Page 1 of 30

ENGRACIA FRANCIA VS. INTERMEDIATE APPELLATE COURT

162 SCRA 753, Set-off of Taxes
FACTS:
Engracio Francia was the owner of a 328 square meter land in Pasay City. In
October 1977, a portion of his land (125 square meter) was expropriated by
the government for P4,116.00. The expropriation was made to give way to
the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963
amounting to P2,400.00. So in December 1977, the remaining 203 square
meters of his land was sold at a public auction (after due notice was given
him). The highest bidder was a certain Ho Fernandez who paid the purchase
price of P2,400.00 (which was lesser than the price of the portion of his land
that was expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that
the selling price was grossly inadequate. He further argued that his land
should have never been auctioned because the P2,400.00 he owed the
government in taxes should have been set-off by the debt the government
owed him (legal compensation). He alleged that he was not paid by the
government for the expropriated portion of his land because though he knew
that the payment therefor was deposited in the Philippine National Bank, he
never withdrew it.

of set-off, which are construed uniformly, in the light of public policy, to

exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither
are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw
the money. Had he done that, he could have paid his tax obligations even
before the auction sale or could have exercised his right to redeem which
he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate,
the same is not tenable. The Supreme Court said: alleged gross inadequacy
of price is not material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the
price, the easier it is for the owner to effect redemption. If mere inadequacy
of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. Where land is sold for taxes, the inadequacy of the
price given is not a valid objection to the sale. This rule arises from
necessity, for, if a fair price for the land were essential to the sale, it would be
useless to offer the property. Indeed, it is notorious that the prices habitually
paid by purchasers at tax sales are grossly out of proportion to the value of
the land.

ISSUE:
Whether or not the tax owed by Francia should be set-off by the debt owed
him by the government.
HELD:
No. As a rule, set-off of taxes is not allowed. There is no legal basis for the
contention. By legal compensation, obligations of persons, who in their own
right are reciprocally debtors and creditors of each other, are extinguished
(Art. 1278, Civil Code). This is not applicable in taxes. There can be no offsetting 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.
The Supreme Court emphasized: A claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off under the statutes

DOMINGO VS. GARLITOS (JUNE 29, 1963)

Page 2 of 30
CASE DOCTRINE:
COMPENSATION BETWEEN TAXES AND CLAIMS OF INTESTATE
RECOGNIZED AND APPROPRIATED FOR BY LAW. The fact that the
court having jurisdiction of the estate had found that the claim of the estate
against the Government has been appropriated for the purpose by a
corresponding law (Rep Act No. 2700) shows that both the claim of the
Government for 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 the Provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount.
FACTS: The Supreme Court declared as final and executory the order of the
Court of First Instance of Leyte for the payment of estate and inheritance
taxes, charges and penalties amounting to P40,058.55 by the Estate of the
late Walter Scott Price. The petition for execution filed by the fiscal, however,
was denied by the lower court. The Court held that the execution is
unjustified as the Government itself is indebted to the Estate for 262,200; and
ordered the amount of inheritance taxes be deducted from the Governments
indebtedness to the Estate.

ISSUE: Whether a tax and a debt may be compensated.

HELD: 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 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 the
concurrent amount.
PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS
BANK, INC.), vs. COMMISSIONER OF INTERNAL REVENUE.
G.R. No. 170574
January 30, 2009

Page 3 of 30

Facts:
Petitioner is a domestic corporation duly licensed as a banking institution.
For the taxable years 1996 and 1997, petitioner offered its "Special/Super
Savings Deposit Account" (SSDA) to its depositors. The SSDA is a form of a
savings deposit evidenced by a passbook and earning a higher interest rate
than a regular savings account. Petitioner believes that the SSDA is not
subject to Documentary Stamp Tax (DST) under Section 180 of the 1977
National Internal Revenue Code (NIRC), as amended.
Commissioner of Internal Revenue (respondent) sent petitioner a Final
Assessment Notice assessing deficiency DST based on the outstanding
balances of its SSDA. Petitioner maintains that the tax assessments are
erroneous because Section 180 of the 1977 NIRC does not include deposits
evidenced by a passbook among the enumeration of instruments subject to
DST. SSDA is in the nature of a regular savings account and the only
difference is for SSDA depositors who maintain savings deposits with a
substantial average daily balance are given higher interest than the regular
deposits.

deposit account issued by a bank qualifies as a certificate of deposit drawing

interest. It is clear that the SSDA is a certificate of deposit drawing interest
subject to DST even if it is evidenced by a passbook and non-negotiable in
character.
The Court categorically ruled that a passbook representing interest earning
deposit account issued by bank qualifies as a certificate of deposit drawing
interest and should be subject to DST.
During the pendency of this case, R.A. No. 9480, an act granting amnesty on
unpaid internal revenue taxes for taxable year 2005 and prior years, lapsed
into law. On September 2007, the petitioner filed a Tax Amnesty Return and
complied with all the requirements. Tax amnesty is a general pardon or the
intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of violation of a tax law. The DST is one of the
taxes covered by the Tax Amnesty Program under RA 9480. As discussed
above, petitioner is clearly liable to pay the DST on its SSDA for the years
1996 to 1997. Its completion with the requirements shall be deemed
compliance with the tax amnesty program, thus, the law mandates that the
taxpayer shall thereafter be immune from the payment of taxes as well as the
appurtenant civil, criminal or administrative penalties under the NIRC of
1997.

Respondent contends that SSDA is substantially the same and identical to

that of time deposit account because in order to avail of the SSDA, one has
to deposit a minimum of P50,000 and this amount must be maintained for a
required period of time to earn high interest rates.
CTA denied the petition and ordered the petitioner to pay the deficiency
documentary taxes.
Issue : WON the SSDA is subject to documentary stamp tax.
Held: YES
Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the
face value of any certificate of deposit drawing interest. As correctly observed
by the CTA, a certificate of deposit is a written acknowledgment by a bank of
the receipt of a sum of money on deposit which the bank promises to pay to
the depositor, to the order of the depositor, or to some other person or his
order, whereby the relation of debtor or creditor between the bank and the
depositor is created. The term written acknowledgment which means for as
long as there is some written memorandum of the fact that the bank
accepted a deposit of sum of money from a depositor, the writing constitutes
a certificate of deposit and the passbook representing an interest earning

COMMISSIONER OF INTERNAL REVENUE,

GONZALEZ

vs.

HON. RAUL M.

Page 4 of 30

FACTS:
Pursuant to Letter of Authority (LA) dated August 25, 2000, conducted
a fraud investigation for all internal revenue taxes to ascertain/determine
the tax liabilities of respondent L. M. Camus Engineering Corporation
(LMCEC) for the taxable years 1997, 1998 and 1999.
The audit and investigation against LMCEC was precipitated by the
information provided by an "informer" that LMCEC had substantial
underdeclared income for the said period.
For failure to comply with the subpoena duces tecum issued in
connection with the tax fraud investigation,
a criminal complaint was instituted by the Bureau of Internal
Revenue (BIR) against LMCEC on January 19, 2001 for violation of
Section 266 of the NIRC
Based on data obtained from an "informer" and various clients of
LMCEC, it was discovered that LMCEC filed fraudulent tax returns
with substantial underdeclarations of taxable income for the years
1997, 1998 and 1999.
Petitioner thus assessed the company of total deficiency taxes
amounting to P430,958,005.90 (income tax - P318,606,380.19 and
value-added tax [VAT] - P112,351,625.71) covering the said period.
The Preliminary Assessment Notice (PAN) was received by LMCEC
on February 22, 2001.
In view of the above findings, assessment notices together with a
formal letter of demand dated August 7, 2002 were sent to LMCEC
through personal service on October 1, 2002.
Since the company and its representatives refused to receive the said
notices and demand letter, the revenue officers resorted to
constructive service in accordance with Section 3, Revenue
Regulations (RR) No. 12-9911.
On May 21, 2003, petitioner, referred to the Secretary of Justice for
preliminary investigation its complaint against LMCEC, Luis M. Camus
and Lino D. Mendoza, the latter two were sued in their capacities as
President and Comptroller, respectively.
The case was docketed as I.S. No. 2003-774. In the Joint Affidavit
executed by the revenue officers who conducted the tax fraud

investigation,
it was alleged that despite the receipt of the final assessment notice
and formal demand letter on October 1, 2002, LMCEC failed and
refused to pay the deficiency tax assessment in the total amount of
P630,164,631.61, inclusive of increments, which had become final
and executory as a result of the said taxpayers failure to file a
protest thereon within the thirty (30)-day reglementary period.
Camus and Mendoza filed a Joint Counter-Affidavit contending that
LMCEC cannot be held liable whatsoever for the alleged tax
deficiency which had become due and demandable. Considering that
the complaint and its annexes all showed that the suit is a simple civil
action for collection and not a tax evasion case,
LMCEC further averred that it had availed of the Bureaus Tax
Amnesty Programs (Economic Recovery Assistance Payment
[ERAP] Program and the Voluntary Assessment Program [VAP])
for 1998 and 1999; for 1997, its tax liability was terminated and
closed under Letter of Termination
LMCEC argued that petitioner is now estopped from further taking
any action against it and its corporate officers concerning the taxable
years 1997 to 1999. With the grant of immunity from audit from
the companys availment of ERAP and VAP, which have a
feature of a tax amnesty, the element of fraud is negated
LMCEC further asserted that it filed on April 20, 2001 a protest on
the PAN issued by petitioner for having no basis in fact and law.
However, until now the said protest remains unresolved.
In the Joint Reply-Affidavit executed by the Bureaus revenue officers,
petitioner disagreed with the contention of LMCEC that the
complaint filed is not criminal in nature, pointing out that LMCEC and
its officers Camus and Mendoza were being charged for the criminal
offenses defined and penalized under Sections 254 (Attempt to Evade or
Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC.
In this case, the BIR decided to simultaneously pursue both
remedies and thus aside from this criminal action, the Bureau also
initiated administrative proceedings against LMCEC.
Petitioner stressed that LMCEC already lost its right to file a
protest letter after the lapse of the thirty (30)-day reglementary
period. LMCECs protest-letter dated December 12, 2002 to RDO
Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was actually

Page 5 of 30

filed only on December 16, 2002, which was disregarded by the

petitioner for being filed out of time.
Petitioner further asserted that LMCECs claim that it was
granted immunity from audit when it availed of the VAP and
ERAP programs is misleading. LMCEC failed to state that its
availment of ERAP under RR No. 2-99 is not a grant of absolute
immunity from audit and investigation,
Petitioner also pointed out that LMCECs assertion correlating
this case with I.S. No. 00-956 is misleading because said case
involves another violation and offense due to the failure of
LMCEC to submit or present its books of accounts and other
accounting records for examination despite the issuance of
subpoena duces tecum against Camus in his capacity as
President of LMCEC. The determination of probable cause in said
case is confined to the issue of whether there was already a
violation of the NIRC by Camus in not complying with the
subpoena duces tecum issued by the BIR.

ISSUE: whether LMCEC and its corporate officers may be prosecuted

for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate Information and Pay
Tax).
HELD:
We grant the petition.
There is no dispute that prior to the filing of the complaint with the
DOJ, the report on the tax fraud investigation conducted on LMCEC
disclosed that it made substantial underdeclarations in its income
tax returns for 1997, 1998 and 1999.
Pursuant to RR No. 12-99,38 a PAN was sent to and received by
LMCEC on February 22, 2001 wherein it was notified of the proposed
assessment of deficiency taxes. In response to said PAN, LMCEC sent a
letter-protest to the TFD, which denied the same on April 12, 2001 for
lack of legal and factual basis and also for having been filed beyond the
15-day reglementary period.
As mentioned in the PAN, the revenue officers were not given the
opportunity to examine LMCECs books of accounts and other

accounting records because its officers failed to comply with the

subpoena duces tecum earlier issued, to verify its alleged
underdeclarations of income reported by the Bureaus informant under
Section 282 of the NIRC. Hence, a criminal complaint was filed by the
Bureau against private respondents for violation of Section 266
For the crime of tax evasion in particular, compliance by the
taxpayer with such subpoena, if any had been issued, is irrelevant.
As we held in Ungab v. Cusi, Jr.,41 "[t]he crime is complete when
the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent
[return] with intent to evade and defeat x x x the tax."
In the Details of Discrepancies attached as Annex B of the PAN,42
private respondents were already notified that inasmuch as the revenue
officers were not given the opportunity to examine LMCECs books
of accounts, accounting records and other documents, said
revenue officers gathered information from third parties. Such
procedure is authorized under Section 5 of the NIRC,

Respondent Secretary, however, fully concurred with private respondents

contention that the assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been
settled and/or terminated.
We do not agree.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to
respond to a Pre-Assessment Notice (PAN) within the prescribed
period of time, or whose reply to the PAN was found to be without
merit.
The Notice of Assessment shall inform the [t]axpayer of this fact, and
that the report of investigation submitted by the Revenue Officer
conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based,
otherwise the formal letter of demand and the notice of
assessment shall be void.
The formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should
inform the taxpayer of the declaration of deficiency tax against said

Page 6 of 30

taxpayer.
The Formal Letter of Demand dated August 7, 2002 contains not only a
detailed computation of LMCECs tax deficiencies but also details of the
specified discrepancies, explaining the legal and factual bases of the
assessment. It also reiterated that in the absence of accounting records
and other documents necessary for the proper determination of the
companys internal revenue tax liabilities, the investigating revenue
officers resorted to the "Best Evidence Obtainable" as provided in
Section 6(B) of the NIRC (third party information)

Economic Recovery Assistance Payment (ERAP) Program

The program named as "Economic Recovery Assistance Payment
(ERAP) Program" granted immunity from audit and investigation of
income tax, VAT and percentage tax returns for 1998.
It expressly excluded withholding tax returns (whether for income, VAT,
or percentage tax purposes).

Since such immunity from audit and investigation does not

preclude the collection of revenues generated from audit and
enforcement activities, it follows that the Bureau is likewise not barred
from collecting any tax deficiency discovered as a result of tax fraud
investigations.
Tax amnesty is a general pardon to taxpayers who want to start a
clean tax slate.
It also gives the government a chance to collect uncollected tax from
tax evaders without having to go through the tedious process of a tax
case.
Even assuming arguendo that the issuance of RR No. 2-99 is in the
nature of tax amnesty, it bears noting that a tax amnesty, much like a
tax exemption, is never favored nor presumed in law and if granted
by statute, the terms of the amnesty like that of a tax exemption must
be construed strictly against the taxpayer and liberally in favor of the
taxing authority.
For the same reason, the availment by LMCEC of VAP under RR No.
8-2001 as amended by RR No. 10-2001, through payment supposedly
made in October 29, 2001 before the said program ended on October 31,
2001, did not amount to settlement of its assessed tax deficiencies
for the period 1997 to 1999, nor immunity from prosecution for filing
fraudulent return and attempt to evade or defeat tax.

As correctly asserted by petitioner, from the express terms of the

aforesaid revenue regulations, LMCEC is not qualified to avail of the
VAP granting taxpayers the privilege of last priority in the audit and
investigation of all internal revenue taxes for the taxable year 2000
and all prior years under certain conditions, considering that
first, it was issued a PAN on February 19, 2001, and
second, it was the subject of investigation as a result of verified
information filed by a Tax Informer under Section 282 of the NIRC
duly recorded in the BIR Official Registry as Confidential Information
(CI) No. 29-200053 even prior to the issuance of the PAN.
Moreover, private respondents cannot invoke LMCECs availment
of VAP to foreclose any subsequent audit of its account books
and other accounting records in view of the strong finding of
underdeclaration in LMCECs payment of correct income tax
liability by more than 30%

LMCEC -- the alleged violation of the general rule in Section 235 of the NIRC
allowing the examination and inspection of taxpayers books of
accounts and other accounting records only once in a taxable year
likewise untenable
the discovery of substantial underdeclarations of income by LMCEC
for taxable years 1997, 1998 and 1999, as well as the necessity of
obtaining information from third parties to ascertain the correctness of the
return filed or evaluation of tax compliance in collecting taxes (as a
result of the disobedience to the summons issued by the Bureau
against the private respondents), are circumstances warranting
exception from the general rule in Section 235.
Consequently, respondent Secretarys ruling that the filing of criminal
complaint for violation of Sections 254 and 255 of the NIRC cannot
prosper because of lack of prior determination of the existence of fraud, is
bereft of factual basis and contradicted by the evidence on record.
Tax assessments by tax examiners are presumed correct and made
in good faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.
We have held that a taxpayers failure to file a petition for review with
the Court of Tax Appeals within the statutory period rendered the
disputed assessment final, executory and demandable, thereby

Page 7 of 30

precluding it from interposing the defenses of legality or validity of the

assessment and prescription of the Governments right to assess.
Indeed, any objection against the assessment should have been pursued
following the avenue paved in Section 229 (now Section 228) of the
NIRC on protests on assessments of internal revenue taxes.
Records bear out that the assessment notice and Formal Letter of
Demand dated August 7, 2002 were duly served on LMCEC on
October 1, 2002.
Private respondents did not file a motion for reconsideration of the
said assessment notice and formal demand; neither did they appeal
to the Court of Tax Appeals.
xxxxx assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the
assessment by the taxpayer.
No such administrative protest was filed by private respondents seeking
reconsideration of the August 7, 2002 assessment notice and formal
letter of demand.
Moreover, these objections to the assessments should have been
raised, considering the ample remedies afforded the taxpayer by
the Tax Code, with the Bureau of Internal Revenue and the Court of Tax
Appeals, as described earlier, and cannot be raised now via Petition
for Certiorari, under the pretext of grave abuse of discretion.
The subject tax assessments having become final, executory and
enforceable, the same can no longer be contested by means of a
disguised protest.
The determination of probable cause is part of the discretion
granted to the investigating prosecutor and ultimately, the
Secretary of Justice.
However, this Court and the CA possess the power to review
findings of prosecutors in preliminary investigations.
Although policy considerations call for the widest latitude of
deference to the prosecutors findings, courts should never shirk
from exercising their power, when the circumstances warrant, to
determine whether the prosecutors findings are supported by the
facts, or by the law.
In so doing, courts do not act as prosecutors but as organs of
the judiciary, exercising their mandate under the Constitution,

relevant statutes, and remedial rules to settle cases and

controversies.
Clearly, the power of the Secretary of Justice to review does not
preclude this Court and the CA from intervening and exercising
our own powers of review with respect to the DOJs findings,
such as in the exceptional case in which grave abuse of discretion is
committed, as when a clear sufficiency or insufficiency of evidence to
support a finding of probable cause is ignored.

Page 8 of 30

G.R. No. L-27641 August 31, 1971

ALLIED
BROKERAGE
CORPORATION,vs.
THE COMMISSIONER OF CUSTOMS and the COURT OF TAX APPEALS
FERNANDO, J.:

FACTS: Allied Brokerage Corporation is duly licensed to engage in the

customs brokerage business and seeks to refund P35,227.00 paid to the
Customs Arrastre Service allegedly in excess of what was due under the
Tariff and Customs Code. Commissioner of Customs contended that Allied
lacked a cause of action as it did not pay under protest the charges collected
but instead filed its claim for refund directly with the Commissioner of
Customs. Thus, Allied did not exhaust the administrative remedies.
CTA ruled in favor of the Commissioner and concluded that the filing
of a written protest with the proper Collector of Customs within the statutory
period is mandatory and a condition precedent for the recovery of customs
duties, fees and other charges allegedly erroneously or illegally collected and
non-compliance therewith bars and is fatal to the action.
ISSUE: WON ALLIED BROKERAGE IS ENTITLED FOR REFUND
HELD: NO. The Tariff and Customs Code has indicated in a manner definite
and certain how a challenged actuation of a collector of customs may be
elevated to CTA. The party adversely affected "may protest such ruling or
decision by presenting to the Collector at the time when payment of the
amount claimed to be due the government is made, or within thirty days
thereafter, a written protest setting forth his objections to the ruling or
decision in question, together with the reasons therefor." It is stressed in the
next section that the interested party who desires such a review of the action
taken by the Collector "shall make a protest, otherwise, the action of the

Collector shall be final and conclusive against him, ... ." Then, there is the
explicit provision that such an aggrieved party in any matter presented by
protest "may, within fifteen days after notification in writing by the Collector of
his action or decision, give written notice to the Collector of his desire to have
the matter reviewed by the Commissioner."
Where a provision of law speaks categorically the need for
interpretation is obviated, no plausible pretense being entertained to justify
non-compliance. All that has to be done is to apply it in every case that falls
within its terms. CTA then had no other choice but to dismiss the case in view
of the fatal omission of petitioner.

Page 9 of 30
second and fourth quarters of 2000, and requesting the immediate settlement
of the deficiency tax assessment.
GF then received the Formal Letter of Demand, for the payment of the total
amount of P 33,864,186.62. In response, it filed a letter to protest the
assessment and to reiterate its request for reconsideration on the denial of its
claim for refund.
On June 30, 2004, the Deputy Commissioner, Officer-in-Charge of the Large
Taxpayers Service of the BIR, denied GFs written protest for lack of factual
and legal basis and requested the immediate payment of the P
33,864,186.62 deficiency percentage tax assessment.

GULF AIR COMPANY, PHILIPPINE BRANCH (GF), Petitioner, v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.
G.R. No. 182045 : September 19, 2012

Facts: Petitioner Gulf Air Company Philippine Branch (GF) is a branch of

Gulf Air Company, a foreign corporation duly organized in accordance with
the laws of the Kingdom of Bahrain.
In 2001, GF availed of the Voluntary Assessment Program of the Bureau of
Internal Revenue (BIR) under Revenue Regulations 8-2001 for its 1999 and
2000 Income Tax and Documentary Stamp Tax and its Percentage Tax for
the third quarter of 2000, paying a total of P 11,964,648.00.
GF also made a claim for refund of percentage taxes for the first, second and
fourth quarters of 2000. In connection with this, a letter of authority was
issued by the BIR authorizing its revenue officers to examine GFs books of
accounts and other records to verify its claim.
After its submission of several documents and an informal conference with
BIR representatives, GF received its Preliminary Assessment Notice on
November 4, 2003 for deficiency percentage tax amounting to P
32,745,141.93. On the same day, GF also received a letter denying its claim
for tax credit or refund of excess percentage tax remittance for the first,

Aggrieved, GF filed a petition for review with the CTA. The CTA affirmed the
decision of the BIR and ordered the payment of P 41,117,734.01 plus 20%
delinquency interest.
GF elevated the case to the CTA En Banc which promulgated its Decision on
January 30, 2008 dismissing the petition and affirming the decision of the
CTA in Division. It found that Revenue Regulations No. 6-66 was the
applicable rule because the period involved in the assessment covered the
first, second and fourth quarters of 2000 and the amended percentage tax
returns were filed on October 25, 2001. Revenue Regulations No. 15-2002,
which took effect on October 26, 2002, could not be given retroactive effect
because it was declarative of a new right as it provided a different rule in
determining gross receipts.
GF subsequently filed a motion for reconsideration but the same was denied
by the CTA En Banc in its March 12, 2008 Resolution. Hence, this petition.
Issue: W/N the definition of "gross receipts," for purposes of computing the
3% Percentage Tax under Section 118(A) of the 1997 National Internal
Revenue Code (NIRC), should include special commissions on passengers
and special commissions on cargo based on the rates approved by the Civil
Aeronautics Board.
Ruling: Affirmative.
Section 118(A) of the NIRC states that: Sec. 118. Percentage Tax on
International Carriers.

Page 10 of 30
(A) International air carriers doing business in the Philippines shall pay a tax
of three percent (3%) of their quarterly gross receipts.
Pursuant to this, the Secretary of Finance promulgated Revenue Regulations
No. 15-2002, which prescribes that "gross receipts" for the purpose of
determining Common Carriers Tax shall be the same as the tax base for
calculating Gross Philippine Billings Tax. Section 5 of the same provides for
the computation of "Gross Philippine Billings":
Sec. 5. Determination of Gross Philippine Billings.
(a) In computing for "Gross Philippine Billings," there shall be included the
total amount of gross revenue derived from passage of persons, excess
baggage, cargo and/or mail, originating from the Philippines in a continuous
and uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the passage documents.
This expressly repealed Revenue Regulations No. 6-66 that stipulates a
different manner of calculating the gross receipts:
There is no doubt that prior to the issuance of Revenue Regulations No. 152002 which became effective on October 26, 2002, the prevailing rule then
for the purpose of computing common carriers tax was Revenue Regulations
No. 6-66. While the petitioners interpretation has been vindicated by the new
rules which compute gross revenues based on the actual amount received
by the airline company as reflected on the plane ticket, this does not change
the fact that during the relevant taxable period involved in this case, it was
Revenue Regulations No. 6-66 that was in effect.
As such, absent any showing that Revenue Regulations No. 6-66 is
inconsistent with the provisions of the NIRC, its stipulations shall be upheld
and applied accordingly. This is in keeping with our primary duty of
interpreting and applying the law. Regardless of our reservations as to the
wisdom or the perceived ill-effects of a particular legislative enactment, the
court is without authority to modify the same as it is the exclusive province of
the law-making body to do so.
Moreover, the validity of the questioned rules can be sustained by the
application of the principle of legislative approval by re-enactment. Under the
aforementioned legal concept, "where a statute is susceptible of the meaning

placed upon it by a ruling of the government agency charged with its

enforcement and the Legislature thereafter re-enacts the provisions without
substantial change, such action is to some extent confirmatory that the ruling
carries out the legislative purpose." Thus, there is tacit approval of a prior
executive construction of a statute which was re-enacted with no substantial
changes.
In this case, Revenue Regulations No. 6-66 was promulgated to enforce the
provisions of Title V, Chapter I (Tax on Business) of Commonwealth Act No.
466 (National Internal Revenue Code of 1939), under which Section 192,
pertaining to the common carriers tax, can be found:
The legislature is presumed to have full knowledge of the existing revenue
regulations interpreting the aforequoted provision of law and, with its
subsequent substantial re-enactment, there is a presumption that the
lawmakers have approved and confirmed the rules in question as carrying
out the legislative purpose.Hence, it can be concluded that with the
continued duplication of the NIRC provision on common carriers tax, the lawmaking body was aware of the existence of Revenue Regulations No. 6-66
and impliedly endorsed its interpretation of the NIRC and its definition of
gross receipts.

Page 11 of 30
ORDERED to DESIST from collecting the said DST deficiency tax.
Respondent appealed the CTA decision to the (CA) insofar as it cancelled
the DST assessment. He claimed that petitioners health care agreement
was a contract of insurance subject to DST under Section 185 of the 1997
Tax
Code.
On August 16, 2004, the CA rendered its decision which held that petitioners
health care agreement was in the nature of a non-life insurance contract
subject to DST. Respondent is ordered to pay the deficiency Documentary
Stamp Tax. Petitioner moved for reconsideration but the CA denied it.
ISSUES:
(1) Whether or not Philippine Health Care Providers, Inc. engaged in
insurance business.
(2) Whether or not the agreements between petitioner and its members
possess all elements necessary in the insurance contract.

PHIL. HEALTH CARE PROVIDERS, INC vs. COMMISSIONER OF

INTERNAL REVENUE
FACTS: Petitioner is a domestic corporation whose primary purpose is to
establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of the
sick and disabled persons enrolled in the health care plan and to provide for
the administrative, legal, and financial responsibilities of the organization. On
January 27, 2000, respondent CIR sent petitioner a formal deman letter and
the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997
in the total amount of P224,702,641.18. The deficiency assessment was
imposed on petitioners health care agreement with the members of its health
care program pursuant to Section 185 of the 1997 Tax Code. Petitioner
protested the assessment in a letter dated February 23, 2000. As respondent
did not act on the protest, petitioner filed a petition for review in the Court of
Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments. On April 5, 2002, the CTA rendered a decision, ordering the
petitioner to PAY the deficiency VAT amounting to P22,054,831.75 inclusive
of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for
the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge
plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without
force and effect. The 1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE. Respondent is

HELD: NO. Health Maintenance Organizations are not engaged in the

insurance business. The SC said in June 12, 2008 decision that it is
irrelevant that petitioner is an HMO and not an insurer because its
agreements are treated as insurance contracts and the DST is not a tax on
the business but an excise on the privilege, opportunity or facility used in the
transaction of the business. Petitioner, however, submits that it is of critical
importance to characterize the business it is engaged in, that is, to determine
whether it is an HMO or an insurance company, as this distinction is
indispensable in turn to the issue of whether or not it is liable for DST on its
health care agreements. Petitioner is admittedly an HMO. Under RA 7878 an
HMO is an entity that provides, offers or arranges for coverage of
designated health services needed by plan members for a fixed prepaid
premium. The payments do not vary with the extent, frequency or type of
services provided. Section 2 (2) of PD 1460 enumerates what constitutes
doing an insurance business or transacting an insurance businesswhich
are making or proposing to make, as insurer, any insurance contract; making
or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the
surety; doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business
within the meaning of this Code; doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner designed to evade
the provisions of this Code.
Overall, petitioner appears to provide insurance-type benefits to its members
(with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. The insurance-like aspect

Page 12 of 30
of petitioners business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance
business.

G.R. No. L-60126 September 25, 1985

CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.

existing special or general laws to the contrary". Thus, franchise

companies were subjected to income tax in addition to franchise tax.
On August 4, 1969, petitioners franchise was amended thereby
reenacting the tax exemption in its original charter.
By reason of the amendment to section 24 of the Tax Code, the
Commissioner of Internal Revenue required the petitioner to pay
deficiency income taxes for 1968-to 1971. The petitioner contested
the assessments. The Commissioner cancelled the assessments for
1970 and 1971 but insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on
February 26, 1982 held the petitioner liable only for the income tax
for the period from January 1 to August 3, 1969 or before the
passage of Republic Act No. 6020 which reiterated its tax exemption.
The petitioner appealed to the Supreme Court.

Issue: WON Cagayan Electric is liable for income tax (aside from franchise
tax) from January to August 1969.
Held:
No.

AQUINO, J.:
Facts:
Cagayan Electric Power & Light Co., Inc is the holder of a legislative
franchise, Republic Act No. 3247, under which its payment of 3% tax
on its gross earnings from the sale of electric current is "in lieu of all
taxes and assessments of whatever authority upon privileges,
earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee, from which taxes and assessments the
grantee is hereby expressly exempted.
On June 27, 1968, Republic Act No. 5431 amended section 24 of the
Tax Code by making liable for income tax all corporate taxpayers not
specifically exempt under paragraph (c) (1) of said section and
section 27 of the Tax Code notwithstanding the "provisions of

The petitioners exemption was restored by the subsequent

enactment of Republic Act No. 6020 on August 4, 1969. The Tax
Court thus acted correctly in holding petitioner liable for income
tax from January 1 to August 3, 1969, the period when its tax
exemption was modified by Republic Act No. 5431.
The SC however noted that the 1969 assessment was highly
controversial. The Commissioner at the outset was not certain as
to petitioner's income tax liability. For this reason, the Court held
that Cagayan Electric should be liable only for tax proper and
should not be held liable for the surcharge and interest.

Page 13 of 30
made. The City of Quezon and its Treasurer filed a motion for
reconsideration which was subsequently denied by the RTC. Thus, appeal
was made to the CA. The CA dismissed the petition of Quezon City and its
Treasurer. According to the appellate court, the issues raised were purely
legal questions cognizable only by the Supreme Court.

ISSUE: Whether or not the phrase "in lieu of all taxes" indicated in the
franchise of the respondent appellee (Section 8 of RA 7966) serves to
exempt it from the payment of the local franchise tax imposed by the
petitioners-appellants.
HELD: NO
The "in lieu of all taxes" provision in its franchise does not exempt
ABS-CBN from payment of local franchise tax.

QUEZON CITY vs. ABS-CBN G.R. No. 166408, October 6, 2008)

Facts: Petitioner City Government of Quezon City is a local government unit
duly organized and existing by virtue of Republic Act (R.A.) No.537,
otherwise known as the Revised Charter of Quezon City. Petitioner City
Treasurer of Quezon City is primarily responsible for the imposition and
collection of taxes within the territorial jurisdiction of Quezon City. ABS-CBN
was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines under R.A. No.7966. ABS-CBN had
been paying local franchise tax imposed by Quezon City. However, in view of
the provision in R.A. No. 9766 that it shall pay a franchise tax x x x in lieu of
all taxes, the corporation developed the opinion that it is not liable to pay the
local franchise tax imposed by Quezon City. ABS-CBN filed a written claim
for refund for local franchise tax paid to Quezon City for 1996and for the first
quarter of 1997. For failure to obtain any response from the Quezon City
Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City
seeking the declaration of nullity of the imposition of local franchise tax by the
City Government of Quezon City for being unconstitutional. The RTC
rendered judgment declaring as invalid the imposition on and collection from
ABS-CBN of local franchise tax and ordered the refund of all payments

The present controversy essentially boils down to a dispute between the

inherent taxing power of Congress and the delegated authority to tax of local
governments under the 1987 Constitution and effected under the LGC of
1991. Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's
franchise does not expressly exempt it from payment of local franchise tax.
They contend that a tax exemption cannot be created by mere implication
and that one who claims tax exemptions must be able to justify his claim by
clearest grant of organic law or statute.
Taxes are what civilized people pay for civilized society. They are the
lifeblood of the nation. Thus, statutes granting tax exemptions are
construed stricissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of tax exemption must be clearly shown and based
on language in law too plain to be mistaken. Otherwise stated, taxation is the
rule, exemption is the exception. The burden of proof rests upon the party
claiming the exemption to prove that it is in fact covered by the exemption so
claimed. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential treatment
and foster impartiality, fairness and equality of treatment among
taxpayers. He who claims an exemption from his share of common burden
must justify his claim that the legislature intended to exempt him by

Page 14 of 30
unmistakable terms. For exemptions from taxation are not favored in law, nor
are they presumed. They must be expressed in the clearest and most
unambiguous language and not left to mere implications. It has been held
that "exemptions are never presumed, the burden is on the claimant to
establish clearly his right to exemption and cannot be made out of inference
or implications but must be laid beyond reasonable doubt. In other words,
since taxation is the rule and exemption the exception, the intention to make
an exemption ought to be expressed in clear and unambiguous terms.
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent
to three (3) percent of all gross receipts of the radio/television business
transacted under the franchise and the franchise tax shall be "in lieu of all
taxes" on the franchise or earnings thereof. The "in lieu of all taxes" provision
in the franchise of ABS-CBN does not expressly provide what kind of taxes
ABS-CBN is exempted from. It is not clear whether the exemption would
include both local, whether municipal, city or provincial, and national tax.
What is clear is that ABS-CBN shall be liable to pay three (3) percent
franchise tax and income taxes under Title II of the NIRC. But whether the "in
lieu of all taxes provision" would include exemption from local tax is not
unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be
clearly established and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of
all taxes" provision should be construed against ABS-CBN. ABS-CBN has
the burden to prove that it is in fact covered by the exemption so claimed.
ABS-CBN miserably failed in this regard.
ABS-CBN cites several cases to support its claim that that the "in lieu of all
taxes" clause includes exemption from all taxes. However, a review of the
case laws reveals that the grantees' respective franchises expressly exempt
them from municipal and provincial taxes and ABS-CBN's franchise did not
embody an exemption similar to those cases. Too, the franchise failed to
specify the taxing authority from whose jurisdiction the taxing power is
withheld, whether municipal, provincial, or national. In fine, since ABS-CBN
failed to justify its claim for exemption from local franchise tax, by a grant
expressed in terms "too plain to be mistaken" its claim for exemption for local
franchise tax must fail.

Page 15 of 30
was actually operating for profit in 1998 because only 13% of its revenues
came from charitable purposes. St. Luke's contended that the BIR should not
consider its total revenues, because its free services to patients was
P218,187,498 or 65.20% of its 1998 operating income. St. Luke's maintained
that it is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It argued that the making
of profit per se does not destroy its income tax exemption. The CTA held that
Section 27(B) of the present NIRC does not apply to St. Luke's. 24 The CTA
explained that to apply the 10% preferential rate, Section 27(B) requires a
hospital to be "non-profit." On the other hand, Congress specifically used the
word "non-stock" to qualify a charitable "corporation or association" in
Section 30(E) of the NIRC. The CTA ruled that St. Luke's is a non-stock and
non-profit charitable institution covered by Section 30(E) and (G) of the
NIRC. This ruling would exempt all income derived by St. Luke's from
services to its patients, whether paying or non-paying. The CTA adopted the
test in Hospital de San Juan de Dios, Inc. v. Pasay City, 18 which states that
"a charitable institution does not lose its charitable character and its
consequent exemption from taxation merely because recipients of its benefits
who are able to pay are required to do so, where funds derived in this
manner are devoted to the charitable purposes of the institution.
ISSUE: WON St. Luke's is liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on
the income of proprietary non-profit hospitals.

CIR vs St Lukes
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a nonstock and non-profit corporation. Under its articles of incorporation. On 16
December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's
deficiency taxes amounting to P76,063,116.06 for 1998, comprised of
deficiency income tax, value-added tax, withholding tax on compensation
and expanded withholding tax. The BIR reduced the amount to
P63,935,351.57 during trial in the First Division of the CTA. 4. On 14 January
2003, St. Luke's filed an administrative protest with the BIR against the
deficiency tax assessments. The BIR did not act on the protest within the
180-day period under Section 228 of the NIRC. Thus, St. Luke's appealed to
the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which
imposes a 10% preferential tax rate on the income of proprietary non-profit
hospitals, should be applicable to St. Luke's. The BIR claimed that St. Luke's

HELD: Section 27(B) of the NIRC does not remove the income tax exemption
of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B)
on one hand, and Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption. Section 27(B) of the
NIRC imposes a 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they must be proprietary and nonprofit. "Proprietary" means private, following the definition of a "proprietary
educational institution" as "any private school maintained and administered
by private individuals or groups" with a government permit. "Non-profit"
means no net income or asset accrues to or benefits any member or specific
person, with all the net income or asset devoted to the institution's purposes
and all its activities conducted not for profit. "Non-profit" does not necessarily
mean "charitable." In Collector of Internal Revenue v. Club Filipino Inc. de
Cebu, 37 this Court considered as non-profit a sports club organized for
recreation and entertainment of its stockholders and members. The club was
primarily funded by membership fees and dues. If it had profits, they were
used for overhead expenses and improving its golf course. A non-profit club
for the benefit of its members fails this test. An organization may be

Page 16 of 30
considered as non-profit if it does not distribute any part of its income to
stockholders or members. However, despite its being a tax exempt
institution, any income such institution earns from activities conducted for
profit is taxable, as expressly provided in the last paragraph of Section 30. To
be a charitable institution, however, an organization must meet the
substantive test of charity in Lung Center. The issue in Lung Center concerns
exemption from real property tax and not income tax. However, it provides for
the test of charity in our jurisdiction. Charity is essentially a gift to an
indefinite number of persons which lessens the burden of government.
charitable institutions provide for free goods and services to the public which
would otherwise fall on the shoulders of government. Thus, as a matter of
efficiency, the government forgoes taxes which should have been spent to
address public needs, because certain private entities already assume a part
of the burden.
Charitable institutions, however, are not ipso facto entitled to a tax
exemption. The requirements for a tax exemption are specified by the law
granting it. The power of Congress to tax implies the power to exempt from
tax. The Constitution exempts charitable institutions only from real property
taxes. In the NIRC, Congress decided to extend the exemption to income
taxes. Thus, both the organization and operations of the charitable institution
must be devoted "exclusively" for charitable purposes. The organization of
the institution refers to its corporate form, as shown by its articles of
incorporation, by-laws and other constitutive documents. Section 30(E) of the
NIRC specifically requires that the corporation or association be non-stock,
which is defined by the Corporation Code as "one where no part of its income
is distributable as dividends to its members, trustees, or officers". The
operations of the charitable institution generally refer to its regular activities.
Section 30(E) of the NIRC requires that these operations be exclusive to
charity. There is also a specific requirement that "no part of [the] net income
or asset shall belong to or inure to the benefit of any member, organizer,
officer or any specific person."
There is no dispute that St. Luke's is organized as a non-stock and non-profit
charitable institution. However, this does not automatically exempt St. Luke's
from paying taxes. However, the last paragraph of Section 30 of the NIRC
qualifies the words "organized and operated exclusively" . the last paragraph
of Section 30 provides that if a tax exempt charitable institution conducts
"any" activity for profit, such activity is not tax exempt even as its not-forprofit activities remain tax exempt.. Thus, even if the charitable institution
must be "organized and operated exclusively" for charitable purposes, it is
nevertheless allowed to engage in "activities conducted for profit" without
losing its tax exempt status for its not-for-profit activities. The only
consequence is that the "income of whatever kind and character" of a

charitable institution "from any of its activities conducted for profit, regardless
of the disposition made of such income, shall be subject to tax.". In 1998, St.
Luke's had total revenues of P1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital which receives approximately
P1.73 billion from paying patients is not an institution "operated exclusively"
for charitable purposes. Clearly, revenues from paying patients are income
received from "activities conducted for profit." 52 Indeed, St. Luke's admits
that it derived profits from its paying patients. St. Luke's declared
P1,730,367,965 as "Revenues from Services to Patients" in contrast to its
"Free Services" expenditure of P218,187,498. In its Comment in G.R. No.
195909, St. Luke's showed the following "calculation" to support its claim that
65.20% of its "income after expenses was allocated to free or charitable
services" in 1998
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the
NIRC to be completely tax exempt from all its income. However, it remains a
proprietary non-profit hospital under Section 27(B) of the NIRC as long as it
does not distribute any of its profits to its members and such profits are
reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net
income from its for-profit activities. St. Luke's is therefore liable for deficiency
income tax in 1998 under Section 27(B) of the NIRC. However, St. Luke's
has good reasons to rely on the letter dated 6 June 1990 by the BIR, which
opined that St. Luke's is "a corporation for purely charitable and social
welfare purposes"59 and thus exempt from income tax. 60 In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, 61 the Court said that
"good faith and honest belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked to implement the tax
law, are sufficient justification to delete the imposition of surcharges and
interest." 62
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R.
No. 195909 is PARTLY GRANTED. The Decision of the Court of Tax Appeals
En Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in
CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is
ORDERED TO PAY the deficiency income tax in 1998 based on the 10%
preferential income tax rate under Section 27(B) of the National Internal
Revenue Code. However, it is not liable for surcharges and interest on such
deficiency income tax under Sections 248 and 249 of the National Internal
Revenue Code. All other parts of the Decision and Resolution of the Court of
Tax Appeals are AFFIRMED.

Page 17 of 30
from

Real

Property

Tax.

ISSUE:
Are Petitioners real properties used in its telecommunications business
exempt from Real Property Tax?

HELD:

DIGITAL TELECOMMUNICATIONS, INC. vs. CITY GOVERNMENT OF

BATANGAS- Real Property Tax

FACTS:
Petitioner was granted a 25-year franchise to install telecommunications
systems under a law which states that The grantee shall be liable to pay the
same taxes on its real estate, buildings, and personal property exclusive of
this franchise x x x. As they were not being issued a Mayors permit,
Petitioner paid the Real Property Tax under protest arguing that the phrase
exclusive of this franchise means that only the real properties not used in
furtherance of its franchise are subject to Real Property Tax while those real
properties which are used in its telecommunications business are exempt

NO. Petitioners real properties, whether or not used in its

telecommunications business, are subject to Real Property Tax. The phrase
exclusive of this franchise qualifies the term personal property. This
means that Petitioners legislative franchise, which is an intangible personal
property, shall not be subject to taxes. This is to put franchise grantees in
parity with non-franchisees as the latter obviously do not have franchises
which may potentially be subject to realty tax. There is nothing in the first
sentence of Section 5 which expressly or even impliedly exempts Petitioner
from Real Property Tax. Petitioners reliance on the BLGFs opinion stating
that real properties owned by telecommunications companies are exempt
from Real Property Tax is without basis as the BLGF has no authority to rule
on claims for exemption from Real Property Tax.

Page 18 of 30
Thus, petitioner and JEC executed the Amended Subscription Agreement
wherein the above-enumerated RGHC, PGCI, and UCPB shares of stock
were transferred to JEC. In lieu of the FEBTC shares, petitioner paid JEC.
petitioner paid One basic documentary stamp tax inclusive of the 25%
surcharge for late payment on the Amended Subscription Agreement.
Petitioner, after seeing the RDOs certifications, the total amount of which
was less than the actual amount it had paid as documentary stamp tax,
concluded that it had overpaid. Petitioner subsequently sought a refund for
the alleged excess documentary stamp tax and surcharges it had paid.

Jaka Investments Corp. v. CIR, GR No. 147629, July 28, 2010

Facts: in 1994, petitioner sought to invest in JAKA Equities Corporation
(JEC), which ws then planning to undertake an initial public offering (IPO)
and listing of its shares of stock with the Philippine Stock Exchange.
petitioner proposed to subscribe to Five Hundred Eight Million Eight Hundred
Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in
the authorized capital stock of JEC through a tax-free exchange under
Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, as
amended, which was effected by the execution of a Subscription Agreement
and Deed of Assignment of Property in Payment of Subscription. Under this
Agreement, as payment for its subscription, petitioner will assign and transfer
to JEC shares of stock.
The intended IPO and listing of shares of JEC did not materialize. However,
JEC still decided to proceed with the increase in its authorized capital stock
and petitioner agreed to subscribe thereto, but under different terms of
payment.

Petitioners main contention in this claim for refund is that the tax base for the
documentary stamp tax on the Amended Subscription Agreement should
have been only the shares of stock in RGHC, PGCI, and UCPB that
petitioner had transferred to JEC as payment for its subscription to the JEC
shares, and should not have included the cash portion of its payment, based
on Section 176 of the National Internal Revenue Code of 1977, as amended
by Republic Act No. 7660, or the New Documentary Stamps Tax Law (the
1994 Tax Code), the law applicable at the time of the transaction. Petitioner
argues that the cash component of its payment for its subscription to the JEC
shares, totaling Three Hundred Seventy Million Seven Hundred Sixty-Six
Thousand Pesos (P370,766,000.00) should not have been charged any
documentary stamp tax. Petitioner claims that there was overpayment
because the tax due on the transferred shares was only Five Hundred
Ninety-Three Thousand Five Hundred Twenty-Eight and 15/100 Pesos
(P593,528.15), as indicated in the certifications issued by RDOEsquivias.
Petitioner alleges that it is entitled to a refund for the overpayment, which is
the difference in the amount it had actually paid (P1,003,895.65) and the
amount of documentary stamp tax due on the transfer of said shares
(P593,528.15), or a total of Four Hundred Ten Thousand Three Hundred
Sixty-Seven Pesos (P410,367.00).
Petitioner explains that in this instance where shares of stock are used as
subscription payment, there are two documentary stamp tax incidences,
namely, the documentary stamp tax on the original issuance of the shares
subscribed (the JEC shares), which is imposed under Section 175; and the
documentary stamp tax on the shares transferred in payment of such
subscription (the transfer of the RGHC, PGCI and UCPB shares of stock
from petitioner to JEC), which is imposed under Section 176 of the 1994 Tax

Page 19 of 30
Code. Petitioner argues that the documentary stamp tax imposed under
Section 175 is due on original issuances of certificates of stock and is
computed based on the aggregate par value of the shares to be issued; and
that these certificates of stock are issued only upon full payment of the
subscription price such that under the Bureau of Internal Revenues (BIRs).
Respondent maintains that the documentary stamp tax imposed in this case
is on the original issue of certificates of stock of JEC on the subscription by
the petitioner of the P508,806,200.00 shares out of the increase in the
authorized capital stock of the former pursuant to Section 175 of the NIRC.
The documentary stamp tax was not imposed on the shares of stock owned
by petitioner in RGHC, PGCI, and UCPB, which merely form part of the
partial payment of the subscribed shares in JEC. Respondent avers that the
amounts indicated in the Certificates of RDOEsquivias are the amounts of
documentary stamp tax representing the equivalent of each group of shares
being applied for payment. Considering that the amount of documentary
stamp tax represented by the shares of stock in the aforementioned
companies amounted only to P593,528.15, while the basic documentary
stamp tax for the entire subscription of P508,806,200.00 was computed by
respondents revenue officers to the tune of P803,116.72, exclusive of the
penalties, leaving a balance of P209,588.57, is a clear indication that the
payment made with the shares of stock is insufficient.
ISSUE: whether or not petitioner is entitled to a partial refund of the
documentary stamp tax and surcharges it paid on the execution of the
Amended Subscription Agreement.
RULING:
In claims for refund, the burden of proof is on the taxpayer to prove
entitlement to such refund. It was thus incumbent upon petitioner to show
clearly its basis for claiming that it is entitled to a tax refund. the petitioner
failed to do.
In the case at bar, the rights and obligations between petitioner JAKA
Investments Corporation and JAKA Equities Corporation are established and
enforceable at the time the Amended Subscription Agreement and Deed of
Assignment of Property in Payment of Subscription were signed by the
parties and their witness, so is the right of the state to tax the aforestated
document evidencing the transaction. DST is a tax on the document itself
and therefore the rate of tax must be determined on the basis of what is

written or indicated on the instrument itself independent of any adjustment

which the parties may agree on in the future x xx. The DST upon the taxable
document should be paid at the time the contract is executed or at the time
the transaction is accomplished. The overriding purpose of the law is the
collection of taxes.
So that when it paid in cash the amount of
P370,766,000.00 in substitution for, or replacement of the 1,313,176 FEBTC
shares, its payment of P1,003,835.65 documentary stamps tax pursuant to
Section 175 of NIRC is in order.
Thus, applying the settled rule in this jurisdiction that, a claim for refund is in
the nature of a claim for exemption, thus, should be construed in
strictissimijuris against the taxpayer (Commissioner of Internal Revenue vs.
Tokyo Shipping Co., Ltd., 244 SCRA 332) and since the petitioner failed to
adduce evidence that will show that it is exempt from DST under Section 199
or other provision of the tax code, the court ruled the focal issue in the
negative.
A documentary stamp tax is in the nature of an excise tax. It is not imposed
upon the business transacted but is an excise upon the privilege, opportunity
or facility offered at exchanges for the transaction of the business. It is an
excise upon the facilities used in the transaction of the business separate
and apart from the business itself. Documentary stamp taxes are levied on
the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the
execution of specific instruments.
documentary stamp taxes are levied independently of the legal status of the
transactions giving rise thereto. The documentary stamp taxes must be paid
upon the issuance of the said instruments, without regard to whether the
contracts which gave rise to them are rescissible, void, voidable, or
unenforceable.
The fact that it was petitioner and not JEC that paid for the documentary
stamp tax on the original issuance of shares is of no moment, as Section 173
of the 1994 Tax Code states that the documentary stamp tax shall be paid by
the person making, signing, issuing, accepting or transferring the property,
right or obligation.
petition is DISMISSED.

Page 20 of 30
AIA claimed that it filed a timely protest letter through registered mail on
August 30, 2004 and submitted additional supporting documents on
September 24, 2004 and November 22, 2004. CIRs failure to act on the
protest prompted AIA to file a petition for review before the Court of Tax
Appeals on June 20, 2005. However, the CIR filed a motion to dismiss on
the ground of lack of jurisdiction since AIAs failure to file its protest within the
30-day reglamentary period rendered the assessment final and executory.
After trial, the Court of Tax Appeals First Division ruled that there was no
sufficient evidence to prove the receipt of the protest letter by the CIR. AIA
filed a motion for reconsideration but was denied; hence, this petition for
review.
On January 30, 2008, AIA filed a Manifestation and Motion with Leave of the
Honorable Court to Defer or Suspend Further Proceedings since it availed of
the Tax Amnesty Program under Republic Act 9480, known as the Tax
Amnesty Act of 2007. On February 5, 2008, the Bureau of Internal Revenue
issued a Certification of Qualification stating that AIA has availed and
qualified for Tax Amnesty for Taxable Year 2005 and Prior Years pursuant to
RA 9480.
EFFECTS OF TAX AMNESTY
Asia International Auctioneers, Inc. v. Commissioner of Internal
Revenue
G.R. No. 179115, September 26, 2012
Perlas-Bernabe, J.
Facts:
On August 25, 2004, Asia International Auctioneers, Inc. (AIA for brevity), a
corporation operating within the Subic Special Economic Zone and is
engaged in the importation and selling of used motor vehicles and heavy
equipment, was assessed by the Commissioner of Internal Revenue (CIR)
for deficiency Value Added Tax and Excise Tax in the amounts of
P 102,535,520.00 and P4,334,715.00, respectively, or a total amount
of P 106,870,235.00, inclusive of penalties and interest, for auction sales
conducted on February 5, 6, 7, and 8, 2004.

Issue:
Is AIA disqualified from availing itself of the Tax Amnesty under Section 8 (a)
of RA 9480?
Held:
No. Under Section 8 (a) of the RA 9480 withholding agents with respect to
their withholding tax liabilities shall be disqualified to avail of the tax amnesty.
In this case, AIA was not being assessed as withholding agent that failed to
withhold or remit the deficiency VAT and excise tax but as a taxpayer who is
directly liable for the said taxes. Moreover, RA 9480 does not exclude from
its coverage taxpayers operating within special economic zones. Hence, AIA
is qualified to avail of the Tax Amnesty under RA 9480.

Page 21 of 30
SEC. 224. Stamp tax on original issues of certificates of stock. -- On every
original issue, whether on organization, reorganization or for any lawful
purpose, of certificates of stock by any association, company or corporation,
there shall be collected a documentary stamp tax of one peso and ten
centavos on each two hundred pesos, or fractional part thereof, of the par
value of such certificates
The Commissioner of Internal Revenue took the view that the book
value of the shares, amounting to P19,307,500.00, should be used as basis
for determining the amount of the documentary stamp tax. Accordingly,
respondent Internal Revenue Commissioner issued a deficiency
documentary stamp tax assessment in the amount of P78,991.25 in excess
of the par value of the stock dividends.
Together with another documentary stamp tax assessment which it also
questioned, petitioner appealed the Commissioners ruling to the Court of Tax
Appeals. On March 30, 1993, the CTA rendered its decision holding that the
amount of the documentary stamp tax should be based on the par value
stated on each certificate of stock.
On appeal, CA reversed the CTAs decision and held that, in assessing
the tax in question, the basis should be the actual value represented by the
subject shares on the assumption that stock dividends, being a distinct class
of shares, are not subject to the qualification in the law as to the type of
certificate of stock used (with or without par value).
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY,
JARDINE-CMG LIFE INSURANCE CO. INC.), vs. CA

INC.

(now

FACTS:
Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a domestic
corporation engaged in the life insurance business. In 1984, it issued 50,000
shares of stock as stock dividends, with a par value of P100 or a total of P5
million. Petitioner paid documentary stamp taxes on each certificate on the
basis of its par value. The pertinent provision of law, as it stood at the time of
the questioned transaction, reads as follows:

ISSUE: whether or not the par value of the certificates of stock or the book
value of the shares should be considered in determining the amount to be
paid as documentary stamp tax
HELD:
Apparently, the Court of Appeals treats stock dividends as distinct from
ordinary shares of stock for purposes of the then 224 of the National Internal
Revenue Code. There is, however, no basis for considering stock dividends
as a distinct class from ordinary shares of stock since under this provision
only certificates of stock are required to be distinguished (into either one with
par value or one without) rather than the classes of shares themselves.

Page 22 of 30
Section 224 of the NIRC will show that the documentary stamp tax is not
levied upon the shares of stock per se but rather on the privilege of issuing
certificates of stock. A stock certificate is merely evidence of a share of stock
and not the share itself. Stock dividends are shares of stock and not
certificates of stock which merely represent them. There is, therefore, no
reason for determining the actual value of such dividends for purposes of the
documentary stamp tax if the certificates representing them indicate a par
value.
It is error for the Solicitor General to contend that, under the then 224 of
the NIRC, the basis for assessment is the actual value of the business
transaction that is the source of the original issuance ofstock certificates. To
the contrary, the documentary stamp tax here is not levied upon the specific
transaction which gives rise to such original issuance but on the privilege of
issuing certificates of stock.
A documentary stamp tax is in the nature of an excise tax. It is not
imposed upon the business transacted but is an excise upon the privilege,
opportunity or facility offered at exchanges for the transaction of the
business. It is an excise upon the facilities used in the transaction of the
business separate and apart from the business itself.
CA is REVERSED insofar as the deficiency tax assessment on stock
dividends is concerned and the decision of the CTA is reinstated.

Tax Rules & Regulations

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER
OF INTERNAL REVENUE
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

Page 23 of 30
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 VATregistered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies.
Taxation; Transitional input tax credit; Prior payment of taxes is not a
prerequisite before a taxpayer could avail of the transitional input tax
credit. To reiterate, prior payment of taxes is not necessary before a taxpayer
could avail of the 8% transitional input tax credit. This position is solidly
supported by law and jurisprudence, viz:
First. Section 105 of the old National Internal Revenue Code (NIRC) clearly
provides that for a taxpayer to avail of the 8% transitional input tax credit, all
that is required from the taxpayer is to file a beginning inventory with the
Bureau of Internal Revenue (BIR). It was never mentioned in Section 105
that prior payment of taxes is a requirement.
Second. Since the law (Section 105 of the NIRC) does not provide for prior
payment of taxes, to require it now would be tantamount to judicial legislation
which, to state the obvious, is not allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax credit.
Logically, prior payment of taxes is not required before a taxpayer could avail
of transitional input tax credit. As we have declared in our September 4, 2012
Decision, [t]ax credit is not synonymous to tax refund. Tax refund is defined
as the money that a taxpayer overpaid and is thus returned by the taxing
authority. Tax credit, on the other hand, is an amount subtracted directly from
ones total tax liability. It is any amount given to a taxpayer as a subsidy, a
refund, or an incentive to encourage investment.

Atlas Consolidated Mining and Devt Corp. v. CIR

Atlas is a VAT-registered domestic corporation engaged in the production of
copper concentrates for export.
On September 20, 1993, Atlas applied with the BIR for the issuance of a tax
credit certificate or refund under Section 106(b) of the Tax Code. The
certificate would represent the VAT it paid for the first quarter of 1993 in the
amount of PhP 7,907,662.53, which corresponded to the input taxes not
applied against any output VAT.
Atlas then filed a petition for review with the CTA on February 22, 1995 to
prevent the running of the prescriptive period under Sec. 230 of the Tax
Code. The same was denied for insufficiency of evidence. On Atlas appeal,
the CA denied and dismissed Atlas petition on the ground of insufficiency of
evidence to support Atlas action for tax credit or refund.
Issue: W/n Atlas is entitled to claim tax refund
Held: NO.
The Rules of Court, which is suppletory in quasi-judicial proceedings,
particularly Sec. 34 [9] of Rule 132, Revised Rules on Evidence, is clear that
no evidence which has not been formally offered shall be considered. Thus,
where the pertinent invoices or receipts purportedly evidencing the VAT paid
by Atlas were not submitted, the courts a quo evidently could not determine
the veracity of the input VAT Atlas has paid. Moreover, when Atlas likewise
failed to submit pertinent export documents to prove actual export sales with
due certification from accredited banks on the export proceeds in foreign
currency with the corresponding conversion rate into Philippine currency, the
courts a quo likewise could not determine the veracity of the export sales as
indicated in Atlas amended VAT return.
It must be noted that the most competent evidence must be adduced and
presented to prove the allegations in a complaint, petition, or protest before a
judicial court. And where the best evidence cannot be submitted, secondary
evidence may be presented. In the instant case, the pertinent documents
which are the best pieces of evidence were not presented.

Page 24 of 30
The summary presented by Atlas does not replace the pertinent invoices,
receipts, and export sales documents as competent evidence to prove the
fact of refundable or creditable input VAT. Indeed, the summary presented
with the certification by an independent Certified Public Accountant (CPA)
and the testimony of Atlas Accounting and Finance Manager are merely
corroborative of the actual input VAT it paid and the actual export sales.
Otherwise, the pertinent invoices, receipts, and export sales documents are
the best and competent pieces of evidence required to substantiate Atlas
claim for tax credit or refund which is merely corroborated by the summary
duly certified by a CPA and the testimony of Atlas employee on the export
sales. And when these pertinent documents are not presented, these could
not be corroborated as is true in the instant case.
Atlas mere allegations of the figures in its amended VAT return for the first
quarter of 1993 as well as in its petition before the CTA are not sufficient
proof of the amount of its refund entitlement. They do not even constitute
evidence adverse to CIR against whom they are being presented. While
Atlas indeed submitted several documents, still, the CTA could not ascertain
from them the veracity of the figures as the documents presented by Atlas
were not sufficient to prove its action for tax credit or refund. Atlas has failed
to meet the burden of proof required in order to establish the factual basis of
its claim for a tax credit or refund. Neither can we ascertain the veracity of
Atlas alleged input VAT taxes which are refundable nor the alleged actual
export sales indicated in the amended VAT return.
Clearly, it would not be proper to allow Atlas to simply prevail and compel a
tax credit or refund in the amount it claims without proving the amount of its
claim. After all, tax refunds are in the nature of tax exemptions, and are to be
construed strictissimi juris against the taxpayer.
It is thus academic whether compliance with the documentary requirements
of RR 3-88 is necessary. Suffice it to say that a revenue regulation is binding
on the courts as long as the procedure fixed for its promulgation is followed.
It has not been disputed that RR 3-88 has been duly promulgated pursuant
to the rule-making power of the Secretary of Finance upon the
recommendation of the CIR. As aptly held by the courts a quo, citing Eslao,
these RRs or administrative issuances have the force of law and are entitled
to great weight.

In fine, we reiterate our consistent ruling that actions for tax refund, as in the
instant case, are in the nature of a claim for exemption and the law is not
only construed in strictissimi juris against the taxpayer, but also the pieces of
evidence presented entitling a taxpayer to an exemption is strictissimi
scrutinized and must be duly proven.

Page 25 of 30
Malayan Zurich Insurance Company Inc. vs CIR
Case:
A petition for review seeking the reversal the decision of rendered by the CTA
sitting in a division.
Facts:
For the years 1996, 1998, 1999 petitioner purchased several Fixed Rate
Treasury Notes (FXTNs) issued by the Bureau of Treasury.
For the period covering May 26, 2000 to December 1, 2001, the Bureau of
Treasury paid interest for the said treasury notes to petitioner, and withheld
tax on such interest paid at the rate of 20% of the interest income.
April 29, 2002, petitioner filed with the respondent a claim for refund or
issuance of a tax credit certificate amounting to P1,812, 725.00 representing
the tax withheld by the Bureau of Treasury on the FXTN's purchased by
petitioner.
In order to toll the running of the two-year prescriptive period, petitioner filed
on April 29, 2002, a Petition for Review with the Court of Tax Appeals, sitting
as a Division, praying for the refund or issuance of a tax credit certificate
representing alleged erroneous withholding tax by the Bureau of Treasury on
interest payments made to petitioner in connection with the latter's purchase
of treasury notes with a maturity of more than five (5) years.
Petitioner anchored its claim for refund on Section 32(B)(7)(g) of the 1997
Tax Code, which provides, viz: "SEC. 32. Gross Income.XXX XXX XXX
(B) Exclusions from Gross Income.- The following items shall not be included
in gross income and shall be exempt from taxation under this Title:
XXX XXX XXX
(7) Miscellaneous Items.XXX XXX XXX

Page 26 of 30
(g) Gains from Sale of Bonds, Debentures or other Certificate of
Indebtedness. - Gains realized from the sale or exchange or retirement of
bonds, debentures or other certificate of indebtedness with a maturity of
more than five (5) years.
XXX XXX xxx
CTA:
Decision was rendered by the Court's Division denying petitioner's claim for
refund.
MR:
Motion for Reconsideration assailing the Division's decision was denied
Hence this petition
Issue:
"Whether or not the CTA erred in ruling that the term "Gain" as used in
Section 32 (B)(7)(g) of the Tax Code does not include interest."
Held: (sa CTA En Banc hindi sa SC)
Negative
Only the gain from sale of bonds, debentures or other certificates of
indebtedness with a maturity of more than five years shall be exempt from
income tax. Thus, not being included in the term "gains" as contemplated in
Section 32(B)(7)(g) of the 1997 Tax Code, the interest income earned from
investments in long-term fixed rate treasury notes are subject to the 20%
final withholding tax.
Court's Division held that "We believe that if Congress intended to exempt
interest from bonds, debentures and other certificates of indebtedness under
Section 32(B)(7)(g) of the Tax Code, it would have done so in clear and
specific terms. The fact that it used the term 'Gains from sale' in the
aforementioned section, knowing fully well of the reference to interest under
Sections 24, 25, 27 and 28 of the Tax Code shows that it did not intend to
exempt such interest under the aforementioned Section 32(B)(7)(g) of Tax

Code." (Nippon Life Insurance Company Philippines vs. Commissioner of

Internal Revenue, CTA Case No. 6142, February 4, 2002)
It is a fundamental principle of statutory construction that words employed in
a statute are interpreted in connection with, and their meaning is ascertained
by reference to, the words and the phrases with which they are associated or
related. Thus, the meaning of a term in a statute may be limited, qualified or
specialized by those in immediate association.
Thus, the term "gain" as used in Section 32(B)(7)(g) must be interpreted in
relation to the words to which it is associated. Under the said section, the
gains excluded from gross income are the ones derived from the sale of
bonds, debentures and other certificate of indebtedness and not gains
derived from any other manner than sale.
It is a cardinal rule in taxation that a claim for tax refund partakes the nature
of a tax exemption which cannot be allowed unless granted in the most
explicit and categorical language . Being in the nature of an exemption from
taxation, a claim for refund is strictly construed against the claimant and the
failure to discharge said burden is fatal to the claim.
WHEREFORE, the same is hereby DISMISSED. The assailed Decision and
Resolution promulgated are hereby AFFIRMED in toto

Page 27 of 30
CIR V CA (GR 107135)
Facts:
Petitioner Central Vegetable Oil Manufacturing Co., Inc. ( CENVOCO ) is a
manufacturer of edible and coconut/coprameal cake and such other coconut
related oil subject to the miller's tax of 3%. Petitioner also manufactures lard,
detergent and laundry soap subject to the sales tax of 10%.
In 1986, petitioner purchased a specified number of containers and
packaging materials for its edible oil from its suppliers and paid the sales tax
due thereon.
After an investigation conducted by respondent's Revenue Examiner,
Assessment Notice was issued against petitioner for deficiency miller's tax in
the total amount of P1,575,514.70
CENVOCO requesting for reconsideration of the above deficiency miller's
tax assessments, contending that the final provision of Section 168 of the Tax
Code does not apply to sales tax paid on containers and packaging
materials, hence, the amount paid therefor should have been credited
against the miller's tax assessed against it - that since packaging materials
are not used in the milling process then, the sales taxes paid thereon should
be allowed as a credit against the miller's tax due because they do not fall
within the scope of the prohibition.
Respondent wrote CENVOCO regarding its position stating that since the
law specifically does not allow taxes paid on the raw materials or supplies
used in the milling process as a credit against the miller's tax due, with more
reason should the sales taxes paid on materials not used in the milling
process be allowed as a credit against the miller's tax due. There is no
provision of law which allows such a credit-to-be made.
CENVOCO filed a petition for review with the Court of Tax Appeals, which
came out with a decision in favor of CENVOCO. Appealed to the Court of
Appeals, the said decision was affirmed.
Issue:
1. Whether or not a reversal of the ruling is violative of the rule on nonretroactivity of rulings of tax officials?
2. Whether or not the sales tax paid by CENVOCO when it purchased
containers for its milled products can be credited against the deficiency
miller's tax.

Page 28 of 30
Held:
1. NO. According to petitioner, to hold, as what the Court of Appeals did, that
a reversal of the aforesaid ruling would be violative of the rule on nonretroactivity of rulings of tax officials when prejudicial to the taxpayer (Section
278 of the old Tax Code) would, in effect, create a perpetual exemption in
favor of CENVOCO although there may be subsequent changes in
circumstances warranting a reversal.
In the case, well-entrenched principle that the government is never estopped
from collecting taxes because of mistakes or errors on the part of its agents,
but this rule admits of exceptions in the interest of justice and fairplay.
Moreso is there no error in allowing the sales taxes paid by CENVOCO on
the containers and packages of its milled products, to be credited against the
deficiency miller's tax due thereon, for a proper application of the law.
2. NO. The sales, miller's and excise taxes paid on all other materials (except
on raw materials used in the milling process), such as the sales taxes paid
on containers and packaging materials of the milled products under
consideration, may be credited against the miller's tax due therefor.
Containers and packaging materials are certainly not raw materials. Cans
and tetrapaks are not used in the manufacture of Cenvoco's finished
products which are coconut, edible oil or coprameal cake. Such finished
products are packed in cans and tetrapaks.

CIR V B.F. GOODRICH PHIL., INC., ET AL GR No. 104171, February 24,

1999
Facts: Private respondent BF Goodrich Philippines Inc. was an American
corporation prior to July 3, 1974. As a condition for approving the
manufacture of tires and other rubber products, private respondent was
required by the Central Bank to develop a rubber plantation. In compliance
therewith, private respondent bought from the government certain parcels of
land in Tumajubong Basilan, in 1961 under the Public Land Act and the
Parity Amendment to the 1935 constitution, and there developed a rubber
plantation.
On August 2, 1973, the Justice Secretary rendered an opinion that ownership
rights of Americans over Public agricultural lands, including the right to
dispose or sell their real estate, would be lost upon expiration on July 3, 1974
of the Parity Amendment. Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21,
1974. Under the terms of the sale, Siltown would lease the property to private
respondent for 25 years with an extension of 25 years at the option of private
respondent.

*Decision of the CA affirmed.

Private respondent books of accounts were examined by BIR for purposes of
determining its tax liability for 1974. This examination resulted in the April 23,
1975 assessment of private respondent for deficiency income tax which it
duly paid. Siltowns books of accounts were also examined, and on the basis
thereof, on October 10, 1980, the Collector of Internal Revenue assessed
deficiency donors tax of P1,020,850 in relation to said sale of the Basilan
landholdings.

Private respondent contested this assessment on November 24, 1980.

Another assessment dated March 16, 1981, increasing the amount
demanded for the alleged deficiency donors tax, surcharge, interest and
compromise penalty and was received by private respondent on April 9,
1981. On appeal, CTA upheld the assessment. On review, CA reversed the
decision of the court finding that the assessment was made beyond the 5year prescriptive period in Section 331 of the Tax Code.

Page 29 of 30
Issue: Whether or not petitioners right to assess has prescribed.
Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which
provides a 3-year prescriptive period for making assessments), it is clean
that the October 16, 1980 and March 16, 1981 assessments were issued by
the BIR beyond the 5-year statute of limitations. The court thoroughly studied
the records of this case and found no basis to disregard the 5-year period of
prescription, expressly set under Sec. 331 of the Tax Code, the law then in
force.

For the purpose of safeguarding taxpayers from any unreasonable

examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law or prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.

COMMISSIONER
OF
INTERNAL
DEVELOPMENT CORPORATION

REVENUE

VS.

FILINVEST

654 SCRA 56
FACTS:
Filinvest Development Corporation extended advances in favor of its affiliates
and supported the same with instructional letters and cash and journal
vouchers. The BIR assessed Filinvest for deficiency income tax by imputing
an arms length interest rate on its advances to affiliates. Filinvest disputed
this by saying that the CIR lacks the authority to impute theoretical interest
and that the rule is that interests cannot be demanded in the absence of a
stipulation to the effect.
ISSUE:
Whether or not the CIR can impute theoretical interest on the advances
made by Filinvest to its affiliates?
HELD:
NO. Despite the seemingly broad power of the CIR to distribute, apportion
and allocate gross income under (now) Section 50 of the Tax Code, the same
does not include the power to impute theoretical interests even with regard to
controlled taxpayers transactions. This is true even if the CIR is able to prove
that interest expense (on its own loans) was in fact claimed by the lending
entity. The term in the definition of gross income that even those income
from whatever source derived is covered still requires that there must be
actual or at least probable receipt or realization of the item of gross income
sought to be apportioned, distributed, or allocated. Finally, the rule under the
Civil Code that no interest shall be due unless expressly stipulated in
writing was also applied in this case.
The Court also ruled that the instructional letters, cash and journal vouchers
qualify as loan agreements that are subject to DST.

Page 30 of 30