298 SCRA 83 FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various programs beneficial to the public pursuant to its religious, educational and charitable objectives--leases out a portion of its premises to small shop owners, like restaurants and canteen operators, deriving substantial income for such. Seeing this, the commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of the provisions of Section 27 of NIRC which provides that civic league or organizations not organized for profit but operate exclusively for promotion of social welfare and those organized exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed. ISSUE: Is the contention of YMCA tenable? HELD: No. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of

the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken."

7 DAVAO GULF LUMBER CORP v. CIR GR No. 117359, July 23, 1998 293 SCRA 77 FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435. ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies? HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

8 MARCOS II v. CA GR No. 120880, June 5, 1997 293 SCRA 77 FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still

pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated. ISSUE: Is the contention of Bongbong Marcos correct? HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.

9 REYES v. ALMANZOR GR Nos. L-49839-46, April 26, 1991 196 SCRA 322 FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable? HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.

10 PHIL. BANK OF COMMUNICATIONS v. CIR GR No. 112024, January 28, 1999 302 SCRA 250 FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code. ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC? HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. From the same perspective, claims for refund or tax credit should be exercised within the time

fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

11 PHIL. GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965 13 SCRA 775 FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies. ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them? HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents. 12 PHILEX MINING CORP. v. CIR GR No. 125704, August 28, 1998 294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. 13 NORTH CAMARINES LUMBER CO., INC. v. CIR GR No. L-12353, September 30, 1960 109 PHIL 511 FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955. Twice did the petitioner filed a request for reconsideration before finally submitting the denied request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30, 1955.

ISSUE: Is the contention of the petitioner tenable? HELD: No. This contention is untenable. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need."

FIRST DIVISION COMMISSIONER OF INTERNAL REVENUE, Petitioner, G.R. No. 134062 Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA and GARCIA, JJ.

-versus-

BANK OF THE PHILIPPINE ISLANDS, Respondent.

Promulgated: April 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION CORONA, J.:

This is a petition for review on certiorari[1] of a decision[2] 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 resolution[4] of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715. In of the two notices dated October (BPIs) 28, 1988, petitioner and

Commissioner of Internal Revenue (CIR) assessed respondent Bank Philippine Islands deficiency percentage documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax Deficiency percentage tax P 7, 270,892.88 Add: 25% surcharge 1,817,723.22 20% interest from 1-21-87 to 10-28-88 3,215,825.03 Compromise penalty 15,000.00 TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13 1986 Deficiency Documentary Stamp Tax Deficiency percentage tax P93,723,372.40 Add: 25% surcharge 23,430,843.10 Compromise penalty 15,000.00 TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.[5]

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 xxx[6]

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 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 CTA[14] 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 270[18] (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'sfindings 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. JerryLazaro, 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. 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 CIRsfinal 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 thereglementary 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 isREVERSED 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 Associate Justice

CANCIO C. GARCIA Associate Justice

CERTIFICATION 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

[1] [2]

[3]

[4] [5] [6] [7] [8] [9] [10] [11] [12]

[13] [14] [15] [16] [17] [18]

[19] [20] [21] [22] [23] [24] [25] [26] [27]

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. 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. Id., pp. 70-71. Id., pp. 47-48, 72. Id., p. 72. Id., pp. 41, 90. Id., pp. 12, 48. Id., p. 41. 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. 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. 319A 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. 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. 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. See Commissioner v. Court of Tax Appeals, G.R. Nos. L-48886-88, 21 July 1993, 224 SCRA 665, 671.

[28]

[29] [30] [31] [32] [33] [34]

[35] [36] [37] [38] [39]

[40]

Palanca v. City of Manila and Trinidad, 41 Phil. 125, 131 (1920); R. AGPALO, STATUTORY CONSTRUCTION 308 (3rd ed., 1995). 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. 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. Sy Po v. Court of Appeals, G.R. No. L-81446, 18 August 1988, 164 SCRA 524, 530, citations omitted. 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. National Power Corporation v. City of Cabanatuan, G.R. No. 149110, 9 April 2003, 401 SCRA 259, 269-270, citations omitted.