DONORS TAX

EN BANC
[G.R. No. L-19201. June 16, 1965.]
REV. FR. CASIMIRO LLADOC, petitioner, vs. THE COMMISSIONER OF
INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Hilado & Hilado for petitioner.
Solicitor General for respondents.
SYLLABUS
1. TAXATION; CONSTITUTIONAL EXEMPTION FOR RELIGIOUS PURPOSES REFERS
ONLY TO PROPERTY TAXES. Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and personages or convents, appurtenants
thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such properties enumerated, as
property taxes, as contra-distinguished from excise taxes.
2. ID.; ID.; GIFT TAX ON PROPERTY USED FOR RELIGIOUS PURPOSES NOT VIOLATION
OF CONSTITUTION. A gift tax is not an assessment on the properties themselves. It did not
rest upon general ownership. Rather it is an excise upon the use made of the properties and
upon the privilege of receiving them. It is not, therefore a property tax, but an excise tax
imposed on the transfer of property by way of gift inter vivos, the imposition of which a property
used exclusively for religious purposes, does not constitute an impairment of the Constitution.
3. ID.; ID.; HEAD OF DIOCESE: REAL PARTY IN INTEREST IN GIFT ON CHURCH
PROPERTY. The head of the diocese and not the parish priest is the real party in interest in
the imposition of a donee's tax on property donated to the church for religious purposes.
DECISION
PAREDES, J p:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in
cash to Rev. Fr. Crispin Ruiz then parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a new Catholic Church in the locality.
The total amount was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of
April 29, 1960, the respondent Commissioner of Internal Revenue issued as assessment for
donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner

was the priest. The tax amounted to P1,370.00 including surcharges, interest of 1% monthly
from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest
and the motion for reconsideration presented to the Commissioner of Internal Revenue were
denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the
petition for Review, the Rev. Fr. Casimiro Lladoc, claimed among others, that at the time of the
donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person
known as the "Catholic Parish Priest of Victorias," and therefore, he should not be liable for the
donee's gift tax. It was also asserted that the assessment of the gift tax, even against the
Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions
of the Constitution.
After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below:
". . . Parish priests of the Roman Catholic Church under canon laws are
similarly situated as its Archbishops and Bishops with respect to the properties
of the church within their parish. They are the guardians, superintendents or
administrators of these properties, with the right of succession and may sue
and be sued.
xxx xxx xxx
"The petitioner impugns the fairness of the assessment with the argument that
he should not be held liable for gift taxes on donation which he did not receive
personally since he was not yet the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that if someone has to pay at all,
it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received
the donation in behalf of the Catholic parish of Victorias or the Roman Catholic
Church. Following petitioner's line of thinking, we would be equally unfair to
hold that the assessment now in question should have been addressed to, and
collected from the Rev. Fr. Crispin Ruiz to be paid from income derived from his
present parish wherever it may be. It does not seem right to indirectly burden
the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to
which they were not benefited.
xxx xxx xxx
"We saw no legal basis then as we see none now, to include within the
Constitutional exemption, taxes which partake of the nature of an excise upon
the use made of the properties or upon the exercise of the privilege of receiving
the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627;
1938, 302 U.S. 742.)

"It is a cardinal rule in taxation that exemptions from payment thereof are highly
disfavored by law, and the party claiming exemption must justify his claim by
a clear, positive, or express grant of such privilege by law. (Collector vs. Manila
Jockey Club, G.R. No. L-8755, March 23, 1956; 98 Phil., 670; 53 Off. Gaz.,
3762.)
"The phrase `exempt from taxation' as employed in Section 22(3), Article VI of
the Constitution of the Philippines, should not be interpreted to mean
exemption from all kinds of taxes. Statutes exempting charitable and religious
property from taxation should be construed fairly though strictly and in such
manner as to give effect to the main intent of the lawmakers." (Roman Catholic
Church vs. Hastrings, 5 Phil., 701.)
xxx xxx xxx
"WHEREFORE, in view of the foregoing considerations, the decision of the
respondent Commissioner of Internal Revenue appealed from, is hereby
affirmed except with regard to the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue vs. U.S.T., G. R. No. L-11274,
Nov. 28, 1958; . . ., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby
ordered to pay to the respondent the amount of P900.00 as donee's gift tax,
plus the surcharge of five per centum(5%) as ad valorem penalty under Section
119 (c) of the Tax Code, and one per centum (1%) monthly interest from May
15, 1958 to the date of actual payment. The surcharge of 25% provided in
Section 120 for failure to file a return may not be imposed as the failure to file a
return was not due to willful neglect. (. . .) No costs."
The above judgment is now before Us on appeal, petitioner assigning two (2) errors allegedly
committed by the Tax Court, all of which converge on the singular issue of whether or not
petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for the
construction of the Victorias Parish Church.
Section 22(3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and personages or convents, appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious purposes. The exemption is only
from the payment of taxes assessed on such properties enumerated, as property taxes, as
contra-distinguished from excise taxes. In the present case, what the Collector assessed was a
donee's gift tax; the assessment was not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of the properties, upon the exercise of
the privilege of receiving the properties (Phipps vs. Com. of Int. Rev., 91 F [2d] 627.) Manifestly,
gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a
property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, do not constitute an
impairment of the Constitution. As well observed by the learned respondent Court, the phrase

"exempt from taxation," as employed in the Constitution supra should not be interpreted to
mean exemption from all kinds of taxes. And there being no clear, positive or express grant of
such privilege by law, in favor of the petitioner, the exemption herein must be denied.
The next issue which readily present itself, in view of petitioner's thesis, and Our finding that a
tax liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he
should not be liable, because at the time of the donation he was not the priest of Victorias. We
note the merit of the above claim, and in order to put things in their proper light, this Court, in its
Resolution of March 15, 1965, ordered the parties to show cause why the Head of the Diocese
to which the parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr.
Casimiro Lladoc, it appearing that the Head of such Diocese is the real party in interest. The
Solicitor General, in representation of the Commissioner of Internal Revenue, interposed no
objection to such a substitution. Counsel for the petitioner did not also offer objection thereto.
On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever
legal issues and/or defenses he might wish to raise, to which resolution counsel for petitioner,
who also appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of
Bacolod, manifested that it was submitting itself to the jurisdiction and orders of this Court and
that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc, as its own
and for all purposes.
In view hereof and considering that, as heretofore stated, the assessment at bar had been
properly made and the imposition of the tax is not a violation of the constitutional provision
exempting churches, personages or convents, etc. (Art. VI, sec. 22[3], Constitution), the Head of
the Diocese, to which the parish of Victorias pertains is liable for the payment thereof.
The decision appealed from should be, as it is hereby affirmed, insofar as tax liability is
concerned; it is modified, in the sense that petitioner herein is not personally liable for the said
gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as he is
presently ordered to pay, the said gift tax, without special pronouncement as to costs.

Bengzon, C . J ., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal,

Bengzon, J.P. and Zaldivar, JJ., concur.
Barrera, J ., took no part.

||| (Lladoc v. Commissioner of Internal Revenue, G.R. No. L-19201, [June 16, 1965], 121 PHIL
1074-1079)

FIRST DIVISION
[G.R. No. 120721. February 23, 2005.]
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA,
AVELINO V. CRUZ, petitioners, vs. COMMISSIONER OF INTERNAL
REVENUE and COURT OF APPEALS, respondents.
DECISION
AZCUNA, J p:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing
the decision of the Court of Appeals in CA-G.R. SP No. 27134, entitled "Commissioner of
Internal Revenue v. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V.
Cruz and Court of Tax Appeals," which reversed and set aside the decision of the Court of Tax
Appeals (CTA), ordering the Commissioner of Internal Revenue (Commissioner) to withdraw his
letters dated April 21, 1988 and August 4, 1988 assessing donor's taxes and to desist from
collecting donor's taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the
campaign funds of Senator Edgardo Angara, then running for the Senate. In letters dated April
21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the petitioners P263,032.66
for their contributions. On August 2, 1988, petitioners questioned the assessment through a
letter to the BIR. They claimed that political or electoral contributions are not considered gifts
under the National Internal Revenue Code (NIRC),and that, therefore, they are not liable for
donor's tax. The claim for exemption was denied by the Commissioner. 1
On September 12, 1988, petitioners filed a petition for review with the CTA, which was decided
on October 7, 1991 in favor of the petitioners. As aforestated, the CTA ordered the
Commissioner to desist from collecting donor's taxes from the petitioners. 2
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20,
1994. 3 The appellate Court ordered the petitioners to pay donor's tax amounting to
P263,032.66 each, reasoning as follows:
The National Internal Revenue Code, as amended, provides:
Sec. 91. Imposition of Tax. (a) There shall be levied, assessed,
collected, and paid upon the transfer by any person, resident,
or non-resident, of the property by gift, a tax, computed as
provided in Section 92. (b) The tax shall apply whether the
transfer is in trust or otherwise, whether the gift is direct or

indirect, and whether the property is real or personal, tangible

or intangible. TEcADS
Pursuant to the above-quoted provisions of law, the transfer of property by gift,
whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible, is subject to
donor's or gift tax.
A gift is generally defined as a voluntary transfer of property by one to another
without any consideration or compensation therefor (28 C.J. 620; Santos
vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the
form of money from private respondents to Sen. Angara, without considerations
therefor. Hence, they squarely fall under the definition of donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as
campaign funds of Sen. Angara does not affect the character
of the fund transfers as donation or gift. There was thereby no
retention of control over the disposition of the contributions.
There was simply an indication of the purpose for which they
were to be used. For as long as the contributions were used
for the purpose for which they were intended, Sen. Angara had
complete and absolute power to dispose of the contributions.
He was fully entitled to the economic benefits of the
contributions.
Section 91 of the Tax Code is very clear. A donor's or gift tax is imposed on the
transfer of property by gift.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which
reads:
Political Contributions. For internal revenue purposes,
political contributions in the Philippines are considered taxable
gift rather than taxable income. This is so, because a political
contribution is indubitably not intended by the giver or
contributor as a return of value or made because of any intent
to repay another what is his due, but bestowed only because
of motives of philanthropy or charity. His purpose is to give and
to bolster the morals, the winning chance of the candidate
and/or his party, and not to employ or buy. On the other hand,
the recipient-donee does not regard himself as exchanging his

services or his product for the money contributed. But more

importantly he receives financial advantages gratuitously.
When the U.S. gift tax law was adopted in the Philippines
(before May 7, 1974), the taxability of political contributions
was, admittedly, an unsettled issue; hence, it cannot be
presumed that the Philippine Congress then had intended to
consider or treat political contributions as non-taxable gifts
when it adopted the said gift tax law. Moreover, well-settled is
the rule that the Philippines need not necessarily adopt the
present rule or construction in the United States on the matter.
Generally, statutes of different states relating to the same class
of persons or things or having the same purposes are not
considered to be in pari materia because it cannot be
justifiably presumed that the legislature had them in mind
when enacting the provision being construed. (5206,
Sutherland, Statutory Construction, p. 546.) Accordingly, in the
absence of an express exempting provision of law, political
contributions in the Philippines are subject to the donor's gift
tax. (cited in National Internal Revenue Code Annotated by
Hector S. de Leon, 1991 ed., p. 290). jur2005cd
In the light of the above BIR Ruling, it is clear that the political contributions of
the private respondents to Sen. Edgardo Angara are taxable gifts. The
vagueness of the law as to what comprise the gift subject to tax was made
concrete by the above-quoted BIR ruling. Hence, there is no doubt that political
contributions are taxable gifts.4
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its resolution
of June 16, 1995. 5
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE
ENACTMENT OF OUR GIFT TAX LAW?HTAEIS
2. DID

THE HONORABLE COURT OF APPEALS ERR IN NOT

CONSIDERING THE INTENTION OF THE GIVERS IN DETERMINING
WHETHER
OR
NOT
THE
PETITIONERS'
POLITICAL
CONTRIBUTIONS WERE GIFTS SUBJECT TO DONORS TAX?

3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO

CONSIDER THE DEFINITION OF AN "ELECTORAL CONTRIBUTION"

UNDER THE OMNIBUS ELECTION CODE IN DETERMINING

WHETHER OR NOT POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID

THE HONORABLE COURT OF APPEALS ERR IN NOT

CONSIDERING THE ADMINISTRATIVE PRACTICE OF CLOSE TO
HALF A CENTURY OF
NOT SUBJECTING
POLITICAL
CONTRIBUTIONS TO DONORS TAX?

5. DID

THE HONORABLE COURT OF APPEALS ERR IN NOT

CONSIDERING THE AMERICAN JURISPRUDENCE RELIED UPON
BY THE COURT OF TAX APPEALS AND BY THE PETITIONERS TO
THE EFFECT THAT POLITICAL CONTRIBUTIONS ARE NOT
TAXABLE GIFTS?

6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING

AMERICAN JURISPRUDENCE ON THE GROUND THAT THIS WAS
NOT KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS
ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE
CASE MAINLY ON THE BASIS OF A RULING ISSUED BY THE
RESPONDENT ONLY AFTER THE ASSESSMENTS HAD ALREADY
BEEN MADE? AaHcIT
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE
TAXPAYER AND STRICTLY AGAINST THE GOVERNMENT IN
ACCORDANCE WITH APPLICABLE PRINCIPLES OF STATUTORY
CONSTRUCTION? 6
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC)reads:
(A) There shall be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of the property by gift, a tax,
computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect, and whether the property is real or personal,
tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states:

In matters which are governed by the Code of Commerce and special laws,
their deficiency shall be supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of
said Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or right
in favor of another, who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the
increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus
donandi. 7
The present case falls squarely within the definition of a donation. Petitioners, the late Manuel
G. Abello 8 , Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave
P882,661.31 to the campaign funds of Senator Edgardo Angara, without any material
consideration. All three elements of a donation are present. The patrimony of the four petitioners
were reduced by P882,661.31 each. Senator Edgardo Angara's patrimony correspondingly
increased by P3,530,645.24. 9 There was intent to do an act of liberality or animus donandi was
present since each of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and
unambiguous, thereby leaving no room for construction. In Rizal Commercial Banking
Corporation v. Intermediate Appellate Court 10 the Court enunciated:

It bears stressing that the first and fundamental duty of the Court is to apply the
law. When the law is clear and free from any doubt or ambiguity, there is no
room for construction or interpretation. As has been our consistent ruling,
where the law speaks in clear and categorical language, there is no occasion
for interpretation; there is only room for application (Cebu Portland Cement
Co. v. Municipality of Naga, 24 SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly
what it says and the court has no choice but to see to it that its mandate is
obeyed (Chartered Bank Employees Association v. Ople, 138 SCRA 273
[1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano
v. Development Bank of the Philippines, 35 SCRA 270 [1970]). cAHITS
Only when the law is ambiguous or of doubtful meaning may the court interpret
or construe its true intent. Ambiguity is a condition of admitting two or more
meanings, of being understood in more than one way, or of referring to two or
more things at the same time. A statute is ambiguous if it is admissible of two or
more possible meanings, in which case, the Court is called upon to exercise

one of its judicial functions, which is to interpret the law according to its true
intent.
Second Issue
Since animus donandior the intention to do an act of liberality is an essential element of a
donation, petitioners argue that it is important to look into the intention of the giver to determine
if a political contribution is a gift. Petitioners' argument is not tenable. First of all, donative intent
is a creature of the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present when one gives
a part of ones patrimony to another without consideration. Second, donative intent is not
negated when the person donating has other intentions, motives or purposes which do not
contradict donative intent. This Court is not convinced that since the purpose of the contribution
was to help elect a candidate, there was no donative intent. Petitioners' contribution of money
without any material consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the presence of donative
intent.
Third Issue
Petitioners maintain that the definition of an "electoral contribution" under the Omnibus Election
Code is essential to appreciate how a political contribution differs from a taxable gift. 11 Section
94(a) of the said Code defines electoral contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or
deposit of money or anything of value, or a contract, promise or agreement to
contribute, whether or not legally enforceable, made for the purpose of
influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in
behalf of a candidate or political party. It shall also include the use of facilities
voluntarily donated by other persons, the money value of which can be
assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the election,
petitioners again claim that donative intent is not present. Petitioners attempt to place the barrier
of mutual exclusivity between donative intent and the purpose of political contributions. This
Court reiterates that donative intent is not negated by the presence of other intentions, motives
or purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration for a
gift is the liberality of the donor, while the consideration for a political contribution is the desire of
the giver to influence the result of an election by supporting candidates who, in the perception of
the giver, would influence the shaping of government policies that would promote the general
welfare and economic well-being of the electorate, including the giver himself.

Petitioners' attempt is strained. The fact that petitioners will somehow in the future benefit from
the election of the candidate to whom they contribute, in no way amounts to a valuable material
consideration so as to remove political contributions from the purview of a donation. Senator
Angara was under no obligation to benefit the petitioners. The proper performance of his duties
as a legislator is his obligation as an elected public servant of the Filipino people and not a
consideration for the political contributions he received. In fact, as a public servant, he may even
be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the
greater good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign
of Senator Angara in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation. prcd
Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988 the
BIR never attempted to subject political contributions to donor's tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government
agency charged with the execution of a statute, acquiesced in and relied upon
by all concerned over an appreciable period of time, is an authoritative
interpretation thereof, entitled to great weight and the highest respect. . . . 12
This Court holds that the BIR is not precluded from making a new interpretation of the law,
especially when the old interpretation was flawed. It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do not
block subsequent correct application of the statute (PLDT v. Collector of
Internal Revenue, 90 Phil. 676), and that the Government is never estopped by
mistake or error on the part of its agents (Pineda v. Court of First Instance of
Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98
Phil. 711, 724). 13
Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based on a BIR ruling, namely
BIR Ruling No. 88-344, which was issued after the petitioners were assessed for donor's tax.
This Court does not need to delve into this issue. It is immaterial whether or not the Court of
Appeals based its decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented by the definition of
a donation found in Article 725 of the Civil Code, is clear and unambiguous, and needs no
further elucidation.
Eighth Issue

Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and strictly
against the government. This rule of construction, however, does not benefit petitioners
because, as stated, there is here no room for construction since the law is clear and
unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this case,
Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section 13
thereof that political/electoral contributions, duly reported to the Commission on Elections, are
not subject to the payment of any gift tax. This all the more shows that the political contributions
herein made are subject to the payment of gift taxes, since the same were made prior to the
exempting legislation, andRepublic Act No. 7166 provides no retroactive effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED. ECcTaH
No costs.
SO ORDERED.
Davide, Jr., C.J., Quisumbing and Carpio, JJ., concur.
Ynares-Santiago, J., took no part.
||| (Abello, et al. v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 120721,
[February 23, 2005], 492 PHIL 303-313)

THIRD DIVISION
[G.R. No. 210987. November 24, 2014.]
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY, petitioner, vs. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
VELASCO, JR., J p:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing and seeking the reversal of the Resolutions of the Court of Appeals (CA) in CA-G.R.
SP No. 127984, dated May 23, 2013 1 and January 21, 2014, which dismissed outright the
petitioner's appeal from the Secretary of Finance's review of BIR Ruling No. 015-12 2 for lack of
jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to
own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing
49.89% of the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its
interests in the health maintenance organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on September 24, 2009, petitioner's Class A
shares were sold for USD2,190,000, or PhP104,259,330 based on the prevailing exchange rate
at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder. 3
After the sale was completed and the necessary documentary stamp and capital gains taxes
were paid, Philamlife filed an application for a certificate authorizing registration/tax clearance
with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the
transfer of the shares. Months later, petitioner was informed that it needed to secure a BIR
ruling in connection with its application due to potential donor's tax liability. In compliance,
petitioner, on January 4, 2012, requested a ruling 4 to confirm that the sale was not subject to
donor's tax, pointing out, in its request, the following: that the transaction cannot attract donor's
tax liability since there was no donative intent and, ergo, no taxable donation, citing BIR Ruling
[DA-(DT-065) 715-09]dated November 27, 2009; 5 that the shares were sold at their actual fair
market value and at arm's length; that as long as the transaction conducted is at arm's length
such that a bona fide business arrangement of the dealings is done in the ordinary course of
business a sale for less than an adequate consideration is not subject to donor's tax; and that
donor's tax does not apply to sale of shares sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner)

denied Philamlife's request through BIR Ruling No. 015-12. As determined by the
Commissioner, the selling price of the shares thus sold was lower than their book value based
on the financial statements of PhilamCare as of the end of 2008. 6As such, the Commissioner
held, donor's tax became imposable on the price difference pursuant to Sec. 100 of the National
Internal Revenue Code (NIRC),viz.: HCaEAT
SEC. 100. Transfer for Less Than Adequate and full Consideration.
Where property, other than real property referred to in Section 24(D), is
transferred for less than an adequate and full consideration in money or
money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation
6-2008 (RR 6-2008), which provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT
TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS.
24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX
CODE,AS AMENDED.
xxx xxx xxx
(c) Determination of Amount and Recognition of Gain or Loss
(c.1) In the case of cash sale, the selling price shall be the consideration per
deed of sale.
xxx xxx xxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or
exchanged is greater than the amount of money and/or fair market value of
the property received, the excess of the fair market value of the shares of
stock sold, bartered or exchanged over the amount of money and the fair
market value of the property, if any, received as consideration shall be
deemed a gift subject to the donor's tax under Section 100 of the Tax
Code,as amended.
xxx xxx xxx
(c.2) Definition of 'fair market value' of Shares of Stock. For purposes of
this Section, 'fair market value' of the share of stock sold shall be:

xxx xxx xxx

(c.2.2) In the case of shares of stock not listed and traded in the local stock
exchanges, the book value of the shares of stock as shown in the financial
statements duly certified by an independent certified public accountant
nearest to the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the book value and
the selling price in the sales transaction is taxable donation subject to a 30% donor's tax under
Section 99 (B) of the NIRC. 7 Respondent Commissioner likewise held that BIR Ruling [DA-(DT065) 715-09], on which petitioner anchored its claim, has already been revoked by Revenue
Memorandum Circular (RMC) No. 25-2011. 8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR
Ruling No. 015-12, but to no avail. For on November 26, 2012, respondent Secretary affirmed
the Commissioner's assailed ruling in its entirety. 9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a petition for
review under Rule 43, assigning the following errors: 10
A.
The Honorable Secretary of Finance gravely erred in not finding that the
application of Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC
25-11 is void insofar as it alters the meaning and scope of Section 100 of
the Tax Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100
of the Tax Code is applicable to the sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and
for fair and full consideration in money or money's worth.
2.
The sale of the Sale Shares is a bona fide business
transaction without any donative intent and is therefore
beyond the ambit of Section 100 of the Tax Code.

3.
It is superfluous for the BIR to require an express provision
for the exemption of the sale of the Sale Shares from
donor's tax since Section 100 of the Tax Code does not
explicitly subject the transaction to donor's tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the
absence of any of the grounds mentioned in Section 246 of the Tax
Code,rules and regulations, rulings or circulars such as RMC 25-11
cannot be given retroactive application to the prejudice of Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition,
thusly: HaAISC
WHEREFORE, the Petition for
is DISMISSED for lack of jurisdiction.

Review

dated

January

9,

2013

SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals
(CTA), pursuant to Sec. 7 (a) (1) of Republic Act No. 1125 (RA 1125), 11 as amended, which
has jurisdiction over the issues raised. The outright dismissal, so the CA held, is predicated on
the postulate that BIR Ruling No. 015-12 was issued in the exercise of the Commissioner's
power to interpret the NIRC and other tax laws. Consequently, requesting for its review can be
categorized as "other matters arising under the NIRC or other laws administered by the BIR,"
which is under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014
Resolution, maintained its earlier position. Hence, the instant recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure and
substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction; and
2. Whether or not the price difference in petitioner's adverted sale of shares in
PhilamCare attracts donor's tax.
Procedural Arguments

a. Petitioner's contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that
respondent Commissioner issued BIR Ruling No. 015-12 in accordance with her authority to
interpret tax laws, argued nonetheless that such ruling is subject to review by the Secretary of
Finance under Sec. 4 of the NIRC,to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide
Tax Cases. The power to interpret the provisions of this Code and other
tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof administered
by the Bureau of Internal Revenue is vested in the Commissioner, subject to
the exclusive appellate jurisdiction of the Court of Tax Appeals.
Petitioner postulates that there is a need to differentiate the rulings promulgated by the
respondent Commissioner relating to those rendered under the first paragraph of Sec. 4 of
the NIRC,which are appealable to the Secretary of Finance, from those rendered under the
second paragraph of Sec. 4 of the NIRC,which are subject to review on appeal with the CTA.
This distinction, petitioner argues, is readily made apparent by Department Order No. 702, 12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec. 7 of RA 1125, as amended, does not find application in the
case at bar since it only governs appeals from the Commissioner's rulings under the second
paragraph and does not encompass rulings from the Secretary of Finance in the exercise of his
power of review under the first, as what was elevated to the CA. It added that under RA 1125,
as amended, the only decisions of the Secretary appealable to the CTA are those rendered in
customs cases elevated to him automatically under Section 2315 of the Tariff and Customs
Code. 13
There is, thus, a gap in the law when the NIRC,as couched, and RA 1125, as amended, failed to
supply where the rulings of the Secretary in its exercise of its power of review under Sec. 4 of
the NIRC are appealable to. This gap, petitioner submits, was remedied by British American
Tobacco v. Camacho 14 wherein the Court ruled that where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency, the regular
courts have jurisdiction to pass upon the same. aSTAHD
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its
power of review under Sec. 4 of the NIRC are not within the CTA's limited special jurisdiction
and, according to petitioner, are appealable to the CA via a Rule 43 petition for review.
b. Respondents' contentions

Before the CA, respondents countered petitioner's procedural arguments by claiming that even
assuming arguendo that the CTA does not have jurisdiction over the case, Philamlife,
nevertheless, committed a fatal error when it failed to appeal the Secretary of Finance's ruling to
the Office of the President (OP). As made apparent by the rules, the Department of Finance is
not among the agencies and quasi-judicial bodies enumerated under Sec. 1, Rule 43 of the
Rules of Court whose decisions and rulings are appealable through a petition for review. 15 This
is in stark contrast to the OP's specific mention under the same provision, so respondents
pointed out.
To further reinforce their argument, respondents cite the President's power of review emanating
from his power of control as enshrined under Sec. 17 of Article VII of the Constitution, which
reads:
Section 17. The President shall have control of all the executive departments,
bureaus, and offices. He shall ensure that the laws be faithfully executed.
The nature and extent of the President's constitutionally granted power of control have been
defined in a plethora of cases, most recently in Elma v. Jacobi, 16 wherein it was held that:
. . . This power of control, which even Congress cannot limit, let alone withdraw,
means the power of the Chief Executive to review, alter, modify, nullify, or set
aside what a subordinate, e.g., members of the Cabinet and heads of line
agencies, had done in the performance of their duties and to substitute the
judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the CA did not
err in its holding respecting the CTA's jurisdiction over the controversy.
The Court's Ruling
The petition is unmeritorious.
Reviews
Finance
the NIRC are
CTA

by
pursuant

the
to
appealable

Secretary
Sec.

4
to

of
of
the

To recapitulate, three different, if not conflicting, positions as indicated below have been
advanced by the parties and by the CA as the proper remedy open for assailing respondents'
rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the
Secretary under Sec. 4 of the NIRC,and that of the Secretary to the CA
via Rule 43;

2. Respondents: The ruling of the Commissioner is subject to review by the

Secretary under Sec. 4 of the NIRC,and that of the Secretary to the
Office of the President before appealing to the CA via a Rule 43 petition;
and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve. ICAcHE
Preliminarily, it bears stressing that there is no dispute that what is involved herein is the
respondent Commissioner's exercise of power under the first paragraph of Sec. 4 of
the NIRC the power to interpret tax laws. This, in fact, was recognized by the appellate court
itself, but erroneously held that her action in the exercise of such power is appealable directly to
the CTA. As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides that the
Commissioner's power to interpret the provisions of this Code and other tax laws is subject to
review by the Secretary of Finance. The issue that now arises is this where does one
seek immediate recourse from the adverse ruling of the Secretary of Finance in its
exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that
Sec. 7 (a) (1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the
CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under
the NIRC or other laws administered by the BIR. As stated:
Sec. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1. Decisions of the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered
by the Bureau of Internal Revenue. (emphasis
supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold
that it is, nonetheless, sufficient enough to include appeals from the Secretary's review under
Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat the
very purpose for which they were passed. 17 Courts should not follow the letter of a statute
when to do so would depart from the true intent of the legislature or would otherwise yield

conclusions inconsistent with the purpose of the act. 18This Court has, in many cases involving
the construction of statutes, cautioned against narrowly interpreting a statute as to defeat the
purpose of the legislator, and rejected the literal interpretation of statutes if to do so would lead
to unjust or absurd results. 19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an
injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation, We imply from
the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with which to
institute the appeal. This is not, and should not, in any way, be taken as a derogation of the
power of the Office of President but merely as recognition that matters calling for technical
knowledge should be handled by the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and
assessment cases, there can be no other court of appellate jurisdiction that can decide the
issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold.
Petitioner, though, next invites attention to the ruling in Ursal v. Court of Tax Appeals 20 to argue
against granting the CTA jurisdiction by implication, viz.:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special court's
jurisdiction, the Act necessarily limited its authority to those matters
enumerated therein. In line with this idea we recently approved said court's
order rejecting an appeal to it by Lopez & Sons from the decision of the
Collector of Customs, because in our opinion its jurisdiction extended only to a
review of the decisions of the Commissioner of Customs, as provided by the
statute and not to decisions of the Collector of Customs. (Lopez & Sons vs.
The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).
xxx xxx xxx
. . . Republic Act No. 1125 is a complete law by itself and expressly enumerates
the matters which the Court of Tax Appeals may consider; such enumeration
excludes all others by implication. Expressio unius est exclusio alterius.
Petitioner's contention is untenable. Lest the ruling in Ursal be taken out of context, but worse
as a precedent, it must be noted that the primary reason for the dismissal of the said case was
that the petitioner therein lacked the personality to file the suit with the CTA because he was not
adversely affected by a decision or ruling of the Collector of Internal Revenue, as was required
under Sec. 11 of RA 1125. 21 As held: TIDaCE
We share the view that the assessor had no personality to resort to the Court of
Tax Appeals. The rulings of the Board of Assessment Appeals did not
"adversely affect" him. At most it was the City of Cebu that had been adversely
affected in the sense that it could not thereafter collect higher realty taxes from
the abovementioned property owners. His opinion, it is true had been

overruled; but the overruling inflicted no material damage upon him or his
office. And the Court of Tax Appeals was not created to decide mere conflicts of
opinion between administrative officers or agencies. Imagine an income tax
examiner resorting to the Court of Tax Appeals whenever the Collector of
Internal Revenue modifies, or lower his assessment on the return of a tax
payer" 22
The
appellate
CTA includes certiorari

power

of

the

Petitioner is quick to point out, however, that the grounds raised in its CA petition included the
nullity of Section 7 (c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA
jurisdiction over the controversy, petitioner then cites British American Tobacco, wherein this
Court has expounded on the limited jurisdiction of the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax
disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. Where what is assailed is
the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. This is within the scope of judicial
power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. Judicial power
includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government. 23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling
in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No.
1158 (The National Internal Revenue Code, as amended) which states that
"[d]ealers in securities shall pay a tax equivalent to six (6%) per centum of their
gross income. Lending investors shall pay a tax equivalent to five (5%) per
cent, of their gross income," the CIR issued Revenue Memorandum Order
(RMO) No. 15-91 imposing 5% lending investor's tax on pawnshops based on

their gross income and requiring all investigating units of the BIR to investigate
and assess the lending investor's tax due from them. The issuance of RMO No.
15-91 was an offshoot of the CIR's finding that the pawnshop business is akin
to that of "lending investors" as defined in Section 157(u) of the Tax
Code.Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to
documentary stamp tax. Respondent therein, Josefina Leal, owner and
operator of Josefina's Pawnshop, asked for a reconsideration of both RMO No.
15-91 and RMC No. 43-91, but the same was denied by petitioner CIR. Leal
then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to
prohibit petitioner CIR from implementing the revenue orders. The CIR, through
the OSG, filed a motion to dismiss on the ground of lack of jurisdiction. The
RTC denied the motion. Petitioner filed a petition for certiorari and prohibition
with the CA which dismissed the petition "for lack of basis." In reversing the CA,
dissolving the Writ of Preliminary Injunction issued by the trial court and
ordering the dismissal of the case before the trial court, the Supreme Court
held that "[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually
rulings or opinions of the Commissioner implementing the Tax Code on
the taxability of pawnshops." They were issued pursuant to the CIR's
power under Section 245 of the Tax Code "to make rulings or opinions in
connection with the implementation of the provisions of internal revenue
laws, including ruling on the classification of articles of sales and similar
purposes." The Court held that under R.A. No. 1125 (An Act Creating the
Court of Tax Appeals), as amended, such rulings of the CIR are appealable
to the CTA.
In the case at bar, the assailed revenue regulations and revenue
memorandum circulars are actually rulings or opinions of the CIR on the
tax treatment of motor vehicles sold at public auction within the SSEZ to
implement Section 12 of R.A. No. 7227 which provides that "exportation or
removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the Philippines." They
were issued pursuant to the power of the CIR under Section 4 of
the National Internal Revenue Code . . . . 24 (emphasis added)
The respective teachings in British American Tobacco and Asia International Auctioneers, at first
blush, appear to bear no conflict that when the validity or constitutionality of an administrative
rule or regulation is assailed, the regular courts have jurisdiction; and if what is assailed are
rulings or opinions of the Commissioner on tax treatments, jurisdiction over the controversy is
lodged with the CTA. The problem with the above postulates, however, is that they failed to take
into consideration one crucial point a taxpayer can raise both issues
simultaneously. HDCAaS

Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim jurisdiction
over tax cases: on the one hand, mere prayer for the declaration of a tax measure's
unconstitutionality or invalidity before the CTA can result in a petition's outright dismissal, and on
the other hand, the CA will likewise dismiss the same petition should it find that the primary
issue is not the tax measure's validity but the assessment or taxability of the transaction or
subject involved. To illustrate this point, petitioner cites the assailed Resolution, thusly:
Admittedly, in British American Tobacco vs. Camacho, the Supreme Court has
ruled that the determination of whether a specific rule or set of rules issued by
an administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts, not the CTA.
xxx xxx xxx
Petitioner essentially questions the CIR's ruling that Petitioner's sale of shares
is a taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of
the NIRC,Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since
it was used by the CIR as bases for its unfavourable opinion. Clearly, the
Petition involves an issue on the taxability of the transaction rather than a direct
attack on the constitutionality of Sec. 100, Sec. 7 (c.2.2.) of RR 06-08 and RMC
25-11. Thus, the instant Petition properly pertains to the CTA under Sec. 7
of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are
now at a quandary on what mode of appeal should be taken, to which court or agency it should
be filed, and which case law should be followed.
Petitioner's above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo, 25 the Court en banc has ruled that the
CTA now has the power of certiorari in cases within its appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari involves
the exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of
appellate jurisdiction. Thus, . . . this Court has ruled against the jurisdiction of
courts or tribunals over petitions for certiorari on the ground that there is no law
which expressly gives these tribunals such power. It must be observed,
however, that . . . these rulings pertain not to regular courts but to tribunals
exercising quasi-judicial powers. With respect to the Sandiganbayan, Republic
Act No. 8249 now provides that the special criminal court has exclusive original
jurisdiction over petitions for the issuance of the writs of mandamus,
prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
writs ofcertiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the
appellate court, also in the exercise of its original jurisdiction, the power to
issue, among others, a writ of certiorari, whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in
the exercise of their original jurisdiction, is provided under Section 21 of BP
129.
The foregoing notwithstanding, while there is no express grant of such power,
with respect to the CTA, Section 1, Article VIII of the 1987
Constitution provides, nonetheless, that judicial power shall be vested in one
Supreme Court and in such lower courts as may be established by law and that
judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. EIDTAa
On the strength of the above constitutional provisions, it can be fairly
interpreted that the power of the CTA includes that of determining whether
or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing an interlocutory
order in cases falling within the exclusive appellate jurisdiction of the tax
court. It, thus, follows that the CTA, by constitutional mandate, is vested
with jurisdiction to issue writs ofcertiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ
of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the
CTA, it can reasonably be assumed that the law intended to transfer also such
power as is deemed necessary, if not indispensable, in aid of such appellate
jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total. (emphasis added)
Evidently, City of Manila can be considered as a departure from Ursal in that in spite of there
being no express grant in law, the CTA is deemed granted with powers ofcertiorari by
implication. Moreover, City of Manila diametrically opposes British American Tobacco to the
effect that it is now within the power of the CTA, through its power of certiorari, to rule on the
validity of a particular administrative rule or regulation so long as it is within its appellate
jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or
revenue memorandum circular on which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not
only contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise
questioned the validity of Sec 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of
its jurisdiction over the controversy, contrary to petitioner's arguments.
The
to donor's tax

price

difference

is

subject

Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the
case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of
the NIRC categorically states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemeda gift. Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7 (c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of a sale of stocks. Such issuance was made
pursuant to the Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was
being applied retroactively in contravention to Sec. 246 of the NIRC. 26Instead, it merely called
for the strict application of Sec. 100, which was already in force the moment the NIRC was
enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in
CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are herebyAFFIRMED.
SO ORDERED. cDHAES
Peralta, Villarama, Jr., Mendoza * and Leonen, ** JJ., concur.
||| (The Philippine American Life and General Insurance Co. v. The Secretary of Finance, G.R.
No. 210987, [November 24, 2014])

THIRD DIVISION
[G.R. No. 104171. February 24, 1999.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH
PHILS., INC. (now SIME DARBY INTERNATIONAL TIRE CO., INC.) and THE
COURT OF APPEALS, respondents.
The Solicitor General for petitioner.
Wilfredo U. Villanueva for private respondent.
SYNOPSIS
On April 23, 1975, petitioner issued against private respondent an assessment for deficiency
income tax for its 1974 income in the amount of P6,005.35, which private respondent duly paid.
Subsequently, on October 10, 1980, petitioner again issued an assessment for deficiency
donor's tax in the amount of P1,020,850.00 against private respondent in relation to the sale of
its Basilan Landholdings to Siltown Realty Phils. Inc. in 1974 at a price less than its market
value. The BIR deemed the consideration for the sale insufficient, and the difference between
the Fair Market Value and the actual purchase price a taxable donation. On April 9, 1981,
private respondent received another assessment from petitioner dated March 16, 1981 which
increased to P1,092,949.00 the amount demanded for the alleged deficiency donor's tax,
surcharge, interest and compromise penalty. Private respondent assailed the correctness and
the legality of these last two assessments to the Court of Tax Appeals. The CTA modified the
decision of the Commissioner of Internal Revenue as to the amount. The CTA ruled that the
ordinary period of limitation upon assessment and collection does not apply when there is falsity
with intent to evade tax as in this case, thus, petitioner's right to assess private respondent has
not yet prescribed. Private respondent appealed to the Court of Appeals, which reversed the
CTA's decision. Hence, this petition.
In affirming the decision of the Court of Appeals, the Supreme Court found the questioned
assessments to have been issued by the BIR beyond the five-year statute of limitations. There
was no basis to disregard the five-year period of prescription expressly provided under Section
331 of the National Internal Revenue Code. Likewise, Section 15 of the NIRC does not provide
an exception to the statute of limitations on the issuance of an assessment, by allowing the
initial assessment to be made on the basis of the best evidence available. Having made its
initial assessment in the manner prescribed, petitioner could not have been authorized to issue,
beyond the five-year prescriptive period, the second and the third assessments under
consideration. Nor is petitioner's claim of falsity sufficient to take the questioned assessments
out of the ambit of the statute of limitations. The fact that private respondent sold its real
property for a price less than its declared fair market value did not by itself justify a finding of
false return. Since private respondent declared the said sale in its 1974 Income Tax Return, the
BIR should have issued the questioned assessment within the five-year prescriptive period.

Moreover, since the BIR failed to prove that respondent's 1974 return had been filed
fraudulently with intent to evade the payment of the correct amount of tax, or that it had failed to
file a return at all, the period for assessments had obviously prescribed. aECSHI
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; QUESTION OF LAW DIFFERENTIATED FROM QUESTION
OF FACT. True, the factual findings of the CTA are generally not disturbed on appeal when
supported by substantial evidence and in the absence of gross error or grave abuse of
discretion. However, the CTA's application of the law to the facts of this controversy is an
altogether different matter, for it involves a legal question. There is a question of law when the
issue is the application of the law to a given set of facts. On the other hand, a question of fact
involves the truth or falsehood of alleged facts. In the present case, the Court of Appeals ruled
not on the truth or falsity of the facts found by the CTA, but on the latter's application of the law
on prescription.
2. TAXATION; ASSESSMENT AND COLLECTION OF TAXES; STATUTE OF LIMITATIONS;
EXCEPTIONS THERETO MUST BE STRICTLY CONSTRUED; TAX ASSESSMENTS IN CASE
AT BAR ALREADY BEYOND THE FIVE-YEAR PERIOD OF PRESCRIPTION. Applying
Section 331 of the National Internal Revenue Code to the facts at hand, it is clear that the
October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the fiveyear statute of limitations. The Court has thoroughly studied the records of this case and found
no basis to disregard the five-year period of prescription. 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 on 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.
3. ID.; ID.; ID.; COMMISSIONER OF INTERNAL REVENUE, NOT AUTHORIZED TO ISSUE
SECOND AND THIRD TAX ASSESSMENT BEYOND THE FIVE-YEAR PRESCRIPTIVE
PERIOD EVEN IF THE INITIAL ASSESSMENT WAS MADE IN THE PRESCRIBED MANNER.
Section 15 of the NIRC,provides that "[w]hen a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming within the time fixed by
law or regulation, or when there is reason to believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best
evidence obtainable." Clearly, Section 15 does not provide an exception to the statute of
limitations on the issuance of an assessment, by allowing the initial assessment to be made on
the basis of the best evidence available. Having made its initial assessment in the manner
prescribed, the commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before us. Nor is
petitioner's claim of falsity sufficient to take the questioned assessments out of the ambit of the
statute of limitations. AHDacC

4. ID.; ID.; SALE OF REAL PROPERTY AT A PRICE LESSER THAN ITS DECLARED FAIR
MARKET VALUE DOES NOT BY ITSELF JUSTIFY THE FINDING OF FALSE RETURN.
Petitioner insists that private respondent committed "falsity" when it sold the property for a price
lesser than its declared fair market value. This fact alone did not constitute a false return which
contains wrong information due to mistake, carelessness or ignorance. It is possible that real
property may be sold for less than adequate consideration for a bona fide business purpose; in
such event, the sale remains an "arm's length" transaction. In the present case, the private
respondent was compelled to sell the property even at a price less than its market value,
because it would have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, private respondent was attempting to minimize its losses. At the
same time, it was able to lease the property for 25 years, renewable for another 25. This can be
regarded as another consideration on the price. Furthermore, the fact that private respondent
sold its real property for a price less than its declared fair market value did not by itself justify a
finding of false return. Indeed, private respondent declared the sale in its 1974 return submitted
to the BIR. Within the five-year prescriptive period, the BIR could have issued the questioned
assessment, because the declared fair market value of said property was of public record.This it
did not do, however, during all those five years.
5. ID.; ID.; FILING OF FRAUDULENT RETURN WITH INTENT TO EVADE TAX, NOT PROVEN
IN CASE AT BAR. The BIR failed to show that private respondent's 1974 return was filed
fraudulently with intent to evade the payment of the correct amount of tax. Moreover, even
though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or
property rights to another or others without adequate and full valuable consideration," is different
from capital gains tax, a tax on the gain from the sale of the taxpayer's property forming part of
capital assets, the tax return filed by private respondent to report its income for the year 1974
was sufficient compliance with the legal requirement to file a return. In other words, the fact that
the sale transaction may have partly resulted in a donation does not change the fact that private
respondent already reported its income for 1974 by filing an income tax return.
6. ID.; ID.; STATUTE OF LIMITATIONS; NEGLIGENCE OR OVERSIGHT ON THE PART OF
THE BUREAU OF INTERNAL REVENUE CANNOT PREJUDICE TAXPAYERS. Since the
BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the
intent to evade tax, or that it had failed to file a return at all, the period for assessments has
obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot
prejudice taxpayers, considering that the prescriptive period was precisely intended to give them
peace of mind. Based on the foregoing, a discussion of the validity and legality of the assailed
assessments has become moot and unnecessary. aSCHcA
DECISION
PANGANIBAN, J p:

Notwithstanding the expiration of the five-year prescriptive period, may the Bureau of Internal
Revenue (BIR) still assess a taxpayer even after the latter has already paid the tax due, on the
ground that the previous assessment was insufficient or based on a "false" return?
The Case
This is the main question raised before us in this Petition for Review on Certiorari assailing the
Decision 1 dated February 14, 1992, promulgated by the Court of Appeals2 in CA-GR SP No.
25100. The assailed Decision reversed the Court of Tax Appeals (CTA) 3 which upheld the BIR
commissioner's assessments made beyond the five-year statute of limitations. cdpr

The Facts
The facts are undisputed. 4 Private Respondent BF Goodrich Phils., Inc. (now Sime Darby
International Tire Co, Inc.), was an American-owned and controlled corporation previous to July
3, 1974. As a condition for approving the manufacture by private respondent of tires and other
rubber products, the Central Bank of the Philippines required that it should develop a rubber
plantation. In compliance with this requirement, private respondent purchased from the
Philippine government in 1961, under the Public Land Act and the Parity Amendment to
the 1935 Constitution, certain parcels of land located in Tumajubong, Basilan, and there
developed a rubber plantation.
More than a decade later, on August 2, 1973, the justice secretary rendered an opinion stating
that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership rights of
Americans over public agricultural lands, including the right to dispose or sell their real estate,
would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty
Philippines, Inc. on January 21, 1974, its Basilan landholding for P500,000 payable in
installments. In accord with the terms of the sale, Siltown Realty Philippines, Inc. leased the said
parcels of land to private respondent for a period of 25 years, with an extension of another 25
years at the latter's option.
Based on the BIR's Letter of Authority No. 10115 dated April 14, 1975, the books and accounts
of private respondent were examined for the purpose of determining its tax liability for taxable
year 1974. The examination resulted in the April 23, 1975 assessment of private respondent for
deficiency income tax in the amount of P6,005.35, which it duly paid.
Subsequently, the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR and
Memorandum Authority Reference No. 749157 for the purpose of examining Siltown's business,
income and tax liabilities. On the basis of this examination, the BIR commissioner issued
against private respondent on October 10, 1980, an assessment for deficiency in donor's tax in
the amount of P1,020,850, in relation to the previously mentioned sale of its Basilan
landholdings to Siltown. Apparently, the BIR deemed the consideration for the sale insufficient,

and the difference between the fair market value and the actual purchase price a taxable
donation.
In a letter dated November 24, 1980, private respondent contested this assessment. On April 9,
1981, it received another assessment dated March 16, 1981, which increased to P1,092,949 the
amount demanded for the alleged deficiency donor's tax, surcharge, interest and compromise
penalty.
Private respondent appealed the correctness and the legality of these last two assessments to
the CTA. After trial in due course, the CTA rendered its Decision dated March 29, 1991, the
dispositive portion of which reads as follows:
"WHEREFORE, the decision of the Commissioner of Internal Revenue
assessing petitioner deficiency gift tax is MODIFIED and petitioner is ordered to
pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual interest
from March 16, 1981 until fully paid provided that the maximum amount that
may be collected as interest on delinquency shall in no case exceed an amount
corresponding to a period of three years pursuant to Section 130(b)(1) and (c)
of the 1977 Tax Code,as amended byP.D. No. 1705, which took effect on
August 1, 1980.
"SO ORDERED." 5
Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed the
CTA, as follows:
"What is involved here is not a first assessment; nor is it one within the 5-year
period stated in Section 331 above. Since what is involved in this case is a
multiple assessment beyond the five-year period, the assessment must be
based on the grounds provided in Section 337, and not on Section 15 of the
1974 Tax Code.Section 337 utilizes the very specific terms 'fraud,
irregularity, and mistake'. 'Falsity does not appear to be included in this
enumeration. Falsity suffices for an assessment, which is a first assessment
made within the five-year period. When it is a subsequent assessment made
beyond the five-year period, then, it may be validly justified only by 'fraud,
irregularity and mistake' on the part of the taxpayer." 6
Hence, this Petition for Review under Rule 45 of the Rules of Court. 7
The Issues
Before us, petitioner raises the following issues:
"I

Whether or not petitioner's right to assess herein deficiency donor's tax has
indeed prescribed as ruled by public respondent Court of Appeals
II
Whether or not the herein deficiency donor's tax assessment for 1974 is valid
and in accordance with law"
Prescription is the crucial issue in the resolution of this case.
The Court's Ruling
The petition has no merit.
Main Issue: Prescription
The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue of
prescription, because its ruling was based on factual findings that should have been left
undisturbed on appeal, in the absence of any showing that it had been tainted with gross error
or grave abuse of discretion. 8 The Court is not persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal when supported by
substantial evidence and in the absence of gross error or grave abuse of discretion. However,
the CTA's application of the law to the facts of this controversy is an altogether different matter,
for it involves a legal question. There is a question of law when the issue is the application of the
law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood
of alleged facts. 9 In the present case, the Court of Appeals ruled not on the truth or falsity of the
facts found by the CTA, but on the latter's application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:
"SECTION 331. Period of limitation upon assessment and collection. Except
as provided in the succeeding section, internal-revenue taxes shall be
assessed within five years after the return was filed, and no proceeding in court
without assessment for the collection of such taxes shall be begun after
expiration of such period. For the purposes of this section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed
on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code."
Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the
March 1981 assessments were issued by the BIR beyond the five-year statute of limitations.
The Court has thoroughly studied the records of this case and found no basis to disregard the
five-year period of prescription. As succinctly pronounced by the Court of Appeals:

"The subsequent assessment made by the respondent Commissioner on

October 10, 1980, modified by that of March 16, 1981, violates the law.
Involved in this petition is the income of the petitioner for the year 1974, the
returns for which were required to be filed on or before April 15 of the
succeeding year. The returns for the year 1974 were duly filed by the petitioner,
and assessment of taxes due for such year including that on the transfer of
properties on June 21, 1974 was made on April 13, 1975 and acknowledged
by Letter of Confirmation No. 101155 terminating the examination on this
subject. The subsequent assessment of October 10, 1980 modified, by that of
March 16, 1981, was made beyond the period expressly set in Section 331 of
the National Internal Revenue Code . . . ." 10
Petitioner relies on the CTA ruling, the salient portion of which reads:
"Falsity is what we have here, and for that matter, we hasten to add that the
second assessment (March 16, 1981) of the Commissioner was well-advised
having been made in contemplation of his power under Section 15 of the 1974
Code (now Section 16, of NIRC) to assess the proper tax on the best evidence
obtainable "when there is reason to believe that a report of a taxpayer is false,
incomplete or erroneous." More, when there is falsity with intent to evade tax as
in this case, the ordinary period of limitation upon assessment and collection
does not apply so that contrary to the averment of petitioner, the right to assess
respondent has not prescribed.
"What is the considered falsity? The transfer through sale of the parcels of land
in Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of
P500,000.00 only whereas said lands had been sworn to under Presidential
Decree No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475,467 +
P207,700) (see Declaration of Real Property form, p. 28, and p. 15, no. 5, BIR
Record)." 11
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
on prescription, being a remedial measure, should be liberally construed in order to afford such
protection. 12 As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.
Section 15 of the NIRC,on the other hand, provides that "[w]hen a report required by law as a
basis for the assessment of any national internal revenue tax shall not be forthcoming within the
time fixed by law or regulation, or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on
the best evidence obtainable." Clearly, Section 15 does not provide an exception to the statute
of limitations on the issuance of an assessment, by allowing the initial assessment to be made
on the basis of the best evidence available. Having made its initial assessment in the manner

prescribed, the commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before us.

Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of the ambit
of the statute of limitations. The relevant part of then Section 332 of theNIRC,which enumerates
the exceptions to the period of prescription, provides:
"SECTION 332. Exceptions as to period of limitation of assessment and
collection of taxes. (a) In the case of a false or fraudulent return with intent
to evade a tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud,
or omission: . . . ."
Petitioner insists that private respondent committed "falsity" when it sold the property for a price
lesser than its declared fair market value. This fact alone did not constitute a false return which
contains wrong information due to mistake, carelessness or ignorance. 13 It is possible that real
property may be sold for less than adequate consideration for a bona fide business purpose; in
such event, the sale remains an "arm's length" transaction. In the present case, the private
respondent was compelled to sell the property even at a price less than its market value,
because it would have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, private respondent was attempting to minimize its losses. At the
same time, it was able to lease the property for 25 years, renewable for another 25. This can be
regarded as another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price less than its
declared fair market value did not by itself justify a finding of false return. Indeed, private
respondent declared the sale in its 1974 return submitted to the BIR. 14 Within the five-year
prescriptive period, the BIR could have issued the questioned assessment, because the
declared fair market value of said property was of public record. This it did not do, however,
during all those five years. Moreover, the BIR failed to prove that respondent's 1974 return had
been filed fraudulently. Equally significant was its failure to prove respondent's intent to evade
the payment of the correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently
with intent to evade the payment of the correct amount of tax. 15Moreover, even though a
donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property
rights to another or others without adequate and full valuable consideration," 16 is different from
capital gains tax, a tax on the gain from the sale of the taxpayer's property forming part of
capital assets, 17 the tax return filed by private respondent to report its income for the year 1974
was sufficient compliance with the legal requirement to file a return. In other words, the fact that
the sale transaction may have partly resulted in a donation does not change the fact that private
respondent already reported its income for 1974 by filing an income tax return. LLphil

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return
with the intent to evade tax, or that it had failed to file a return at all, the period for assessments
has obviously prescribed. Such instances of negligence or oversight on the part of the BIR
cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to
give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of the assailed assessments
has become moot and unnecessary.
WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the Court of
Appeals is AFFIRMED. No costs.
SO ORDERED.
||| (Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc., G.R. No. 104171, [February
24, 1999], 363 PHIL 169-181)