VI.

LOCAL TAXES
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY
G.R. No. L-36081, April 24, 1989
FACTS: On December 24, 1969, the City Council of Quezon City
adopted Ordinance No. 7997, otherwise known as the Market Code of
Quezon City. Section 3 of said ordinance provides that privately
owned and operated public markets shall submit monthly to the
Treasurer's Office, a certified list of stallholders showing the amount of
stall fees or rentals paid daily by each stallholder, ... and shall pay 10%
of the gross receipts from stall rentals to the City, ... , as supervision
fee.
On July 15, 1972, Progressive Development Corporation
(Progressive), owner and operator of a public market known as the
"Farmers Market & Shopping Center" filed a Petition for Prohibition
with Preliminary Injunction against Quezon City on the ground that the
supervision fee or license tax imposed by the above-mentioned
ordinance is in reality a tax on income which Quezon City may not
impose, the same being expressly prohibited by Republic Act No.
2264, as amended, otherwise known as the Local Autonomy Act.
In its Answer, Quezon City, through the City Fiscal, contended that it
had authority to enact the questioned ordinances, maintaining that the
tax on gross receipts imposed therein is not a tax on income.
The lower court ruled that the questioned imposition is not a tax on
income, but rather a privilege tax or license fee which local
governments, like Quezon City, are empowered to impose and collect.
ISSUE: Whether the tax imposed by Quezon City on gross receipts of
stall rentals is properly characterized as partaking of the nature of an
income tax.
RULING: No. The tax imposed in the controverted ordinance
constitutes, not a tax on income, not a city income tax (as
distinguished from the national income tax imposed by the National
Internal Revenue Code) within the meaning of Section 2 (g) of the
Local Autonomy Act, but rather a license tax or fee for the regulation of
the business in which Progressive is engaged. While it is true that the
amount imposed by the questioned ordinances may be considered in
determining whether the exaction is really one for revenue or
prohibition, instead of one of regulation under the police power, it
nevertheless will be presumed to be reasonable.
VII. REAL PROPERTY TAXES
LUNG CENTER OF THE PHILIPPINESv s .QUEZON CITY and
CONSTANTINO P. ROSAS
G.R. No. 144104 June 29, 2004
FACTS:The petitioner, a non-stock and non-profit entity is the
registered owner of a parcel of land where erected in the
middle of the aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to medical or
professional practitioners who use the same as their private clinics for
their patients whom they charge for their professional services. Almost
one-half of the entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
On June 7, 1993, both the land and the hospital building of the
petitioner were assessed for real property taxes in the amount of
P4,554,860 by the City Assessor of Quezon City but the former filed a
Claim for Exemption from real property taxes with the City Assessor,
predicated on its claim that it is a charitable institution.
ISSUE:
Whether or not the petitioners real properties are exempted from realty
tax exemptions.
RULING:
Even as we find that the petitioner is a charitable institution, those
portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes. What is meant by actual,

direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the
purposes for which the charitable institution is organized.
Hence, a claim for exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.
Under Section 2 of Presidential Decree No. 1823, the petitioner does
not enjoy any property tax exemption privileges for its real properties
as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax
exempt privileges under Section 2.
DIGITAL TELECOMMUNICATIONS PHIL., INC. vs. PROVINCE OF
PANGASINAN ETC. (G. R. No. 152534/ February 23, 2007)
Facts:On Nov 13, 1992, the Province of Pangasinan granted Digitel a
provincial franchise under Provincial Ordinance No 18-92 which
required the grantee to pay franchise and real property taxes.
Thereafter, DIGITEL was granted by Republic Act No. 7678, a
legislative franchise authorizing the grantee to install, operate and
maintain telecommunications systems, this time, throughout the
Philippines. Under its legislative franchise, DIGITEL is liable for the
payment of a franchise tax "as may be prescribed by law of all gross
receipts of the telephone or other telecommunications businesses
transacted under it by the grantee," as well as real property tax "on its
real estate, and buildings "exclusive of this franchise."
The Province of Pangasinan, in its examination of its record found that
petitioner DIGITEL had a franchise tax deficiency for the years 1992-94
further alleging that DIGITEL had never paid any franchise tax to the
province since it started its operation in 1992. Accordingly, the
Sangguniang Panlalawigan passed Resolution No. 364 on 14 October
1994, categorically directing petitioner DIGITEL to pay the overdue
franchise tax otherwise its franchise shall be inoperative.
On 16 March 1995, Congress passed Republic Act No. 7925,
otherwise known as "The Public Telecommunications Policy Act of the
Philippines." Section 23 of this law entitled Equality of Treatment in the
Telecommunications Industry, provided for the ipso facto application to
any previously granted telecommunications franchises of any
advantage, favor, privilege, exemption or immunity granted under
existing franchises, or those still to be granted, to be accorded
immediately and unconditionally to earlier grantees.
The provincial franchise and real property taxes remained unpaid,
thus, the Province of Pangasinan filed a complaint for collection of sum
of money against Digitel for franchise tax and ad valorem tax based on
Sec 137 and 232 of the Local government Code (RA 7160). Digitel
argues that under its legislative franchise, the payment of a franchise
tax to the Bureau of Internal Revenue (BIR) would be "in lieu of all
taxes" on said franchise or the earnings therefrom. It further maintains
that its legislative franchise is subject to the immediate and
unconditional application of the tax exemption found in the franchises
of Globe, Smart and Bell, i.e., in Section 9 (b) of Republic Act No. 7229
and RA 7925.
Issues:
(1). Is DIGITEL exempt from the payment of provincial franchise tax?
(2). If not exempt, are DIGITELs real properties found within the
territorial jurisdiction of respondent Province of Pangasinan exempt
from the payment of real property taxes by virtue of the phrase
"exclusive of this franchise" found in Section 5 of its legislative
franchise, Republic Act No. 7678?
Ruling:
(1). No. The Supreme Court has already resolved this issue in the case
of Philippine Long Distance Telephone Company, Inc. v. City of Davao,
where it clarified the confusion brought about by the effect of Section
23 of Republic Act No.7925 that the word "exemption" as used in the
statute refers or pertains merely to an exemption from regulatory or
reporting requirements of the DOTC or the NTC and not to the
grantees tax liability. In that case, the Court held that in approving
Section 23 of Republic Act No. 7925, Congress did not intend it to
operate as a blanket tax exemption to all telecommunications entities;
thus, it cannot be considered as having amended petitioner PLDT s

franchise so as to entitle it to exemption from the imposition of local

franchise taxes. The fact is that the term "exemption" in Sec 23 is too
general. A cardinal rule in statutory construction is that legislative intent
must be ascertained from a consideration of the statute as a whole and
not merely of a particular provision. x x x Hence, a consideration of the
law itself in its entirety and the proceedings of both Houses of
Congress is in order.
Tax exemption are highly disfavored. The tax exemption must be
expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi juris against
the taxpayer.
R.A. No. 7925 is a legislative enactment designed to set the national
policy on telecommunications and provide the structures to implement
it to keep up with the technological advances in the industry and the
needs of the public. The thrust of the law is to promote gradually the
deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field in
the telecommunications industry. There is nothing in the language of
nor in the proceedings of both the House of Representatives and the
Senate in enacting R.A. No. 7925 which shows that it contemplates the
grant of tax exemptions to all telecommunications entities, including
those whose exemptions had been withdrawn by the LGC.
The foregoing pronouncement notwithstanding, in view of the passage
of Republic Act No. 7716, abolishing the franchise tax imposed on
telecommunications companies effective 1 January 1996 and in its
place is imposed a 10 percent Value-Added-Tax (VAT), the "in-lieu-ofall-taxes" clause/provision in the legislative franchises of Globe, Smart
and Bell, among others, has now become functus officio, made
inoperative for lack of a franchise tax. Therefore, taking into
consideration the above, from 1 January 1996 petitioner DIGITEL
ceased to be liable for national franchise tax and in its stead is
imposed a 10% VAT in accordance with Section 108 of the Tax Code.
2). The second issue boils down to a dispute between the inherent
taxing power of Congress and the delegated authority to tax of the
local government borne by the 1987 Constitution. In the afore-quoted
case of PLDT v. City of Davao, the Court already sustained the power
of Congress to grant exemptions over and above the power of the local
governments delegated taxing authority notwithstanding the source of
such power. The fact that Republic Act No. 7678 was a later piece of
legislation can be taken to mean that Congress, knowing fully well that
the Local Government Code had already withdrawn exemptions from
real property taxes, chose to restore such immunity even to a limited
degree. In view of the unequivocal intent of Congress to exempt from
real property tax those real properties actually, directly and exclusively
used by petitioner DIGITEL in the pursuit of its franchise, respondent
Province of Pangasinan can only levy real property tax on the
remaining real properties of the grantee located within its territorial
jurisdiction not part of the above-stated classification. Said exemption,
however, merely applies from the time of the effectivity of petitioner
DIGITELs legislative franchise and not a moment sooner.
FELS ENERGY INC. VS. PROVINCE OF BATANGAS (G.R. 168557 /
2-16-2007)
NAPOCOR VS. LBAA OF BATANGAS (G.R. 170628 16 February
2007)
Facts:NAPOCOR (NPC) entered into a lease contract with Polar
Energy, Inc. over diesel engine power barges moored in Batangas
providing that NAPOCOR shall be responsible for the payment of all
taxes imposed by the National Government to which POLAR may be
or become subject to or in relation to the performance of their
obligations under the agreement and all real estate taxes and
assessments, rates and other charges in respect of the Power Barges.
POLAR subsequently assigned its rights under the Agreement to
FELS. FELS then received an assessment from the Provincial
Assessor of Batangas for real property taxes on the power barges.

NPC acting on behalf of FELS sought reconsideration of the Provincial

Assessors assessment to assess real property taxes on the power
barges which was denied by the Provincial Assessor. NPC then filed a
petition with the LBAA. The LBAA denied the petition. The LBAA ruled
that the power plant facilities, while they may be classified as movable
or personal property, are nevertheless considered real property for
taxation purposes because they are installed at a specific location with
a character of permanency. The LBAA also pointed out that the owner
of the bargesFELS, a private corporationis the one being taxed, not
NPC. A mere agreement making NPC responsible for the payment of
all real estate taxes and assessments will not ustify the exemption of
FELS; such a privilege can only be granted to NPC and cannot be
extended to FELS. Finally, the LBAA also ruled that the petition was
filed out of time. Aggrieved, FELS appealed to the CBAA. The CBAA
rendered a decided that the power barges exempt from real property
tax. The Provincial Assessor filed an MR which was opposed by FELS
and NPC. The CBAA issued a reversed its earlier decision. FELS and
NPC filed separates petition for review before the CA. The CA denied
the petition of NPC for being prescribed. Subsequently the petition of
FELS was denied. Hence, these present petitions.
Issues:
(1). Are power barges, which are floating and movable, personal
properties and
therefore,
not
subject
to
real
property
tax?
(2). Assuming that power barges are real properties, whether they are
exempt
from
real estate tax under Section 234 of the Local Government Code
("LGC")?
(3). Assuming that power barges are subject to real estate tax, whether
or not it
should be NPC which should be made to pay the same under the law?
(4). What is the proper remedy for assailed assessments issued by
Assessors
Office and does it prescribe?
Ruling:
(1) (2) (3) :
Article 415 (9) of the New Civil Code provides that "[d]ocks and
structures which, though floating, are intended by their nature and
object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of machinery
and other implements intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which
tend directly to meet the needs of said industry or work.
POLAR owns the power barges as stipulated in the agreement. It
follows then that FELS cannot escape liability from the payment of
realty taxes by invoking its exemption in Section 234 (c) of R.A. No.
7160, which reads: SECTION 234. Exemptions from Real Property
Tax. The following are exempted from payment of the real property
tax:x x x(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of power; x x x Indeed, the law
states that the machinery must be actually, directly and exclusively
used by the government owned or controlled corporation. The mere
undertaking of petitioner NPC under Section 10.1 of the Agreement,
that it shall be responsible for the payment of all real estate taxes and
assessments, does not justify the exemption. The privilege granted to
petitioner NPC cannot be extended to FELS. The covenant is between
FELS and NPC and does not bind a third person not privy thereto, in
this case, the Province of Batangas.
(5). Section 226 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991, provides:SECTION 226. Local Board of
Assessment Appeals. Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty
(60) days from the date of receipt of the written notice of assessment,

appeal to the Board of Assessment Appeals of the province or city by

filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
The last action of the local assessor on a particular assessment shall
be the notice of assessment; it is this last action which gives the owner
of the property the right to appeal to the LBAA. The procedure likewise
does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor. If the taxpayer fails to
appeal in due course, the right of the local government to collect the
taxes due with respect to the taxpayers property becomes absolute
upon the expiration of the period to appeal. It also bears stressing that
the taxpayers failure to question the assessment in the LBAA renders
the assessment
of the local assessor final, executory and
demandable, thus, precluding the taxpayer from questioning the
correctness of the assessment, or from invoking any defense that
would reopen the question of its liability on the merits.

ADDITIONAL CASES:
COMMISSIONER OF INTERNAL REVENUEv. PHILIPPINE GLOBAL
COMMUNICATIONS,
INC.
499 SCRA 53 (2006), THIRD DIVISION (Carpio Morales,J.)
The wordings of the Temporary Restraining Order suspended the
implementation of the E-VAT law in its
entirety, but not the collection of 10% VAT on service under the
National Internal Revenue Code.
By reason of a legislative franchise, Respondent Philippine Global
Communications, Inc. (PGCI) constructs, maintains and operates
communications system subject to 3% franchise tax under the Tax
Code. However, the said provision of the Tax Code on franchise tax
was amended by Section 12 of the Expanded Value Added Tax Law
(E-VAT Law) which omitted the 3% franchise tax imposed upon a
telecommunications company.
A Temporary Restraining Order (TRO) was subsequently issued by the
Court in the consolidated cases of Tolentino et al. v. Secretary of
Finance, et al., ordering all the respondents to cease and desist from
enforcing and/or implementing the E-VAT Law. By reason of the
suspension of the E- VAT Law, PGCI filed a claim for tax refund before
Respondent Commission of Internal Revenue (CIR) stating therein that
upon the effectivity of the E-VAT Law, it was no longer required to pay
the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case
against it before the Court of Tax Appeals (CTA). CTA ruled that BIR
should refund the 3% to PGCI.
ISSUE: Whether or not PGCI was exempted from paying franchise
taxes during the effectivity of the TRO suspending the enforcement of
the E-VAT Law
HELD: Under Section 12 of the E-VAT Law, the 3% franchise tax on
telephone and/or telegraph systems and radio broadcasting stations
to which category PGCI belongs was omitted. Under Section 3 of the
E-VAT Law, however, PGCIs sale of services is subject to VAT, thus,
under the E-VAT Law, PGCI ceased to be liable to pay the 3%
franchise tax. It instead is made liable to pay 10% VAT on sale of
services.
The effectivity of the E-VAT Law was, however, suspended, by this
Court when it issued a TRO pending the resolution of the Tolentino et
al. cases challenging the constitutionality of the law. The wording of the
order leaves no doubt that what was restrained by the TRO was the
implementation of the E-VAT law in its entirety.
That the provisions of the Tax Code, prior to their amendment by the EVAT Law, were to apply in the interim, that is, while the TRO in
Tolentino et al. was effective, is clearly reflected in Revenue
Memorandum Circular No. 27-94 issued by CIR which directed all
internal revenue officers to comply
with the following directives, to wit: 3. All VAT and non-VAT persons
shall be governed by the provisions of the National Internal Revenue
Codep rior to its amendment by Republic Act No. 7716x x

xx 5. All other amendments of the NIRC made by RA 7716 shall be

considered ineffective until the Supreme Court has declared
otherwise.
With the issuance of the TRO, the enforcement and/or implementation
of the entire E-VAT law was stopped. The abolition of the 3% franchise
tax on telecommunications companies, and its replacement by the
10% VAT, was effective and implemented only on January 1, 1996.
Thus, PGCIs claim for refund of the franchise tax must fail. To grant a
refund of the franchise tax it paid prior to the effectivity and
implementation of the VAT would create a vacuum and thereby deprive
the government from collecting either the VAT or the franchise tax.
COMMISSIONER OF INTERAL REVENUE v. MANILA ELECTRIC
COMPANY
535 SCRA 399 (2007), SECOND DIVISION (Carpio-Morales,J )
The factual findings of the Court of Tax Appeals, when supported by
substantial evidence, will not be disturbed
on appeal, unless it is shown that it committed gross error in the
appreciation of facts, which did not happen in this case.
Manila Electric Company (Meralco) filed its tentative income tax
reflecting a refundable amount of P101,897,741. Only P77,931,812
was applied as tax credit. An investigation was conducted showing that
Meralco was liable for (1) deficiency income tax in the amount of
P2,340,902.52; and (2) deficiency franchise tax in the amount of
P2,838,335.84."
Later, Meralco filed an amended final corporate Income Tax Return
reflecting a refundable amount of P107,649,729 and thus filed a letterclaim for refund or credit representing overpaid income taxes for the
years 1987 and 1988. The Commission of Internal Revenue not having
acted on its request, Meralco filed a judicial claim for refund or credit
with the Court of Tax Appeals.
It is gathered that Meralco paid the deficiency franchise tax in the
amount of P2,838,335.84. It protested the payment of the alleged
deficiency income tax and claimed as an alternative remedy the
deduction thereof from its claim for refund or credit. After trial, the
Court of Tax Appeals found in favour of Meralco being convinced that
they proved its entitlement for the refund. The Court of Appeals
affirmed the decision.
ISSUE: Whether or not the appellate court failed to consider Meralco's
failure to substantiate by positive evidence its entitlement to a tax
refund or credit
HELD: 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 issue of whether MERALCO adduced sufficient evidence to prove
its entitlement to a refund is a question of fact. It bears noting that the
tax court and the appellate court found MERALCO's claim for tax
refund or credit meritorious on the basis of the testimonial and
documentary evidence adduced by the parties.
It bears noting too that the Commissioner did not dispute the validity
and authenticity of MERALCO's quarterly income tax returns as well as
the final adjustment returns for the years 1987 and 1988 and proofs of
payment of its tax liabilities. Neither did the Commissioner refute
MERALCO's assertion that Commissioner failed to cross-examine its
accountant who testified on the returns, and to object to its offer of
evidence which included its quarterly and final adjustment returns and
proofs of payment of its tax liabilities.
It is doctrinal that the factual findings of the Court of Tax Appeals, when
supported by substantial evidence, will not be disturbed on appeal,
unless it is shown that it committed gross error in the appreciation of
facts. Hence, as a matter of practice and principle, this Court will not
set aside the conclusion reached by the said court, especially if
affirmed by the Court of Appeals as in the present case. For by the
nature of its functions, the tax court dedicates itself to the study and
consideration of tax problems and necessarily develops expertise

thereon, unless there has been an abuse or improvident exercise of

authority on its part. None such is appreciated by this Court, however.
Ungab vs. Cusi Jr. (GR L-41919-25, 30 May 1980)
Facts: In July 1974, the BIR Examiner examined the income tax
returns filed by Quirico P. Ungab for the calendar year ending 31
December 1973. In the course of his examination, the examiner
discovered that Ungab failed to report his income derived from sales of
banana saplings. As a result, the BIR District Revenue Officer at Davao
City sent Ungab a Notice of Taxpayer informing him that there is due
from him the amount of P104,980.81, representing income, business
tax and forest charges for the year 1973 and inviting Ungab to an
informal conference where Ungab, duly assisted by counsel, may
present his objections to the findings of the BIR Examiner. Upon
receipt of the notice, Ungab wrote the BIR District Revenue Officer
protesting the assessment, claiming that he was only a dealer or agent
on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was
accurately stated. The examiner, however, was fully convinced that
Ungab had filed a fraudulent income tax return so that he submitted a
Fraud Referral Report, to the Tax Fraud Unit of the BIR. After
examining the records of the case, the Special Investigation Division of
the BIR found sufficient proof that Ungab is guilty of tax evasion for the
taxable year 1973 and recommended his prosecution. In a second
indorsement to the Chief of the Prosecution Division, dated 12
December 1974, the Commissioner approved Ungabs prosecution.
The State Prosecutor Jesus Acebes, who had been designated to
assist all Provincial and City Fiscals throughout the Philippines in the
investigation and prosecution, if the evidence warrants, of all violations
of the NIRC, as amended, and other related laws, in Administrative
Order 116 dated 5 December 1974, and to whom the case was
assigned, conducted a preliminary investigation of the case, and
finding probable cause, filed 6 informations against Ungab with the CFI
Davao City. On 16 September 1975, Ungab filed a motion to quash the
informations upon the grounds that: (1) the informations are null and
void for want of authority on the part of the State Prosecutor to initiate
and prosecute the said cases; and (2) the trial court has no jurisdiction
to take cognizance of the above-entitled cases in view of his pending
protest against the assessment made by the BIR Examiner. However,
the trial court denied the motion on 22 October 1975. Ungab filed a
petition for certiorari and prohibition with preliminary injunction and
restraining order to annul and set aside the informations filed in
Criminal Cases 1960 to 1965 of the CFI Davao. The Supreme Court
dismissed the petition, and set aside the temporary restraining order
issued; with costs against Ungab.
Issue: Whether an assessment of deficiency tax is necessarily before
a criminal prosecution relating to violations of the Tax Code may be
had.
Held: What is involved herein is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be
reviewed by the Court of Tax Appeals, but a criminal prosecution for
violations of the NIRC which is within the cognizance of courts of first
instance. While there can be no civil action to enforce collection before
the assessment procedures provided in the Code have been followed,
there is no requirement for the precise computation and assessment of
the tax before there can be a criminal prosecution under the Code. An
assessment of the deficiency tax due is not necessary before the
taxpayer can be prosecuted criminally for the charges preferred. The
crime is complete when the violator has, as in this case, knowingly and
willfully filed fraudulent returns with intent to evade and defeat a part or
all of the tax. An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and evade the income
tax. A crime is complete when the violator has knowingly and willfully
filed a fraudulent return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the
governments failure to discover the error and promptly to assess has
no connections with the commission of the crime. A petition for

reconsideration of an assessment may affect the suspension of the

prescriptive period for the collection of taxes, but not the prescriptive
period of a criminal action for violation of law. The protest of the
taxpayer against the assessment of the District Revenue Officer
cannot stop his prosecution for violation of the NIRC.
A FINAL DECISION OR INACTION OF THE CIR ON A DISPUTED
ASSESSMENT IS APPEALABLE TO THE CTA.
Facts: FCC, engaged in the business of processing of imported fresh
frozen sardines and mackerel, filed a protest of the Formal Letter of
Demand with attached Final Assessment Notice for deficiencies in the
amount of approximately P67.6MM for the year 1999.
When the CIR issued its Final Decision on Disputed Assessment
denying the same, FCC filed a motion for reconsideration questioning
the FDDA. The CIR subsequently issued a Preliminary Collection
Letter and, thereafter, a Final Notice before Seizure. The petition
for review as well as the motion for reconsideration was denied by the
CTA. Held: Petition is dismissed. A final decision or inaction of the CIR
on a disputed assessment is appealable to the CTA. It is thus relevant
to determine from the text of the Decision whether the order or
decision has attained a character of finality. Where the wordings of the
ruling signify a final determination on petitioners tax deficiencies and
there being a clear instruction for petitioner to file an appeal and not a
motion for reconsideration, then the matter is ripe for judicial review.
Fishwealth Canning Corporation vs. Commissioner of Internal
Revenue, CTA EB No. 223 dated July 5, 2007.
FAILURE TO APPEAL TO THE COURT OF TAX APPEALS (CTA)
WITHIN 30 DAYS FROM RECEIPT OF THE DENIAL OF AN
ADMINISTRATIVE PROTEST WILL RENDER THE ASSESSMENTS
FINAL AND EXECUTORY.
A motion for reconsideration of the denial of the administrative protest
does not toll the 30-day period to appeal to the CTA. Fishwealth
Canning Corporation v. Commissioner of Internal Revenue, G.R.
No. 179343 dated January 21, 2010.

WHERE THE WORDINGS OF THE COMMISSIONER OF INTERNAL

REVENUES (CIR) FORMAL LETTER OF DEMAND INDICATES
HIS FINAL DETERMINATION OF THE ISSUE, THEN IT COULD BE
THE BASIS OF AN APPEAL TO THE CTA.
Facts: Taxpayer duly protested a Pre-Assessment Notice (PAN) it
received from the BIR.
Subsequently, the BIR issued a Formal Letter of Demand with
Assessment Notices to the taxpayer. The demand letter states: This is
our final decision based on investigation. If you disagree, you may
appeal the final decision within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall become final,
executory and demandable. Instead of filing a protest on the
assessment, the taxpayer filed a petition for review with the CTA. The
BIR filed a motion to dismiss on the ground that the taxpayer failed to
exhaust administrative remedies by filing a protest on the assessment.
Held: The court held that the case is an exception to the rule on
exhaustion of administrative remedies on the ground that the BIR is in
estoppel. The court said that the taxpayer cannot be blamed for not
filing a protest against the Formal Letter of Demand with Assessment
Notices since the language used and the tenor of the demand letter
indicate that it is the final decision of the CIR on the matter. The court
reminded the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final
determination thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues. The court thus
concluded that the CIR is now estopped from claiming that he did not
intend the Formal Letter of Demand with Assessment Notices to be a
final decision. Allied Banking Corp. v. Commissioner of Internal
Revenue, G.R. No. 175097 dated February 5, 2010.

Republic Act (R.A.) No. 9238 classified pawnshops as Other Nonbank Financial Intermediaries, hence already exempt from VAT.
With the enactment of R.A. No. 9238 in 2004, the services of banks,
non-bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking functions were
specifically exempted from VAT, and the 0% to 5% percentage tax on
gross receipts on other non-bank financial intermediaries was
reimposed under Section 122 of the Tax Code of 1997. Since the
imposition of VAT on pawnshops, which are non-bank financial
intermediaries, was deferred for the tax years 1996 to 2002, petitioner
Tambunting Pawnshop is not liable for VAT for the tax year 1999.
On the issue of liability for documentary stamp tax (DST) on
petitioners pawn tickets, the Court held that DST is an excise tax on
the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto; pledge is among these privileges, the
exercise of which is subject to DST. Tambunting Pawnshop, Inc. v.
Commissioner of Internal Revenue, G.R. No. 179085,
January 21, 2010

CIR v. BPI
G.R. No. 178490 July 7, 2009
Chico-Nazario, J.
Doctrine:
1. The phrase for that taxable period merely identifies the excess
income tax, subject of the option, by referring to the taxable period
when it was acquired by the taxpayer.
2. When circumstances show that a choice has been made by the
taxpayer to carry over the excess income tax as credit, it should be
respected; but when indubitable circumstances clearly show that
another choice, a tax refund, is in order, it should be granted. As to
which option the taxpayer chose is generally a matter of evidence.
Technicalities and legalisms, however exalted, should not be misused
by the government to keep money not belonging to it and thereby
enrich itself at the expense of its law-abiding citizens.
Facts:
In filing its Corporate Income Tax Return for the Calendar Year 2000,
BPI carried over the excess tax credits from the previous years of
1997, 1998 and 1999. However, BPI failed to indicate in its ITR its
choice of whether to carry over its excess tax credits or to claim the
refund of or issuance of a tax credit certificate.
BPI filed with the Commissioner of Internal Revenue (CIR) an
administrative claim for refund. The CIR failed to act on the claim for
tax refund of BPI. Hence, BPI filed a Petition for Review before the
CTA, whom denied the claim.
The CTA relied on the irrevocability rule laid down in Section 76 of the
National Internal Revenue Code (NIRC) of 1997, which states that
once the taxpayer opts to carry over and apply its excess income tax to
succeeding taxable years, its option shall be irrevocable for that
taxable period and no application for tax refund or issuance of a tax
credit shall be allowed for the same.
The Court of Appeals reversed the CTA decision stating that there was
no actual carrying over of the excess tax credit, given that BPI suffered
a net loss in 1999, and was not liable for any income tax for said
taxable period, against which the 1998 excess tax credit could have
been applied.
The Court of Appeals further stated that even if Section 76 was to be
construed strictly and literally, the irrevocability rule would still not bar
BPI from seeking a tax refund of its 1998 excess tax credit despite
previously opting to carry over the same. The phrase for that taxable
period qualified the irrevocability of the option of BIR to carry over its
1998 excess tax credit to only the 1999 taxable period; such that, when
the 1999 taxable period expired, the irrevocability of the option of BPI
to carry over its excess tax credit from 1998 also expired.
Issue:
1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayers failure to mark the option chosen is
fatal to whatever claim

Held:
1. The last sentence of Section 76 of the NIRC of 1997 reads: Once
the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax
refund or issuance of a tax credit certificate shall be allowed
therefor. The phrase for that taxable period merely identifies the
excess income tax, subject of the option, by referring to the taxable
period when it was acquired by the taxpayer.
In the present case, the excess income tax credit, which BPI opted to
carry over, was acquired by the said bank during the taxable year
1998. The option of BPI to carry over its 1998 excess income tax credit
is irrevocable; it cannot later on opt to apply for a refund of the very
same 1998 excess income tax credit.
2. No. Failure to signify ones intention in the FAR does not mean
outright barring of a valid request for a refund, should one still choose
this option later on. The reason for requiring that a choice be made in
the FAR upon its filing is to ease tax administration (Philam Asset
Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14
December 2005). When circumstances show that a choice has been
made by the taxpayer to carry over the excess income tax as credit, it
should be respected; but when indubitable circumstances clearly show
that another choice a tax refund is in order, it should be granted.
Therefore, as to which option the taxpayer chose is generally a matter
of evidence.
Technicalities and legalisms, however exalted, should not be misused
by the government to keep money not belonging to it and thereby
enrich itself at the expense of its law-abiding citizens.
1997 TAX REFORM ACT CANNOT BE APPLIED
RETROACTIVELY; WRITTEN CLAIM IS
CONDITION PRECEDENT TO FILING A PETITION
FOR REVIEW PRIOR THERETO
Under Section 230 of the old Tax Code, an actual written claim for
refund is required. Amended income tax return filed on June 17, 1997
cannot be considered as a written claim. Section 204(c) of the 1997
NIRC (RA 8424, the 1997 Tax Reform Act), provides in pertinent part:
That a return filed showing an overpayment shall be considered as a
written claim for credit or refund, can only operate prospectively. The
new Tax Code became effective only on January 1, 1998. Tax refunds
are in the nature of tax exemptions which are construed strictissimi
juris against the taxpayer and liberally in favor of the government. CIR
vs. BPI, G.R. No. 134062, April 17, 2007.
STATUTORY TAXPAYER IS PROPER PARTY TO CLAIM FOR
REFUND OF INDIRECT TAXES; INDIRECT TAX EXEMPTION MUST
BE CLEARLY GRANTED; 15-DAY APPEAL PERIOD TO CTA EN
BANC IS JURISDICTIONAL; SERVICE TO COUNSEL OF RECORD
BINDS PETITIONER
Petitioner Silkair, a Singapore-based international air carrier, sought a
refund of excise tax paid by Petron Corporation as manufacturer, which
shifted the burden of the tax to purchaser Silkair. The CTA Division
denied against the claim since it was not the taxpayer. On September
12, 2005, a new counsel entered appearance without the withdrawal of
the original counsel. Its original counsel of record received on October
3, 2005 a copy of the September 22, 2005 Resolution of the CTA
Division denying its motion for reconsideration of the decision. On
October 13, 2005, the original counsel withdrew its appearance with
conformity of petitioner and the new counsel requested for an official
copy of the Resolution. On October 14, 2005, the new counsel
received a copy of the Resolution and requested on October 28, 2005
an extension of time to file petition. The Court En Banc gave it until
November 14, 2005. Upon request, another extension until November
24, 2005 was granted and on November 17, 2005, Silkair filed its
petition. By Resolution of May 19, 2006, the CTA En Banc dismissed
the petition for being filed out of time notwithstanding the grant of
extension. On petition for certiorari, the Supreme Court affirmed the

dismissal, ruling that where no notice of withdrawal or substitution of

counsel has been shown, notice to counsel of record is notice to the
client citing Section 26, Rule 138 of the Rules of Court on the
requirements for withdrawal of counsel.
held: 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 he shifts the burden thereof to
another. Under Section 130(A)(2) of the NIRC, it is the manufacturer or
producer who is subject to excise tax. Thus, Petron Corporation, not
Silkair, is the statutory taxpayer entitled to claim a refund based on
Section 135 of the NIRC, which exempts from excise tax petroleum
products sold to exempt entities under international agreements and
Article 4(2) of the Air Transport Agreement between RP and Singapore.
Even if Petron 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 purchase
price. There is no indirect tax exemption under the Air Transport
Agreement in the absence of clear showing of legislative intent.
Statutes granting tax exemptions must be construed in strictissimi juris
against the taxpayer. Silkair (Singapore) PTE, Ltd. vs. CIR, G.R. No.
173594, Feb. 6, 2008.