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Paseo Realty & Development Corporation v.

Court of Appeals, GR No. 119286, October 13,


2004
There are case laws dealing with the irrevocability rule
on income tax credits under Section 76. In the case of
Paseo Realty & Development Corporation vs. Court of
Appeals, G.R. No. 119826, October 13, 2004, the
Supreme Court held that the amendment introduced by
RA 8424, making the taxpayers choice irrevocable,
emphasizes that it is imperative for the taxpayer to
indicate in its final adjustment return whether it opts
for a tax credit or refund.
Taxation is a destructive power which interferes with
the personal and property rights of the people and
takes from them a portion of their property for the
support of the government. And since taxes are what
we pay for civilized society, or are the lifeblood of the
nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. A claim of
refund or exemption from tax payments must be
clearly shown and be based on language in the law too
plain to be mistaken. Elsewise stated, taxation is the
rule, exemption therefrom is the exception.

Commissioner of Internal Revenue v. Fortune


Tobacco Corporation, 559 SCRA 160 (2008)
Facts: Respondent FTC is a domestic corporation
thatmanufactures cigarettes packed by machine under
several brands. Prior to January 1, 1997, Section 142 of
the 1977 Tax Code subjected said cigarette brands
to ad valorem tax. Annex D of R.A. No. 4280 prescribed
the cigarette brands tax classification rates based on
their net retail price. On January 1, 1997, R.A. No. 8240
took effect. Sec. 145 thereof now subjects the cigarette
brands to specific tax and also provides that: (1) the
excise tax from any brand of cigarettes within the next
three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each
brand on October 1, 1996; (2) the rates of excise tax
on cigarettes enumerated therein shall be increased by
12% on January 1, 2000; and (3) the classification of
each brand of cigarettes based on its average retail
price as of October 1, 1996, as set forth in Annex D
shall remain in force until revised by Congress.
The Secretary of Finance issued RR No. 17-99 to
implement the provision for the 12% excise
tax increase. RR No. 17-99 added the qualification that
the new specific tax rate xxx shall not be lower than
the excise tax that is actually being paid prior to
January 1, 2000. In effect, it provided that the 12%
tax increase must be based on the excise tax actually
being paid prior to January 1, 2000 and not on their
actual net retail price.
FTC filed 2 separate claims for refund or tax credit of its
purportedly overpaid excise taxes for the month of
January 2000 and for the period January 1-December
31, 2002. It assailed the validity of RR No. 17-99 in that
it enlarges Section 145 by providing the aforesaid
qualification. In this petition, petitioner CIR alleges that
the literal interpretation given by the CTA and the CA of

Section 145 would lead to a lower tax imposable on 1


January 2000 than that imposable during the transition
period, which is contrary to the legislative intent to
raise revenue.
Issue: Should the 12% tax increase be based on the
net retail priceof the cigarettes in the market as
outlined in Section 145 of the 1997 Tax Code?
Held: YES. Section 145 is clear and unequivocal. It
states that during the transition period, i.e., within the
next 3 years from the effectivity of the 1997 Tax Code,
the excise tax from any brand of cigarettes shall not be
lower than the tax due from each brand on 1 October
1996. This qualification, however, is conspicuously
absent as regards the 12% increase which is to be
applied on cigars and cigarettes packed by machine,
among others, effective on 1 January 2000.
Clearly, Section 145 mandates a new rate of excise tax
for cigarettes packed by machine due to the
12% increase effective on 1 January 2000 without
regard to whether the revenue collection starting from
this period may turn out to be lower than that collected
prior to this date.
The qualification added by RR No. 17-99 imposes a tax
which is the higher amount between the ad valorem
tax being paid at the end of the 3-year transition
period and the specific tax under Section 145, as
increased by 12%a situation not supported by the
plain wording of Section 145 of the 1997 Tax Code.
Administrative issuances must not override, supplant
or modify the law, but must remain consistent with the
law they intend to carry out.
Revenue generation is not the sole purpose of the
passage of the 1997 Tax Code. The shift from the ad
valorem system to the specific tax system in the Code
is likewise meant to promote fair competition among
the players in the industries concerned and to ensure
an equitable distribution of the tax burden.

Mactan Cebu International Airport Authority v.


Marcos
FACTS:
Petitioner was created by virtue of RA 6958. Section 1
thereof states that the authority shall be exempt from
realty taxes imposed by the National Government or
any of its political subdivisions, agencies and
instrumentalities. However, the Treasurer of Cebu City
demanded payment for realty taxes from petitioner.
Petitioner filed a declaratory relief before the Regional
Trial Court. The trial court dismissed the petitioner
ruling that the Local Government Code withdrew the
tax exemption granted to Government owned and
controlled
corporation.
ISSUE:
Whether the city of Cebu has the power to impose
taxes
on
petitioner
RULING:
Yes. Taxation is the rule and exemption is the
exception, the exemption may thus be withdrawn at
the pleasure of the taxing authority. As to tax

exemptions or incentives granted to or presently


enjoyed by natural or juridical persons, including
government- owned and controlled corporations,
section 193 of the LGC prescribes the general rule, viz,
they are withdrawn upon the effectivity of the LGC,
except those granted to local water districts,
cooperatives, duly registered under RA 6938, non stock
and nonprofit hospitals and educational institutions and
unless otherwise provided in the LGC.

Gerochi vs. DOE


Facts: RA 9136, otherwise known as the Electric
Power Industry Reform Act of 2001 (EPIRA), which
sought to impose a universal charge on all end-users of
electricity for the purpose of fundingNAPOCORs
projects, was enacted and took effect in 2001.
Petitioners contest the constitutionality of the EPIRA,
stating that theimposition of the universal charge on all
end-users is oppressive and confiscatory and amounts
to taxation without representation for not giving the
consumers a chance to be heard and be represented.
Issue: Whether or not the universal charge is a tax.
Held: NO. The assailed universal charge is not a tax,
but anexaction in the exercise of the States police
power. That public welfare is promoted may be gleaned
from Sec. 2 of the EPIRA, which enumerates the
policies of the State regarding electrification. Moreover,
the Special Trust Fund feature of the universal charge
reasonably serves and assures the attainment and
perpetuity of the purposes for which the universal
charge is imposed (e.g. to ensure the viability of the
countrys electric power industry), further boosting the
position that the same is an exaction primarily in
pursuit of the States police objectives
If generation of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax;
but if regulation is the primary purpose, the fact that
revenue is incidentally raised does not make
the imposition a tax.
The taxing power may be used as an implement of
police power. 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.

CIR vs Algue Inc


FACTS: Private respondent corporation Algue Inc. filed
its income tax returns for 1958 and 1959showing
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.
CIR vs Rosemarie Acosta
FACTS:
Acosta is an employee of Intel and was
assigned in a foreign country. During that period Intel
withheld the taxes due and remitted them to BIR.
Respondent claimed overpayment of taxes and filed
petition for review with CTA. CTA dismissed the petition
for failure to file a written claim for refund with the CIR
a condition precedent to the filing of a petition for
review with the CTA. CA reversed the decision
reasoning that Acostas filing of an amended return
indicating an overpayment was sufficient compliance
with the requirement of a written claim.
ISSUE:
Whether or not CTA has jurisdiction to take
cognizance of respondents petition for review.
RULING:
A party seeking an administrative rimedy
must not merely initiate the prescribed administrative
procedure to obtain relie but also to pursue it to its
appropriate
conclusion
before
seeking
judicial
intervention in order to give administrative agency an
opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to court
action. At the time respondent filed her amended
return, the 1997, NIRC was not yet in effect, hence
respondent had no reason to think that the filing of an
amended return would constitute the written claim
required by law.
CTA likewise stressed that even the date of
filing of the Final Adjustment return was omitted,
inadvertently or otherwise, by respondent in her
petition for review. This is fatal to respondents claim,
for it deprived the CTA of its jurisdiction over the
subject matter of the case.
Finally, revenue statutes are substantive laws
and in no sense must with that of remedial laws.

Revenue laws
constructed.

are

not

intended

to

be

liberally

CIR vs SC Johnson and Son


Facts: Respondent is a domestic corporation organized
and operating under the Philippine Laws, entered into a
licensed agreement with the SC Johnson and Son, USA,
a non-resident foreign corporation based in the USA
pursuant to which the respondent was granted the
right to use the trademark, patents and technology
owned by the later including the right to manufacture,
package and distribute the products covered by the
Agreement and secure assistance in management,
marketing and production from SC Johnson and Son
USA.
For the use of trademark or technology, respondent
was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the
same to 25% withholding tax on royalty payments
which respondent paid for the period covering July
1992 to May 1993 in the total amount of
P1,603,443.00.
On October 29, 1993, respondent filed with
the International Tax Affairs Division (ITAD) of the BIR
a claim for refund of overpaid withholding tax on
royalties arguing that, the antecedent facts attending
respondents case fall squarely within the same
circumstances under which said MacGeorge and
Gillette rulings were issued. Since the agreement was
approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply to the
respondent. So, royalties paid by the respondent to SC
Johnson and Son, USA is only subject to
10% withholding
tax.
The Commissioner did not act on said claim for refund.
Private respondent SC Johnson & Son, Inc. then filed a
petition for review before the CTA, to claim a refund of
the overpaid withholding tax on royalty payments from
July
1992
to
May
1993.
On May 7, 1996, the CTA rendered its decision in favor
of SC Johnson and ordered the CIR to issue a tax credit
certificate in the amount of P163,266.00 representing
overpaid withholding
tax on
royalty
payments
beginning
July
1992
to
May
1993.
The CIR thus filed a petition for review with the CA
which rendered the decision subject of this appeal on
November 7, 1996 finding no merit in the petition and
affirming
in
toto
the
CTA
ruling.
Issue: Whether or not tax refunds are considered as
tax exemptions.
Held: It bears stress that tax refunds are in the nature
of taxexemptions. As such they are registered as in
derogation of sovereign authority and to be construed
strictissimi juris against the person or entityclaiming
the exemption. The burden of proof is upon him who
claims theexemption in his favor and he must be able
to justify his claim by the clearest grant of organic or

statute law. Private respondent is claiming for a refund


of the alleged overpayment of tax on royalties;
however there is nothing on record to support a claim
that the tax on royalties under the RP-US Treaty is paid
under similar circumstances as the tax on royalties
under the RP-West Germany Tax Treaty.

South African Airways vs. CIR


Facts: Petitioner South African Airways is a foreign
corporation organized and existing under and by virtue
of the laws of the Republic of South Africa. Its principal
office is located at Airways Park, Jones Road,
Johannesburg International Airport, South Africa. In the
Philippines, it is an internal air carrier having no
landing rights in the country. Petitioner has a general
sales agent in the Philippines, Aerotel Limited
Corporation (Aerotel). Aerotel sells passage documents
for compensation or commission for petitioners off-line
flights for the carriage of passengers and cargo
between ports or points outside the territorial
jurisdiction of the Philippines. Petitioner is not
registered with the Securities and Exchange
Commission as a corporation, branch office, or
partnership. It is not licensed to do business in the
Philippines. It paid a corporate tax in the rate of 32% of
its gross billings. However, it subsequently claim for
refund contending that its income should be taxed at
the rate of 2 1/2% of its gross billings.
Issues: whether or not petitioners income is sourced
within the Philippines and is to be taxed at 32% of the
gross
billings?
Held: Yes! In the instant case, the general rule is that
resident foreign corporations shall be liable for a 32%
income tax on their income from within the Philippines,
except for resident foreign corporations that are
international carriers that derive income from carriage
of persons, excess baggage, cargo and mail originating
from the Philippines which shall be taxed at 2 1/2% of
their Gross Philippine Billings. Petitioner, being an
international carrier with no flights originating from the
Philippines, does not fall under the exception. As such,
petitioner must fall under the general rule. This
principle is embodied in the Latin maxim, exception
firmat regulam in casibus non exceptis, which means, a
thing not being excepted must be regarded as coming
within
the
purview
of
the
general
rule.
To reiterate, the correct interpretation of the above
provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be
taxed at the rate of 2 1/2% of its Gross Philippine
Billings, while international air carriers that do not have
flights to and from the Philippines but nonetheless earn
income from other activities in the country will be
taxed at the rate of 32% of such income.

Domingo vs Garlitos
FACTS:
In the 1960 case of Domingo v Moscoso, the Supreme
Court declared as final and executory the order for the
payment by the estate of the late Walter Scott Price of
estate and inheritance taxes, charges and penalties,

amounting to P40,058.55 issued by the Court of First


Instance Leyte. The fiscal then presented a petition
for the execution of the judgment before the Court of
First Instance Leyte.
The petition was denied as the execution is not
justifiable as the government is indebted to the estate
under administration in the amount of P 262,200.
Hence, the present petition for certiorari and
mandamus.

ISSUE: Is execution proper?


RULING:
No. The tax and the debt are compensated. The court
having jurisdiction of the estate had found that the
claim of the estate against the government has been
recognized and an amount of P262,200 has already
been appropriated by a corresponding law (RA 2700).
Under the circumstances, both the claim of the
Government for the inheritance taxes and the claim of
the intestate for services rendered have already
become overdue and demandable as well as fully
liquidated.
Compensation, therefore, takes place by operation of
law, in accordance with Article 1279 and 1290 of the
Civil Code, and both debts are extinguished to their
concurrent amounts. If the obligation to pay taxes and
the taxpayers claim against the government are both
overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both
obligations are extinguished to their concurrent
amounts.

Asia International Auctioneers Inc vs CIR


This is a Petition for Review filed by Asia International
Auctioneers, Inc. (AIA) for its alleged failure to protest
on time the Commissioner of Internal Revenues (CIR)
tax assessment. AIA is a corporation engaged in the
importation of used motor vehicles and heavy
equipment which it sells to the public via auction. It
operates inside the Subic Special Economic Zone
(SSEZ). Petitioner received from the CIR a Formal Letter
of Demand with an assessment for deficiency valueadded tax (VAT) and excise tax, inclusive of penalties
and interest, in the amount of P106, 870,235.00 for
auctions it previously conducted. For failure of the CIR
to act on its protest, AIA filed a Petition for Review at
the Court of Tax Appeals (CTA). The CIR filed its Answer
of said petition. Subsequently, the CIR filed a Motion to
Dismiss citing lack of jurisdiction for alleged failure of
AIA to timely file its protest, rendering the assessment
final and executor. The CIR denied having received the
protest letter. AIA submitted evidence to prove its
claim. The CTA First Division decided in favor of the CIR
saying that: "while a mailed letter is deemed received
by the addressee in the course of the mail, still, this is
merely a disputable presumption, subject to
controversion, and a direct denial of the receipt thereof
shifts the burden upon the party favored by the
presumption to prove that the mailed letter indeed was
received by the addressee." The CTA En Banc affirmed

the Ruling of the First Division. On January 30, 2008,


AIA filed a Manifestation and Motion with Leave to
Defer or Suspend further proceedings on the ground
that it had availed of the Tax Amnesty Program under
Republic Act (RA) No. 9480, also known as the Tax
Amnesty Act of 2007. A Certification of Qualification on
said availment issued by the Bureau of Internal
Revenue (BIR) was submitted by AIA.
Issue: What is the effect of a Tax Amnesty law on a
pending collection case?
Held: The Supreme Court (SC) at the outset discussed
the nature of a tax amnesty law. A tax amnesty is a
general pardon or the intentional overlooking by the
State of its authority to impose penalties on persons
otherwise guilty of violating a tax law. It partakes of an
absolute waiver by the government of its right to
collect what is due it and to give tax evaders who wish
to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored
or presumed in law. The grant of a tax amnesty, similar
to a tax exemption, must be construed strictly against
the taxpayer and liberally in favor of the taxing
authority. The SC denied the petition for being moot
and academic due to the availment of AIA of the
provisions of RA 9480 or the Tax Amnesty Law of 2007.
The deficiency taxes of AIA are deemed fully settled.
The CIR alleges that AIA cannot avail itself of the
provisions of the amnesty law because it is considered
a withholding agent for the deficiency taxes, as stated
under Section 8(a) of the law, to wit: Section 8.
Exceptions. The tax amnesty provided in Section 5
hereof shall not extend to the following persons or
cases existing as of the effectivity of this Act: (a)
Withholding agents with respect to their withholding
tax liabilities; (b) Those with pending cases falling
under the jurisdiction of the Presidential Commission
on Good Government; (c) Those with pending cases
involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act; (d)
Those with pending cases filed in court involving
violation of the Anti-Money Laundering Law; (e) Those
with pending criminal cases for tax evasion and other
criminal offenses under Chapter II of Title X of the
National Internal Revenue Code of 1997, as amended,
and the felonies of frauds, illegal exactions and
transactions, and malversation of public funds and
property under Chapters III and IV of Title VII of the
Revised Penal Code; and (f) Tax cases subject of final
and executory judgment by the courts. (Emphasis
supplied) 34 The SC found the argument of the CIR
untenable. Said the court: The CIR did not assess AIA
as a withholding agent that failed to withhold or remit
the deficiency VAT and excise tax to the BIR under
relevant provisions of the Tax Code. Hence, the
argument that AIA is "deemed" a withholding agent for
these deficiency taxes is fallacious. Indirect taxes, like
VAT and excise tax, are different from withholding
taxes. To distinguish, in indirect taxes, the incidence of
taxation falls on one person but the burden thereof can
be shifted or passed on to another person, such as
when the tax is imposed upon goods before reaching
the consumer who ultimately pays for it. On the other
hand, in case of withholding taxes, the incidence and
burden of taxation fall on the same entity, the
statutory taxpayer. The burden of taxation is not
shifted to the withholding agent who merely collects,
by withholding, the tax due from income payments to

entities arising from certain transactions and remits the


same to the government. Due to this difference, the
deficiency VAT and excise tax cannot be "deemed" as
withholding taxes merely because they constitute
indirect taxes. Moreover, records support the
conclusion that AIA was assessed not as a withholding
agent but, as the one directly liable for the said
deficiency taxes. The CIR further contends that being
an accredited investor/taxpayer located at the SSEZ,
AIA should have taken advantage of RA 9399 rather
than RA 9480. The SC did not agree with this view. The
SC stressed: RA 9399 was passed prior to the passage
of RA 9480. RA 9399 does not preclude taxpayers
within its coverage from availing of other tax amnesty
programs available or enacted in futuro like RA 9480.
More so, RA 9480 does not exclude from its coverage
taxpayers operating within special economic zones. As
long as it is within the bounds of the law, a taxpayer
has the liberty to choose which tax amnesty program it
wants to avail. Finally, the SC took judicial notice of
the Certification of Qualification issued by a BIR
employee. The court said: Lastly, the Court takes
judicial notice of the "Certification of Qualification"
issued by Eduardo A. Baluyut, BIR Revenue District
Officer, stating that AlA "has availed and is qualified for
Tax Amnesty for the Taxable Year 2005 and Prior Years"
pursuant to RA 9480. In the absence of sufficient
evidence proving that the certification was issued in
excess of authority, the presumption that 35 it was
issued in the regular performance of the revenue
district officer's official duty stands.

Fort Bonifacio Development Corp vs CIR


FACTS:
Petitioner was a real estate developer that bought from
the national government a parcel of land that used to
be the Fort Bonifacio military reservation. At the time
of the said sale there was as yet no VAT imposed so
Petitioner did not pay any VAT on its purchase.
Subsequently, Petitioner sold two parcels of land to
Metro Pacific Corp. In reporting the said sale for VAT
purposes (because the VAT had already been imposed
in the interim), Petitioner claimed transitional input VAT
corresponding to its inventory of land. The BIR
disallowed the claim of presumptive input VAT and
thereby assessed Petitioner for deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT
on its sale of real properties given its nature as a real
estate dealer and if so (i) is the transitional input VAT
applied only to the improvements on the real property
or is it applied on the value of the entire real property
and (ii) should there have been a previous tax payment
for the transitional input VAT to be creditable?

HELD:

YES. Petitioner is entitled to claim transitional input VAT


based on the value of not only the improvements but
on the value of the entire real property and regardless
of whether there was in fact actual payment on the
purchase of the real property or not.
The amendments to the VAT law do not show any
intention to make those in the real estate business
subject to a different treatment from those engaged in
the sale of other goods or properties or in any other
commercial trade or business. On the scope of the
basis for determining the available transitional input
VAT, the CIR has no power to limit the meaning and
coverage of the term "goods" in Section 105 of the Tax
Code without statutory authority or basis. The
transitional input tax credit operates to benefit newly
VAT-registered persons, whether or not they previously
paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies.

Abakada Guro Party List Officers Samson


Alcantara and Ed Vincent Albano vs Ermita
FACTS:
RA 9337, an act amending certain sections of the
National Internal Revenue Code of 1997, is questioned
by petitioners for being unconstitutional. Procedural
issues raised by petitioners are the legality of the
bicameral proceedings, exclusive origination of
revenue measures and the power of the Senate
concomitant thereto. Also, an issue was raised with
regard to the undue delegation of legislative power to
the President to increase the rate of value-added tax to
12%.
Petitioners also argue that the increase to 12%, as well
as the 70% limitation on the creditable input tax, the
60- month amortization on the purchase or importation
of capital goods exceeding P1,000,000.00, and the 5%
final withholding tax by government agencies, is
arbitrary, oppressive, and confiscatory, and that it
violates the constitutional principle on progressive
taxation,
among
others.
ISSUE:
Whether

RA

9337

is

constitutional

RULING:
Yes. Mounting budget deficit, revenue generation,
inadequate fiscal allocation for education, increased
emoluments for health workers, and wider coverage for
full value-added tax benefits ... these are the reasons
why Republic Act No. 9337 (R.A. No. 9337) was
enacted. Reasons, the wisdom of which, the Court even
with its extensive constitutional power of review,
cannot
probe.
It has been said that taxes are the lifeblood of the
government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The
Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea
for the malady that the law seeks to remedy. As in
other cases, the Court cannot strike down a law as
unconstitutional simply because of its yokes.

Quezon City vs ABS

ISSUE:

No. The phrase except custom brokers is not meant


to discriminate against custom brokers but to avert a
potential conflict between Sections 102 and 103 of the
Tax Code, as amended. The distinction of the customs
brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based on
material differences, in that the activities of customs
partake more of a business, rather than a profession
and were thus subjected to the percentage tax under
Section 174 of the Tax Code prior to its amendment by
EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the Association did not
protest the classification of customs brokers then,
there is no reason why it should protest now.

Does the in lieu of all taxes provision in ABS-CBNs


franchise exempt it from payment of the local franchise
tax?

CIR vs Marubeni

FACTS:
ABS-CBN was granted a franchise which provides that
it shall pay a 3% franchise tax and the said
percentage tax shall be in lieu of all taxes on this
franchise or earnings thereof. It thus filed a complaint
against the imposition of local franchise tax.

Facts:
HELD:
NO. The right to exemption from local franchise tax
must be clearly established beyond reasonable doubt
and cannot be made out of inference or implications.

CIR assails the CA decision which affirmed CTA,


ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and
contractors taxes from Marubeni Corp after finding the
latter to have properly availed of the tax amnesty
under EO 41 & 64, as amended.

The uncertainty over whether the in lieu of all taxes


provision pertains to exemption from local or national
taxes, or both, should be construed against
Respondent who has the burden to prove that it is in
fact covered by the exemption claimed. Furthermore,
the in lieu of all taxes clause in Respondents
franchise has become ineffective with the abolition of
the franchise tax on broadcasting companies with
yearly gross receipts exceeding P10 million as they are
now subject to the VAT.

Marubeni, a Japanese corporation, engaged in general


import and export trading, financing and construction,
is duly registered in the Philippines with Manila branch
office. CIR examined the Manila branchs books of
accounts for fiscal year ending March 1985, and found
that respondent had undeclared income from contracts
with NDC and Philphos for construction of a wharf/port
complex and ammonia storage complex respectively.

Kapatiran vs Tan
FACTS:
EO 372 was issued by the President of the Philippines
which amended the Revenue Code, adopting the valueadded tax (VAT) effective January 1, 1988. Four
petitions assailed the validity of the VAT Law from
being beyond the President to enact; for being
oppressive, discriminatory, regressive and violative of
the due process and equal protection clauses, among
others, of the Constitution. The Integrated Customs
Brokers Association particularly contend that it unduly
discriminate against customs brokers (Section 103r) as
the amended provision of the Tax Code provides that
service performed in the exercise of profession or
calling (except custom brokers) subject to occupational
tax under the Local Tax Code and professional services
performed
by
registered
general
professional
partnerships
are
exempt
from
VAT.
ISSUE:
Whether the E-VAT law is void for being discriminatory
against
customs
brokers
RULING:

On August 27, 1986, Marubeni received a letter from


CIR assessing it for several deficiency taxes. CIR claims
that the income respondent derived were income from
Philippine sources, hence subject to internal revenue
taxes. On Sept 1986, respondent filed 2 petitions for
review with CTA: the first, questioned the deficiency
income, branch profit remittance and contractors tax
assessments and second questioned the deficiency
commercial brokers assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for
unpaid income taxes for 1981-85, and that taxpayers
who wished to avail this should on or before Oct 31,
1986. Marubeni filed its tax amnesty return on Oct 30,
1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to
include estate and donors taxes under Title 3 and
business tax under Chap 2, Title 5 of NIRC, extended
the period of availment to Dec 15, 1986 and stated
those who already availed amnesty under EO 41
should file an amended return to avail of the new
benefits. Marubeni filed a supplemental tax amnesty
return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax


amnesty and deemed cancelled the deficiency taxes.
CA affirmed on appeal.

unless it is so provided expressly or by necessary


implication and no vested right or obligations of
contract are thereby impaired.
2. On situs of taxation

Issue:
W/N Marubeni is exempted from paying tax

Held:

Marubeni contends that assuming it did not validly


avail of the amnesty, it is still not liable for the
deficiency tax because the income from the projects
came from the Offshore Portion as opposed to
Onshore Portion. It claims all materials and
equipment in the contract under the Offshore
Portion were manufactured and completed in
Japan, not in the Philippines, and are therefore
not subject to Philippine taxes.

Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax
amnesty because it falls under the exception in Sec 4b
of EO 41:
Sec. 4. Exceptions.The following taxpayers may not
avail themselves of the amnesty herein granted: xxx
b) Those with income tax cases already filed in Court
as of the effectivity hereof;
Petitioner argues that at the time respondent filed for
income tax amnesty on Oct 30, 1986, a case had
already been filed and was pending before the CTA and
Marubeni therefore fell under the exception. However,
the point of reference is the date of effectivity of EO 41
and that the filing of income tax cases must have been
made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case
questioning the 1985 deficiency was filed with CTA on
Sept 26, 1986. When EO 41 became effective, the case
had not yet been filed. Marubeni does not fall in the
exception and is thus, not disqualified from availing of
the amnesty under EO 41 for taxes on income and
branch profit remittance.
The difficulty herein is with respect to the contractors
tax assessment (business tax) and respondents
availment of the amnesty under EO 64, which
expanded EO 41s coverage. When EO 64 took effect
on Nov 17, 1986, it did not provide for exceptions to
the coverage of the amnesty for business, estate and
donors taxes. Instead, Section 8 said EO provided that:
Section 8. The provisions of Executive Orders Nos. 41
and 54 which are not contrary to or inconsistent with
this amendatory Executive Order shall remain in full
force and effect.
Due to the EO 64 amendment, Sec 4b cannot be
construed to refer to EO 41 and its date of effectivity.
The general rule is that an amendatory act operates
prospectively. It may not be given a retroactive effect

(BG: Marubeni won in the public bidding for projects


with government corporations NDC and Philphos. In the
contracts, the prices were broken down into a Japanese
Yen Portion (I and II) and Philippine Pesos Portion and
financed either by OECF or by suppliers credit. The
Japanese Yen Portion I corresponds to the Foreign
Offshore Portion, while Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine
Onshore Portion. Marubeni has already paid the
Onshore Portion, a fact that CIR does not deny.)
CIR argues that since the two agreements are turn-key,
they call for the supply of both materials and services
to the client, they are contracts for a piece of work and
are indivisible. The situs of the two projects is in the
Philippines, and the materials provided and services
rendered were all done and completed within the
territorial jurisdiction of the Philippines. Accordingly,
respondents entire receipts from the contracts,
including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total
gross receipts covering both labor and materials should
be subjected to contractors tax (a tax on the exercise
of a privilege of selling services or labor rather than a
sale on products).
Marubeni, however, was able to sufficiently prove in
trial that not all its work was performed in the
Philippines because some of them were completed in
Japan (and in fact subcontracted) in accordance with
the provisions of the contracts. All services for the
design, fabrication, engineering and manufacture of
the materials and equipment under Japanese Yen
Portion I were made and completed in Japan. These
services were rendered outside Philippines taxing
jurisdiction and are therefore not subject to
contractors tax. Petition denied.

Tan vs Del Rosario


Facts:
1. Two consolidated cases assail the validity of RA 7496 or
the Simplified Net Income Taxation Scheme ("SNIT"),
which amended certain provisions of the NIRC, as well

as the Rules and Regulations promulgated by public


respondents pursuant to said law.
2.

Petitioners posit that RA 7496 is unconstitutional as it


allegedly violates the following provisions of the
Constitution:
-Article VI, Section 26(1) Every bill passed by the
Congress shall embrace only one subject which shall be
expressed in the title thereof.
- Article VI, Section 28(1) The rule of taxation shall
be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
- Article III, Section 1 No person shall be deprived of .
. . property without due process of law, nor shall any
person be denied the equal protection of the laws.

3. Petitioners contended that public respondents exceeded


their rule-making authority in applying SNIT to general
professional partnerships. Petitioner contends that the
title of HB 34314, progenitor of RA 7496, is deficient for
being merely entitled, "Simplified Net Income Taxation
Scheme for the Self-Employed and Professionals
Engaged in the Practice of their Profession" (Petition in
G.R. No. 109289) when the full text of the title actually
reads,
'An Act Adopting the Simplified Net Income Taxation
Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending
Sections 21 and 29 of the National Internal Revenue
Code,' as amended. Petitioners also contend it violated
due process.
5. The Solicitor General espouses the position taken by
public respondents.
6. The Court has given due course to both petitions.
ISSUE: Whether or not the tax law
unconstitutional for violating due process

is

No. There is no evident intention of the law, either


before or after the amendatory legislation, to place in
an unequal footing or in significant variance the
income tax treatment of professionals who practice
their respective professions individually and of those
who do it through a general professional partnership.

CIR vs. Isabela Cultural Corporation


Facts: Isabela Cultural Corporation (ICC), a domestic
corporation

received

an

assessment

notice

for deficiency income tax and expanded withholding


tax from BIR. It arose from the disallowance of
ICCs claimed expense
services

paid

understatement

by

for professional and

ICC;
of

as

well

interest

as

the

income

security
alleged
on

the

three promissory notes due from Realty Investment Inc.


Thedeficiency expanded withholding tax was allegedly
due to the failure of ICC to withhold 1% e-withholding
tax on its claimed deduction for security services.
ICC sought a reconsideration of the assessments.
Having received a final notice of assessment, it brought
the case to CTA, which held that it is unappealable,
since the final notice is not a decision. CTAs ruling was
reversed by CA, which was sustained by SC, and case
was remanded to CTA. CTA rendered a decision in favor
of ICC. It ruled that the deductions for professional and

NO. The due process clause may correctly be invoked


only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax
power. No such transgression is so evident in herein
case.

security services were properly claimed, it said that

1. Uniformity of taxation, like the concept of equal


protection, merely requires that all subjects or objects
of taxation, similarly situated, are to be treated alike
both in privileges and liabilities. Uniformity does not
violate classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2)
the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to
both present and future conditions, and (4) the
classification applies equally well to all those belonging
to the same class.

the BIR which overstate the interest income, when it

2. What is apparent from the amendatory law is the


legislative intent to increasingly shift the income tax
system towards the schedular approach in the income
taxation of individual taxpayers and to maintain, by
and large, the present global treatment on taxable
corporations. The Court does not view this
classification to be arbitrary and inappropriate.
ISSUE 2: Whether or not public respondents
exceeded their authority in promulgating the RR

even if services were rendered in 1984 or 1985, the


amount is not yet determined at that time. Hence it is
a proper deduction in 1986. It likewise found that it is
applied compounding absent any stipulation.
Petitioner appealed to CA, which affirmed CTA, hence
the petition.
Issue: Whether

or

not

the

expenses

for professional and security services are deductible.


Held: No. One of the requisites for the deductibility of
ordinary and necessary expenses is that it must have
been paid or incurred during the taxable year. This
requisite is dependent on the method of accounting of
the taxpayer. In the case at bar, ICC is using
theaccrual method of accounting. Hence, under this

method, an expense is recognized when it is incurred.

Don Andres Soriano (American), founder of A. Soriano

Under a Revenue Audit Memorandum, when the

Corp. (ASC) had a total shareholdings of 185,154

method

shares. Broken down, the shares comprise of 50,495

of

accounting

is accrual,

expenses

not

being claimed as deductions by a taxpayer in the


current

year

when

they

are

incurred

cannot

be claimed in the succeeding year.


The accrual of income and expense is permitted when
the all-events test has been met. This test requires: 1)
fixing of a right to income or liability to pay; and 2) the
availability of the reasonable accurate determination of
such income or liability. The test does not demand that

shares

which

were

of

original

issue

when

the

corporation was founded and 134,659 shares as stock


dividend declarations. So in 1964 when Soriano died,
half of the shares he held went to his wife as her
conjugal share (wifes legitime) and the other half
(92,577 shares, which is further broken down to
25,247.5 original issue shares and 82,752.5 stock
dividend shares) went to the estate. For sometime

the amount of income or liability be known absolutely,

after his death, his estate still continued to receive

only that a taxpayer has at its disposal the information

stock dividends from ASC until it grew to at least

necessary to compute the amount with reasonable

108,000 shares.

accuracy.
In 1968, ASC through its Board issued a resolution for
From the nature of the claimed deductions and the

the

span of time during which the firm was retained, ICC

purportedly for the planned Filipinization of ASC.

can be expected to have reasonably known the

Eventually, 108,000 shares were redeemed from the

retainer fees charged by the firm. They cannot give as

Soriano Estate. In 1973, a tax audit was conducted.

an excuse the delayed billing, since it could have

Eventually, the Commissioner of Internal Revenue (CIR)

inquired into the amount of their obligation and

issued an assessment against ASC for deficiency

reasonably determine the amount.

redemption

of

shares

from

Sorianos

estate

withholding tax-at-source. The CIR explained that when


the

redemption

was

made,

the

estate

profited

Calasanz v.CIR

(because ASC would have to pay the estate to

Facts: Ursula Calasanz inherited from her father an


agricultural land. Improvements were introduced to
make such land saleable and later in it was sold to the
public at a profit. The Revenue examiner adjudged
Ursula and her spouse as engaged in business as real
estate dealers and required them to pay the real estate
dealers tax.

redeem),

Issue: Whether or not the gains realized from the sale


of the lots are taxable in full as ordinary income or
capital gains taxable at capital gain rates?

from the estate because it redeemed the said shares

Held: The activities of Calasanz are indistinguishable


from those invariably employed by one engaged in the
business of selling real estate. One strong factor is the
business element of development which is very much
in evidence. They did not sell the land in the condition
in which they acquired it. Inherited land which an heir
subdivides and makes improvements several times
higher than the original cost of the land is not a capital
asset but an ordinary asses. Thus, in the course of
selling the subdivided lots, they engaged in the real
estate business and accordingly the gains from the
sale of the lots are ordinary income taxable in full.

and

so

ASC

would

have

withheld

tax

payments from the Soriano Estate yet it remitted no


such withheld tax to the government.
ASC averred that it is not duty bound to withhold tax

for purposes of Filipinization of ASC and also to


reduce its remittance abroad.
ISSUE: Whether or not ASCs arguments are tenable.
HELD: No. The reason behind the redemption is not
material. The proceeds from a redemption is taxable
and ASC is duty bound to withhold the tax at source.
The

Soriano

Estate

definitely

profited

from

the

redemption and such profit is taxable, and again, ASC


had the duty to withhold the tax. There was a total of

Commissioner of Internal Revenue vs Court of


Appeals and A. Soriano Corp.

108,000 shares redeemed from the estate. 25,247.5 of


that was original issue from the capital of ASC. The rest

(82,752.5) of the shares are deemed to have been from

distributed

stock dividend shares. Sale of stock dividends is

dividends without violating the trust fund doctrine

taxable. It is also to be noted that in the absence of

wherein the capital stock, property and other assets of

evidence to the contrary, the Tax Code presumes that

the corporation are regarded as equity in trust for the

every distribution of corporate property, in whole or in

payment of the corporate creditors. Once capital, it is

part, is made out of corporate profits such as stock

always capital. That doctrine was intended for the

dividends.

protection of corporate creditors.

It cannot be argued that all the 108,000 shares were


distributed from the capital of ASC and that the latter is
merely redeeming them as such. The capital cannot be

in

the

form

of

redemption

of

stock