1. G.R. No.

o. 134062 April 17, 2007 Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown
above. Said assessment has been based on return (filed by you) (as verified) (made by this Office)
(pending investigation) (after investigation). You are requested to pay the above amount to this Office or
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx6
vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
DECISION
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed, even
in the vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency
CORONA, J.:
assessment is to inform taxpayer why he has incurred a deficiency so that he can make an
intelligent decision on whether to pay or to protest the assessment. This is all the more so when
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29, 1998 in the assessment involves astronomical amounts, as in this case.
CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the Court of Tax
Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No. 4715.
We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and as
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed to the percentage tax, it is important that the taxpayer be informed also as to what particular
respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp taxes for percentage tax the assessment refers to.
the year 1986 in the total amount of P129,488,656.63:
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged
1986 Deficiency Percentage Tax between your office and the Bankers Association of the Philippines [BAP] on this issue and of
BPIs submission of its computations under this compromise. There is therefore no basis
whatsoever for this assessment, assuming it is on the subject of the BAP compromise. On the
Deficiency percentage tax P 7, 270,892.88 other hand, if it relates to documentary stamp tax on some other issue, we should like to be
informed about what those issues are.
Add: 25% surcharge 1,817,723.22

20% interest from 1-21-87 to 10-28-88 3,215,825.03 3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what particular
15,000.00 percentage tax is involved and how your examiner arrived at the deficiency. As soon as this is
Compromise penalty
explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers
decision on whether to pay or protest the assessment.7
TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
1986 Deficiency Documentary Stamp Tax
although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85
and therefore not deserving of any rejoinder by this office as no valid issue was raised against the validity
Deficiency percentage tax P93,723,372.40
of our assessment still we obliged to explain the basis of the assessments.
Add: 25% surcharge 23,430,843.10
xxx xxx xxx
15,000.00
Compromise penalty
this constitutes the final decision of this office on the matter. 8
TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.5
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991
Both notices of assessment contained the following note: letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16, 1995, BPI counters that due process demanded that the facts, data and law upon which the assessments were
the CTA dismissed the case for lack of jurisdiction since the subject assessments had become final and based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section 228),
unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the National Internal specifically provides that:
Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125.12 It denied
reconsideration in a resolution dated May 27, 1996.13
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void."
On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA14 for
a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid assessments because
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
they did not inform the taxpayer of the legal and factual bases therefor. It declared that the proper
process requires even under the former Section 270.
assessments were those contained in the May 8, 1991 letter which provided the reasons for the claimed
deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on time. 17 The CIR elevated the
case to this Court. BPIs contention has no merit. The present Section 228 of the NIRC provides:

This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a
period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the
notice. If the taxpayer fails to respond, the [CIR] shall issue an assessment based on his findings. deficiency taxes were made. He merely notified BPI of his findings, consisting only of the computation of
the tax liabilities and a demand for payment thereof within 30 days after receipt.
xxx xxx xxx (emphasis supplied)
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its
amendment by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v. Reyes,24 we held that:
Were the October 28, 1988 Notices Valid Assessments?

The first issue for our resolution is whether or not the October 28, 1988 notices19 were valid assessments.
If they were not, as held by the CA, then the correct assessments were in the May 8, 1991 letter, received
by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the
findings which the CIR denied in his December 12, 1991 letter, received by BPI on January 21, 1992.
Consequently, the petition for review filed by BPI in the CTA on February 18, 1992 would be well within the
30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments.
He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which was designed for the
precise purpose of notifying taxpayers of the assessed amounts due and demanding payment
thereof.21 He contends that there was no law or jurisprudence then that required notices to state the
reasons for assessing deficiency tax liabilities.22
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of
estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied
upon the provisions of former Section 229 prior to its amendment by [RA] 8424, otherwise known as the
Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April
22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those
dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient
under the new law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only requirement
was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law required a written
statement to the taxpayer of the law and facts on which the assessments were based. The Court cannot
read into the law what obviously was not intended by Congress. That would be judicial legislation, nothing
less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the
requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by RA 8424
was an innovation and could not be reasonably inferred from the old law.29 Clearly, the legislature intended
to insert a new provision regarding the form and substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the
legal and factual basis of the formers decision to charge the latter for deficiency documentary stamp and
gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it
in writing of the factual and legal bases of the assessments even if these were not called for under the
old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no person shall be
deprived of his property without due process of law."32 We note, however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to
discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI] ignored)
but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh] out the issues,
present evidences as to what they need." Now, how can [BPI] and/or its counsel honestly tell this Court
that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,] contrary to
the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of the Accounting
Department of [BPI]. He testified to the fact that he prepared worksheets which contain his analysis
regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the same worksheets were
presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and
basis of the assessments, and was given all the opportunity to contest the same but ignored it despite the
notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final and
unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and
dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to
the consideration of tax problems, has necessarily developed an expertise on the subject, and its
conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.
Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is
a showing of gross error or abuse on the part of the [CTA].34
Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse decision
on the protest was not appealed to the CTA within 30 days from receipt of the final decision:35
Sec. 270. Protesting of assessment.1a\^/phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation in such form and manner as may be prescribed by the implementing regulations within
thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and
unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by
the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt of the said decision;
otherwise, the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the
same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not qualify
as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayers decision on whether to pay or protest the
assessment."36 Hence, by its own declaration, BPI did not regard this letter as a protest against the
assessments. As a matter of fact, BPI never deemed this a protest since it did not even consider the
October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period provided
in the former Section 270 meant that they became final and unappealable. Thus, the CTA correctly
dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputing the
correctness of the assessments or invoking any defense that would reopen the question of its liability on
the merits.37 Not only that. There arose a presumption of correctness when BPI failed to protest the
assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the
duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers
will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to
have failed to appeal the CIRs final decision regarding the disputed assessments within the 30-day period
provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final decision on the
matter." BPI therefore had 30 days from the time it received the decision on June 27, 1991 to appeal but it
did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18,
1992, way beyond the reglementary period. BPI must now suffer the repercussions of its omission. We
have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action
on an assessment questioned by a taxpayer constitutes his final determination on the disputed
assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis of his
statement indubitably showing that the Commissioner's communicated action is his final decision
on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the
tax court at the opportune time. Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the collection of the amount
demanded as taxes by repeated requests for recomputation and reconsideration. On the part of
the [CIR], this would encourage his office to conduct a careful and thorough study of every questioned
assessment and render a correct and definite decision thereon in the first instance. This would also deter
the [CIR] from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes
the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing
need for fair play, regularity, and orderliness in administrative action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject tax
assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a considerable
amount of money. Be that as it may, we cannot legally presume the existence of something which was
never there. The state will be deprived of the taxes validly due it and the public will suffer if taxpayers will
not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure.
A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in
CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.
2. G.R. No. L-22734 September 15, 1967
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance
of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The estate was
divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B.
Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income
tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said
returns for the estate on the basis of information and data obtained from the aforesaid estate proceedings
and issued an assessment for the following:
 1. Deficiency income tax The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda
1945 P135.83 liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total amount
1946 436.95 of P760.28 instead of only for the amount of taxes corresponding to his share in the estate.1awphl.nt
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98 Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax
1% monthly interest from November due the estate only up to the extent of and in proportion to any share he received. He relies
30, 1953 to April 15, 1957 720.77 on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an estate,
heirs and distributees are liable individually for the payment of all lawful outstanding claims against the
Compromise for late filing 80.00
estate in proportion to the amount or value of the property they have respectively received from the
Compromise for late payment 40.00 estate."

Total amount due P2,707.44

=========== We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.
P14.50
2. Additional residence tax for 1945
=========== Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
3. Real Estate dealer's tax for the fourth P207.50 estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share
quarter of 1946 and the whole year of 1947 =========== he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property
Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to in his possession. The reason is that the Government has a lien on the P2,500.00 received by him from
him as one of the heirs." the estate as his share in the inheritance, for unpaid income taxes4a for which said estate is liable, pursuant
to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner
appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax
for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not
prescribed. For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable
years were made within five years therefrom or on October 19, 1953; and the action to collect the tax was
filed within five years from the latter date, on August 7, 1957. For taxable year 1947, however, the return
was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from
the date the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly,
We remanded the case to the Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
If any person, corporation, partnership, joint-account (cuenta en participacion), association, or
insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition thereto upon all property and rights to
property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the
P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will
have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each heir in
the distributable estate.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs
the payment corresponding to his share of the following taxes: and collecting from each one of them the amount of the tax proportionate to the inheritance received. This
remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection of the tax. This action rests on the
Deficiency income tax concept that hereditary property consists only of that part which remains after the settlement of all lawful
claims against the estate, for the settlement of which the entire estate is first liable.6 The reason why in
case suit is filed against all the heirs the tax due from the estate is levied proportionately against them is to
1945 P135.83 achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in
the distributed estate as lessened by the tax.
1946 436.95
Real estate dealer's fixed tax
4th quarter of 1946 and whole Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights
year of 1947 P187.50 to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate
which is in the hands of an heir or transferee to the payment of the tax due, the estate. This second
remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal
Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code
above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an
imperious need.7 And as afore-stated in this case the suit seeks to achieve only one objective: payment of
the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the
tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and
real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice
to his right of contribution for his co-heirs. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.
3. G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional
Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V,
and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the Government of
the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency income taxes
for the years 1963 and 1964 of the decedent in the total amount of P3,254.80, inclusive 5% surcharge, 1%
monthly interest and compromise penalties, and the second, dated October 7, 1969, denying the Motion
for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3, 1969
in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim
represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in
the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-63
and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-22,
Rollo). The Administrator opposed the motion solely on the ground that the claim was barred under Section
5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo).
Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the motion for
allowance of claim filed by herein petitioner, Regional Director of the Bureau of Internal Revenue, in an
order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for
reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government against
the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule
86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule
of Court, bars claim of the government for unpaid taxes, still within the period of limitation prescribed in
Section 331 and 332 of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the
claim has been presented directly before the court in the administration proceedings.
Claims not yet due, or contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary obligation
of the decedent created by law, such as taxes which is entirely of different character from the claims
expressly enumerated therein, such as: "all claims for money against the decedent arising from contract,
express or implied, whether the same be due, not due or contingent, all claim for funeral expenses and
expenses for the last sickness of the decedent and judgment for money against the decedent." Under the
familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of one thing
implies the exclusion of another thing not mentioned. Thus, if a statute enumerates the things upon which
it is to operate, everything else must necessarily, and by implication be excluded from its operation and
effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the
matter of prescription thereof are governed by the provisions of the National Internal revenue Code, estate even after his death. Thus in the case above cited, the income taxes sought to be collected were
particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng due from the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.
and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29,
1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Court may reasonably be presumed to have been also in the mind of the Court as not affecting the
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
aforecited Section of the National Internal Revenue Code.
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which reads:

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
Section 2. Time within which claims shall be filed. - In the notice provided in the
assessed against the estate of a deceased person ... need not be submitted to the committee on claims in
preceding section, the court shall state the time for the filing of claims against the
the ordinary course of administration. In the exercise of its control over the administrator, the court may
estate, which shall not be more than twelve (12) nor less than six (6) months after the
direct the payment of such taxes upon motion showing that the taxes have been assessed against the
date of the first publication of the notice. However, at any time before an order of
estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
distribution is entered, on application of a creditor who has failed to file his claim within
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be filed
the time previously limited the court may, for cause shown and on such terms as are
before the Court. Claims for taxes may be collected even after the distribution of the decedent's estate
equitable, allow such claim to be flied within a time not exceeding one (1)
among his heirs who shall be liable therefor in proportion of their share in the inheritance. (Government of
month. (Emphasis supplied)
the Philippines vs. Pamintuan, 55 Phil. 13).

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before an order
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the
of the distribution is entered, should have been granted by the respondent court, in the absence of any
Government and their prompt and certain availability are imperious need. (Commissioner of Internal
valid ground, as none was shown, justifying denial of the motion, specially considering that it was for
Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the
allowance Of claim for taxes due from the estate, which in effect represents a claim of the people at large,
Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest,
the only reason given for the denial that the claim was filed out of the previously limited period, sustaining
neglect or omission of government officials entrusted with the collection of taxes should not be allowed to
thereby private respondents' contention, erroneously as has been demonstrated.
bring harm or detriment to the people, in the same manner as private persons may be made to suffer
individually on account of his own negligence, the presumption being that they take good care of their
personal affairs. This should not hold true to government officials with respect to matters not of their own WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total
personal concern. This is the philosophy behind the government's exception, as a general rule, from the amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final
operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA one and the respondent estate's sole defense of prescription has been herein overruled, the Motion for
177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L- Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the same,
41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No
70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax pronouncement as to costs.
Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs.
Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs.
SO ORDERED.
Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even
after the distribution of the estate of the decedent among his heirs (Government of the Philippines vs. 4. G.R. No. 106611 July 21, 1994
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of
Internal Revenue, G. R. No. L-16661, January 31, 1962).
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the APPEALS, respondents.
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid
with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate already in
the hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori before The Solicitor General for petitioner.
the inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without
its having been presented under Section 2 of Rule 86 of the Rules of Court. It may truly be said that until Palaez, Adriano & Gregorio for private respondent.
the property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate,
continues as if he were still alive, subject to the payment of such taxes as would be collectible from the
REGALADO, J.: It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3
adduced in the case, which clearly showed that there was an overpayment of income taxes and for which
a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an
The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the
admission by herein petitioner that there had been an overpayment of income taxes. 8
Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund to
herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14,
representing its overpaid income taxes for 1984 and 1985, but denied its claim for the alleged refundable The tax court denied the motion to suspend proceedings on the ground that the case had already been
amount reflected in its 1983 income tax return on the ground of prescription. 1 That judgment of the tax submitted for decision since February 20, 1991. 9
court was affirmed by respondent Court of Appeals in its judgment in CA-G.R. SP
No. 26839. 2 The case was then elevated to us in the present petition for review on certiorari wherein the
Thereafter, said court rendered its decision in the case, the decretal portion of which declares:
latter judgment is impugned and sought to be nullified and/or set aside.

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for
It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim for
the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in its
refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the
1983 income tax return is hereby denied on the ground of prescription. Respondent is
alleged aggregate of the excess of its carried-over total quarterly payments over the actual income tax
hereby ordered to grant a refund to petitioner Citytrust Banking Corp. in the amount of
due, plus carried-over withholding tax payments on government securities and rental income, as computed
P13,314,506.14 representing the overpaid income taxes for 1984 and 1985,
in its final income tax return for the calendar year ending December 31, 1985. 3
recomputed as follows:

Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period, Citytrust
1984 Income tax due P 4,715,533.00
filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the refund
Less: 1984 Quarterly payments P 16,214,599.00*
of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
1984 Tax Credits
W/T on int. on gov't. sec. 1,921,245.37*
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent W/T on rental inc. 26,604.30* 18,162,448.67
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00 claimed Tax Overpayment (13,446,915.67)
by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government securities Less: FCDU payable 150,252.00
investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed Amount refundable for 1984 P (13,296,663.67)
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the
National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1985 Income tax due (loss) P 0
1986. 5 Less: W/T on rentals 36,716.47*

Tax Overpayment (36,716.47)*
On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence
Less: FCDU payable 18,874.00
submitted by herein private respondent Citytrust. Herein petitioner could not present any evidence by

reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the
Amount Refundable for 1985 P (17,842.47)
case, as well as the investigation report thereon, to the Solicitor General. 6

* Note:
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion praying for
the suspension of the proceedings in the said case on the ground that the claim of Citytrust for tax refund
in the amount of P19,971,745.00 was already being processed by the Tax Credit/Refund Division of the These credits are smaller than the claimed amount because only
BIR, and that said bureau was only awaiting the submission by Citytrust of the required confirmation the above figures are well supported by the various exhibits
receipts which would show whether or not the aforestated amount was actually paid and remitted to the presented during the hearing.
BIR. 7
No pronouncement as to costs.
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the proceedings
SO ORDERED. 10
therein could not be suspended by the mere fact that the claim for refund was being administratively
processed, especially where the case had already been submitted for decision.
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes accomplished by
herein private respondent's withholding agents, the authenticity of which were neither disputed nor
controverted by herein petitioner; (2) no evidence was presented which could effectively dispute the
correctness of the income tax return filed by herein respondent corporation and other material facts stated
therein; (3) no deficiency assessment was issued by herein petitioner; and (4) there was an audit report
submitted by the BIR Assessment Branch, recommending the refund of overpaid taxes for the years
concerned (Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of official
duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole
ground that the statements and certificates of taxes allegedly withheld are not conclusive evidence of
actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental motion for
reconsideration was thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-office
memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only lately that
Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency
income and business taxes covered by Demand/Assessment Notice No. FAS-1-84-003291-003296. 13
Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions for
the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was declared
as part of the gross income, and that the fact of withholding was duly established. Moreover, with regard to
the argument raised in the supplemental motion for reconsideration anent the deficiency tax assessment
against herein petitioner, the tax court ruled that since that matter was not raised in the pleadings, the
same cannot be considered, invoking therefor the salutary purpose of the omnibus motion rule which is to
obviate multiplicity of motions and to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of
Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals.
Petitioner eventually elevated the case to this Court, maintaining that said respondent court erred in
affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private respondent failed
to prove and substantiate its claim for such refund; and, secondly, the bureau's findings of deficiency
income and business tax liabilities against private respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this case, the ends
of substantial justice and public interest would be better subserved by the remand of this case to the Court
of Tax Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to present
evidence, several postponements were sought by its counsel, the Solicitor General, due to the
unavailability of the necessary records which were not transmitted by the Refund Audit Division of the BIR
to said counsel, as well as the investigation report made by the Banks/Financing and Insurance Division of
the said bureau/ despite repeated requests. 17 It was under such a predicament and in deference to the tax
court that ultimately, said records being still unavailable, herein petitioner's counsel was constrained to
submit the case for decision on February 20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court of
Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax
Appeals which provides that the Commissioner of Internal Revenue and the Commissioner of Customs
shall certify and forward to the Court of Tax Appeals, within ten days after filing his answer, all the records
of the case in his possession, with the pages duly numbered, and if the records are in separate folders,
then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the aforementioned initiatory
petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the BIR still
continued to act administratively on the claim for refund previously filed therein, instead of forwarding the
records of the case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its
agents.19 In the performance of its governmental functions, the State cannot be estopped by the neglect of
its agent and officers. Although the Government may generally be estopped through the affirmative acts of
public officers acting within their authority, their neglect or omission of public duties as exemplified in this
case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the Government
cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the
nation through which the government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. 21The errors of certain administrative officers should never be
allowed to jeopardize the Government's financial position, 22especially in the case at bar where the amount
involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's supplemental
motion for reconsideration alleging bringing to said court's attention the existence of the deficiency income
and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately
related to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the
same year. To award such refund despite the existence of that deficiency assessment is an absurdity and
a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same
time be liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and
without unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when
the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement,
or return, which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected under such assessment shall be
recovered by any suits unless it is proved that the said list, statement, or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply to
statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells
and mines."
Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be
upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of
the falsity, fraud or omission in the false or fraudulent return involved. 23 This would necessarily require and
entail additional efforts and expenses on the part of the Government, impose a burden on and a drain of
government funds, and impede or delay the collection of much-needed revenue for governmental
operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary
and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly
with its claim for tax refund, to determine once and for all in a single proceeding the true and correct
amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that the
taxpayer and the Government alike be given equal opportunities to avail of remedies under the law to
defeat each other's claim and to determine all matters of dispute between them in one single case. It is
important to note that in determining whether or not petitioner is entitled to the refund of the amount paid, it
would necessary to determine how much the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability of the taxpayer and, certainly, a determination
of this case would constitute res judicata on both parties as to all the matters subject thereof or necessarily
involved therein.
The Court cannot end this adjudication without observing that what caused the Government to lose its
case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and not to
syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General found himself once
again gives substance to the public perception and suspicion that it is another proverbial tip in the iceberg
of venality in a government bureau which is pejoratively rated over the years. What is so distressing, aside
from the financial losses to the Government, is the erosion of trust in a vital institution wherein the
reputations of so many honest and dedicated workers are besmirched by the acts or omissions of a few.
Hence, the liberal view we have here taken pro hac vice, which may give some degree of assurance that
this Court will unhesitatingly react to any bane in the government service, with a replication of such
response being likewise expected by the people from the executive authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET
ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and
appropriate action, more particularly, the reception of evidence for petitioner and the corresponding
disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein.
SO ORDERED.
5. G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On
the other hand, such collection should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests
of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income
tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the
total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18,
1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the
same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented
to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty.
Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action
on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a
rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a
request for reconsideration," 9being "tantamount to an outright denial thereof and makes the said request
deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of
distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was
only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, however, in view of the close relationship among the persons in the family corporation.
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private
We agree with the respondent court that the amount of the promotional fees was not excessive. The total
respondent was definitely informed of the implied rejection of the said protest and the warrant was finally
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from
had been consumed.
the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the
Now for the substantive question. Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This
finding of the respondent court is in accord with the following provision of the Tax Code:
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was
not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it SEC. 30. Deductions from gross income.--In computing net income there shall be
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private allowed as deductions
respondent for actual services rendered. The payment was in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
(a) Expenses:
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be
for salaries or other compensation for personal services actually rendered; ... 22
personal holding company income 12 but later conformed to the decision of the respondent court rejecting
this assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the
persons among whom it was distributed It has been established that the Philippine Sugar Estate and Revenue Regulations No. 2, Section 70 (1), reading as follows:
Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and
oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
expenses paid or incurred in carrying on any trade or business may be included a
Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
reasonable allowance for salaries or other compensation for personal services actually
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale,
rendered. The test of deductibility in the case of compensation payments is whether
Algue received as agent a commission of P126,000.00, and it was from this commission that the
they are reasonable and are, in fact, payments purely for service. This test and
P75,000.00 promotional fees were paid to the aforenamed individuals. 16
deductibility in the case of compensation payments is whether they are reasonable
and are, in fact, payments purely for service. This test and its practical application may
There is no dispute that the payees duly reported their respective shares of the fees in their income tax be further stated and illustrated as follows:
returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining
the evidence, that no distribution of dividends was involved. 18
Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
The petitioner claims that these payments are fictitious because most of the payees are members of the distribution of a dividend on stock. This is likely to occur in the case of a corporation
same family in control of Algue. It is argued that no indication was made as to how such payments were having few stockholders, Practically all of whom draw salaries. If in such a case the
made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the salaries are in excess of those ordinarily paid for similar services, and the excessive
petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary payment correspond or bear a close relationship to the stockholdings of the officers of
deduction. employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . .
. (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
We find that these suspicions were adequately met by the private respondent when its President, Alberto
Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump
sum but periodically and in different amounts as each payee's need arose. 19 It should be remembered that It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were
this was a family corporation where strict business procedures were not applied and immediate issuance they its controlling stockholders. 23
of receipts was not required. Even so, at the end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him or her, to make up the total of
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the
claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees was necessary and reasonable in the light This is the main question raised before us in this petition for review on certiorari challenging two
of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an Resolutions issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CA-GR
experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the
mean feat and should be, as it was, sufficiently recompensed. YMCA to claim tax exemption on the latter's income from the lease of its real property.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be The Facts
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities, every person who is able to must
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which conducts
contribute his share in the running of the government. The government for its part, is expected to respond
various programs and activities that are beneficial to the public, especially the young people, pursuant to
in the form of tangible and intangible benefits intended to improve the lives of the people and enhance
its religious, educational and charitable objectives.
their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel
the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of
its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it
assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for
is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the
deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and
awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate,
deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a
as it has here, that the law has not been observed.
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of
YMCA.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with
the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA)
the private respondent was permitted under the Internal Revenue Code and should therefore not have
on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:
been disallowed by the petitioner.

. . . [T]he leasing of [private respondent's] facilities to small shop owners, to restaurant

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
and canteen operators and the operation of the parking lot are reasonably incidental
to and reasonably necessary for the accomplishment of the objectives of the [private
SO ORDERED. respondents]. It appears from the testimonies of the witnesses for the [private
respondent] particularly Mr. James C. Delote, former accountant of YMCA, that these
facilities were leased to members and that they have to service the needs of its
6. G.R. No. 124043 October 14, 1998 members and their guests. The rentals were minimal as for example, the barbershop
was only charged P300 per month. He also testified that there was actually no lot
COMMISSIONER OF INTERNAL REVENUE, petitioner, devoted for parking space but the parking was done at the sides of the building. The
vs. parking was primarily for members with stickers on the windshields of their cars and
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN ASSOCIATION OF they charged P.50 for non-members. The rentals and parking fees were just enough to
THE PHILIPPINES, INC., respondents. cover the costs of operation and maintenance only. The earning[s] from these rentals
and parking charges including those from lodging and other charges for the use of the
recreational facilities constitute [the] bulk of its income which [is] channeled to support
its many activities and attainment of its objectives. As pointed out earlier, the
membership dues are very insufficient to support its program. We find it reasonably
PANGANIBAN, J.: necessary therefore for [private respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been different if under the circumstances,
[private respondent] will purchase a lot and convert it to a parking lot to cater to the
Is the income derived from rentals of real property owned by the Young Men's Christian Association of the needs of the general public for a fee, or construct a building and lease it out to the
Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit corporation" highest bidder or at the market rate for commercial purposes, or should it invest its
subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution? funds in the buy and sell of properties, real or personal. Under these circumstances,
we could conclude that the activities are already profit oriented, not incidental and
The Case reasonably necessary to the pursuit of the objectives of the association and therefore,
 will fall under the last paragraph of Section 27 of the Tax Code and any income 1980 Deficiency Income Tax P 353.15
derived therefrom shall be taxable.
1980 Deficiency Contractor's Tax P 3,129.23, &
Considering our findings that [private respondent] was not engaged in the business of
operating or contracting [a] parking lot, we find no legal basis also for the imposition of
1980 Deficiency Income Tax P 372,578.20
[a] deficiency fixed tax and [a] contractor's tax in the amount[s] of P353.15 and
P3,129.73, respectively.
but the same is AFFIRMED in all other respect. 7
xxx xxx xxx
Aggrieved, the YMCA asked for reconsideration based on the following grounds:
WHEREFORE, in view of all the foregoing, the following assessments are hereby
dismissed for lack of merit: I

1980 Deficiency Fixed Tax P353,15; The findings of facts of the Public Respondent Court of Tax Appeals being supported
by substantial evidence [are] final and conclusive.
1980 Deficiency Contractor's Tax P3,129.23;
II
1980 Deficiency Income Tax P372,578.20.
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from
the income on rentals of small shops and parking fees [are] in accord with the
While the following assessments are hereby sustained:
applicable law and jurisprudence. 8

1980 Deficiency Expanded Withholding Tax P1,798.93;

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and promulgated
on September 28, 1995 its first assailed Resolution which, in part, reads:
1980 Deficiency Withholding Tax on Wages P33,058.82
The Court cannot depart from the CTA's findings of fact, as they are supported by
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but evidence beyond what is considered as substantial.
not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National
Internal Revenue Code effective as of 1984. 5
xxx xxx xxx

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of
The second ground raised is that the respondent CTA did not err in saying that the
February 16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal in the following
rental from small shops and parking fees do not result in the loss of the exemption.
manner:
Not even the petitioner would hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking fees help[s] to keep its
Following the ruling in the afore-cited cases of Province of Abra vs. head above the water, so to speak, and allow it to continue with its laudable work.
Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court
of Tax Appeals that "the leasing of petitioner's (herein respondent's) facilities to small
The Court, therefore, finds the second ground of the motion to be meritorious and in
shop owners, to restaurant and canteen operators and the operation of the parking lot
accord with law and jurisprudence.
are reasonably incidental to and reasonably necessary for the accomplishment of the
objectives of the petitioners, and the income derived therefrom are tax exempt, must
be reversed. WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's
decision is AFFIRMED in toto. 9
WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed
the assessment for:
The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent Court in
its second assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of the
Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I CTA is not irregular or abnormal.
In holding that it had departed from the findings of fact of Respondent Court of Tax
Appeals when it rendered its Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of
private respondent from rentals of small shops and parking fees [is] exempt from
taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the
CTA. On the other hand, petitioner argues that the CA merely reversed the "ruling of the CTA that the
leasing of private respondent's facilities to small shop owners, to restaurant and canteen operators and the
operation of parking lots are reasonably incidental to and reasonably necessary for the accomplishment of
the objectives of the private respondent and that the income derived therefrom are tax
exempt." 12 Petitioner insists that what the appellate court reversed was the legal conclusion, not the
factual finding, of the CTA. 13 The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial
evidence, will be disturbed on appeal unless it is shown that the said court committed gross error in the
appreciation of facts. 14 In the present case, this Court finds that the February 16, 1994 Decision of the CA
did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled
on the issue raised by the CIR: "Whether or not the collection or earnings of rental income from the lease
of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27
of the National Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed it
was expected to. That it did so in a manner different from that of the CTA did not necessarily imply a
reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here
is a question of law in a given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts." 16 In the present case, the CA did not doubt, much less change, the facts narrated by the
CTA. It merely applied the law to the facts. That its interpretation or conclusion is different from that of the
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At
the outset, we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations shall not
be taxed under this Title in respect to income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for
the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other non-
profitable purposes, no part of the net income of which inures to the benefit of any
private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax imposed under this Code.
(as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the organizations enumerated in Section 27 (now
Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by
them as such," the exemption does not apply to income derived ". . . from any of their properties, real or
personal, or from any of their activities conducted for profit, regardless of the disposition made of such
income . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties,
real or personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used
for the accomplishment of its objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation
should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed
exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the
last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the
same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of
the YMCA from its real property, 20 the Court is duty-bound to abide strictly by its literal meaning and to
refrain from resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be
applied. 21Parenthetically, a consideration of the question of construction must not even begin, particularly
when such question is on whether to apply a strict construction or a liberal one on statutes that grant tax
exemptions to "religious, charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income
from the properties must arise from activities 'conducted for profit' before it may be considered
taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows
that the income from any property of exempt organizations, as well as that arising from any activity it
conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the
word "properties." This makes from the property of the organization taxable, regardless of how that income
is used whether for profit or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it
allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its
real property, on the solitary but unconvincing ground that the said income is not collected for profit but is
merely incidental to its operation. The law does not make a distinction. The rental income is taxable
regardless of whence such income is derived and how it is used or disposed of. Where the law does not
distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment not only
of property taxes but also of income tax from any source. 25 In support of its novel theory, it compares the
use of the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987 Constitutions,
on the one hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible into two categories: (1)
"[c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and non-
profit cemeteries," the incomes of which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands,
buildings and improvements actually and directly used for religious, charitable or educational purposes,"
which are exempt only from property taxes. 28 Second, Lladoc v. Commissioner of Internal
Revenue, 29 which limited the exemption only to the payment of property taxes, referred to the provision of
the 1935 Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the
phrase "actually, directly and exclusively used for religious, charitable or educational purposes" refers not
only to "all lands, buildings and improvements," but also to the above-quoted first category which includes
charitable institutions like the private respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the
Constitution reveal their intent which, in turn, may have guided the people in ratifying the Charter. 32 Such
intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of
this Court, stressed during the Concom debates that ". . . what is exempted is not the institution itself . . .;
those exempted from real estate taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of
the Concom, adhered to the same view that the exemption created by said provision pertained only to
property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
covers property taxes only." 35 Indeed, the income tax exemption claimed by private respondent finds no
basis in Article VI, Section 26, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA
"is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly
and exclusively for educational purposes so it is exempt from taxes on its properties and income." 37 We
reiterate that private respondent is exempt from the payment of property tax, but not income tax on the
rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is
insufficient to justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA
to be granted the exemption it claims under the aforecited provision, it must prove with substantial
evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to
prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has
acquired a well-known technical meaning, of which the members of the Constitutional Commission are
deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school system
is synonymous with formal education, 40 which "refers to the hierarchically structured and chronologically
graded learnings organized and provided by the formal school system and for which certification is
required in order for the learner to progress through the grades or move to the higher levels." 41 The Court
has examined the "Amended Articles of Incorporation" and "By-Laws" 43 of the YMCA, but found nothing in
them that even hints that it is a school or an educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-
based and "private auspices such as foundations and civic-spirited organizations" are ruled out. 45 It is
settled that the term "educational institution," when used in laws granting tax exemptions, refers to a ". . .
school seminary, college or educational establishment . . . ." 46 Therefore, the private respondent cannot be
deemed one of the educational institutions covered by the constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary acceptation. While
in its broadest and best sense education embraces all forms and phases of
instruction, improvement and development of mind and body, and as well of religious
and moral sentiments, yet in the common understanding and application it means a
place where systematic instruction in any or all of the useful branches of learning is
given by methods common to schools and institutions of learning. That we conceive to
be the true intent and scope of the term [educational institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also
notes that the former did not submit proof of the proportionate amount of the subject income that was
actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-
laws, which formed part of the evidence submitted, is patently insufficient, since the same merely signified
that "[t]he net income derived from the rentals of the commercial buildings shall be apportioned to the
Federation and Member Associations as the National Board may decide." 48 In sum, we find no basis for
granting the YMCA exemption from income tax under the constitutional provision invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of
Internal Revenue 50and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy
in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan
de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for exemption from the
payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City
an issue not at all related to that involved in a claimed exemption from the payment of income taxes
imposed on property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of income tax, was an educational institution which
submitted substantial evidence that the income subject of the controversy had been devoted or used solely
for educational purposes. On the other hand, the private respondent in the present case has not given any
proof that it is an educational institution, or that part of its rent income is actually, directly and exclusively
used for educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates the
nobility of its cause. However, the Court's power and function are limited merely to applying the law fairly
and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it
would be overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the government. It
needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given its
limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative
belongs to the political departments of government. Indeed, some of the members of the Court may even
believe in the wisdom and prudence of granting more tax exemptions to private respondent. But such
belief, however well-meaning and sincere, cannot bestow upon the Court the power to change or amend
the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28,
1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court of
Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income derived by petitioner
from rentals of its real property is subject to income tax. No pronouncement as to costs.
SO ORDERED.
7. G.R. No. 117359 July 23, 1998
DAVAO GULF LUMBER CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
PANGANIBAN, J.:
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of
a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review under Rule 45 of the Rules of
Court, assailing the Decision 1 of Respondent Court of Appeals 2 in CA-GR SP No. 34581 dated
September 26, 1994, which affirmed the June 21, 1994 Decision 3 of the Court of Tax Appeals 4 in CTA
Case No. 3574. The dispositive portion of the CTA Decision affirmed by Respondent Court reads:
 WHEREFORE, judgment is hereby rendered ordering the respondent to refund to the
petitioner the amount of P2,923.15 representing the partial refund of specific taxes
paid on manufactured oils and fuels. 5
The Antecedent Facts
The facts are undisputed. 6 Petitioner is a licensed forest concessionaire possessing a Timber License
Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural
Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies,
refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the
exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed,
under Sections 153 and 156 7 of the 1977 National Internal Revenue Code (NIRC), on the sale of said
products. Being included in the purchase price of the oil products, the specific taxes paid by the oil
companies were eventually passed on to the user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a
claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the
above-mentioned fuels and oils that were used by petitioner in its operations as forest concessionaire. The
claim was based on Insular Lumber Co. vs. Court of Tax Appeals 8 and Section 5 of RA 1435 which reads:
Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the
road and bridge funds of the political subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils mentioned above are used by
miners or forest concessionaires in their operations, twenty-five per centum of the
specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending section one hundred
forty-two of the Internal Revenue Code: Provided, further, That no new road shall be
constructed unless the routes or location thereof shall have been approved by the
Commissioner of Public Highways after a determination that such road can be made
part of an integral and articulated route in the Philippine Highway System, as required
in section twenty-six of the Philippine Highway Act of 1953.
It is an unquestioned fact that petitioner complied with the procedure for refund, including the submission
of proof of the actual use of the aforementioned oils in its forest concession as required by the above-
quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the affidavits of its general
manager, the president of the Philippine Wood Products Association, and three disinterested persons, all
attesting that the said manufactured diesel and fuel oils were actually used in the exploitation and
operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as CTA Case No. 3574. On
June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes
the latter had paid in the reduced amount of P2,923.15. The CTA ruled that the claim on purchases of
lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils other than lubricating oils
(from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground that they were not
included in the original claim filed before the CIR were the claims for refund on purchases of manufactured
oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In regard to the
other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under
RA 1435, and not on the higher rates actualhy paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153
and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted earlier, the Court of
Appeals affirmed the CTA Decision. Hence, this petition for review. 9
Public Respondent's Ruling
In its petition before the Court of Appeals, petitioner raised the following arguments:
I. The respondent Court of Tax Appeals failed to apply the Supreme Court's Decision
in Insular Lumber Co. v. Court of Tax Appeals which granted the claim for partial
refund of specific taxes paid by the claimant, without qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed by
succeeding amendatory laws,under which the petitioner paid the specific taxes on
manufactured and diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to established
tenets of law when it lent itself to interpreting Section 5 of R.A. 1435, when the
construction of said law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied but
rather, Sections 153 and 156 of the National Internal Revenue Code, as amended.
V. To rule that the basis for computation of the refunded taxes should be Sections 1
and 2 of R.A. 1435 rather than Section 153 and 156 of the National Internal Revenue
Code is unfair, erroneous, arbitrary, inequitable and oppressive. 10
The Court of Appeals held that the claim for refund should indeed be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling, it cited our pronouncement
in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation 11 and subsequent Resolution
dated June 15, 1992 clarifying the said Decision. Respondent Court further ruled that the claims for refund
which prescribed and those which were not filed at the administrative level must be excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25%
of the amount of specific taxes it actually paid on various refined and manufactured
mineral oils and other oil products taxed under Sec. 153 and Sec. 156 of the 1977
(Sec. 142 and Sec. 145 of the 1939) National Internal Revenue Code. 12
In the main, the question before us pertains only to the computation of the tax refund. Petitioner argues
that the refund should be based on the increased rates of specific taxes which it actually paid, as
prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it
should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.
The Court's Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
there would have been no need of dealing with oil used by miners and forest
concessions separately and Section 5 would very well have been included in Section
1 of Republic Act No. 1435, notwithstanding the different rate of exemption.
Petitioner then reasons that "the express mention of Section 1 of RA 1435 in Section 5 cannot be
expanded to include a limitation on the tax rates to be applied . . . [otherwise,] Section 5 should very well
have been included in Section 1 . . . ." 18
The Court is nor persuaded. The relevant statutory provisions do not clearly support petitioner's claim for
refund. RA 1435 provides:

Sec. 1 Section one hundred and forty-two of the National Internal Revenue Code, as
Under Sec. 5 of RA 1435
amended, is further amended to read as follows:

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435,
Sec. 142. Specific tax on manufactured oils and other fuels. On refined and
which was enacted to provide means for increasing the Highway Special Fund.
manufactured mineral oils and motor fuels, there shall be collected the following taxes:

The rationale for this grant of partial refund of specific taxes paid on purchases of manufactured diesel and
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;
fuel oils rests on the character of the Highway Special Fund. The specific taxes collected on gasoline and
fuel accrue to the Fund, which is to be used for the construction and maintenance of the highway system.
But because the gasoline and fuel purchased by mining and lumber concessionaires are used within their (b) Lubricating oils, per liter of volume capacity, seven centavos;
own compounds and roads, and their vehicles seldom use the national highways, they do not directly
benefit from the Fund and its use. Hence, the tax refund gives the mining and the logging companies a
(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume
measure of relief in light of their peculiar situation. 13 When the Highway Special Fund was abolished in
capacity, eight centavos; and
1985, the reason for the refund likewise ceased to exist. 14Since petitioner purchased the subject
manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and submitted the required proof
that these were actually used in operating its forest concession, it is entitled to claim the refund under (d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
Section 5 of RA 1435. centavo: Provided, That if the denatured alcohol is mixed with gasoline, the specific
tax on which has already been paid, only the alcohol content shall be subject to the
tax herein prescribed. For the purpose of this subsection, the removal of denatured
Tax Refund Strictly Constrtued
alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute
alcohol) shall be deemed to have been removed for motive power, unless shown to
Against the Grantee the contrary.

Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had actually paid for
the petroleum products used in its operations. In other words, it claims a refund based on the increased
rates under Sections 153 and 156 of the NIRC. 15 Petitioner argues that the statutory grant of the refund
privilege, specifically the phrase "twenty-five per centum of the specific tax paid thereon shall be refunded
by the Collector of Internal Revenue," is "clear and unambiguous" enough to require construction or
qualification thereof. 16 In addition, it cites our pronouncement in Insular Lumber vs. Court of Tax
Appeals: 17
Whenever any of the oils mentioned above are, during the five years from June
eighteen, nineteen hundred and fifty two, used in agriculture and aviation, fifty per
centum of the specific tax paid thereon shall be refunded by the Collector of Internal
Revenue upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving that the
said oils were actually used in agriculture, or in lieu thereof.

. . . Sec. 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only

(2) Should the producer belong to any producers' association or federation, duly
for the purpose of prescribing the procedure for refund. This express reference cannot
registered with the Securities and Exchange Commission, the affidavit of the president
be expanded in scope to include the limitation of the period of refund. If the limitation
of the association or federation, attesting to the fact that the oils were actually used in
of the period of refund of specific taxes paid on oils used in aviation and agriculture is
agriculture.
intended to cover similar taxes paid on oil used by miners and forest concessionaires,
 (3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving (c) Naphtha, gasoline and all other similar products of distillation, per liter of volume
that the said oils were actually used in aviation: Provided, That no such refunds shall capacity, ninety-one centavos: Provided, That on premium and aviation gasoline, the
be granted in respect to the oils used in aviation by citizens and corporations of tax shall be one peso per liter of volume capacity;
foreign countries which do not grant equivalent refunds or exemptions in respect to
similar oils used in aviation by citizens and corporations of the Philippines.
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That unless otherwise provided for by special laws, if the
Sec. 2 Section one hundred and forty-five of the National Internal Revenue Code, as denatured alcohol is mixed with gasoline, the specific tax on which has already been
amended, is further amended to read as follows: paid, only the alcohol content shall be subject to the tax herein prescribed. For the
purposes of this subsection, the removal of denatured alcohol of not less than one
hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to
Sec. 145. Specific Tax on Diesel fuel oil. On fuel oil, commercially known as diesel
have been removed for motive power, unless shown to the contrary;
fuel oil, and on all similar fuel oils, having more or less the same generating power,
there shall be collected, per metric ton, one peso.
(e) Processed gas, per liter of volume capacity, three centavos;
xxx xxx xxx
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;
Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the
road and bridge funds of the political subdivision for whose benefit the tax is (g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That liquefied
collected: Provided, however, That whenever any oils mentioned above are used by petroleum gas used for motive power shall be taxed at the equivalent rate as the
miners or forest concessionaires in their operations, twenty-five per centum of the specific tax on diesel fuel oil;
specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar conditions enumerated in
(h) Asphalts, per kilogram, eight centavos;
subparagraphs one and two of section one hereof, amending section one hundred
forty-two of the Internal Revenue Code: Provided, further, That no new road shall be
constructed unless the route or location thereof shall have been approved by the (i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
Commissioner of Public Highways after a determination that such road can be made
part of an integral and articulated route in the Philippine Highway System, as required
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As amended
in section twenty-six of the Philippine Highway Act of 1953.
by Sec. 1, P.D. No. 1672.)

Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the first two provisions, renumbering them
xxx xxx xxx
and prescribing higher rates. Accordingly, petitioner paid specific taxes on petroleum products purchased
from July 1, 1980 to January 31, 1982 under the following statutory provisions.
Sec. 156. Specific tax on diesel fuel oil. On fuel oil, commercially known as diesel
fuel oil, and on all similar fuel oils, having more or less the same generating power,
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows:
per liter of volume capacity, seventeen and one-half centavos, which tax shall attach
to this fuel oil as soon as it is in existence as such.
Sec. 153. Specific tax on manufactured oils and other fuels. On refined and
manufactured mineral oils and motor fuels, there shall be collected the following taxes
Then on March 21, 1981, these provisions were amended by EO 672 to read:
which shall attach to the articles hereunder enumerated as soon as they are in
existence as such:
Sec. 153. Specific tax on manufactured oils and other fuels. On refined and
manufactured mineral oils and motor fuels, there shall be collected the following taxes
(a) Kerosene, per liter of volume capacity, seven centavos;
which shall attach to the articles hereunder enumerated as soon as they are in
existence as such:
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(a) Kerosene, per liter of volume capacity, nine centavos;

(b) Lubricating oils, per liter of volume capacity, eighty centavos;

 (c) Naphtha, gasoline and all other similar products of distillation, per liter of volume
capacity, one peso and six centavos: Provided, That on premium and aviation
gasoline, the tax shall be one peso and ten centavos and one peso, respectively, per
liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo; Provided, That unless otherwise provided for by special laws, if the
denatured alcohol is mixed with gasoline, the specific tax on which has already been
paid, only the alcohol content shall be subject to the tax herein prescribed. For the
purpose of this subsection, the removal of denatured alcohol of not less than one
hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to
have been removed for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That,
liquified petroleum gas used for motive power shall be taxed at the equivalent rate as
the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. On fuel oil, commercially known as diesel
fuel oil, and all similar fuel oils, having more or less the same generating power, per
liter of volume capacity, twenty-five and one-half centavos, which tax shall attach to
this fuel oil as soon as it is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express language of a statute; 19 on the
other hand, once the tax is unquestionably imposed, "[a] claim of exemption from tax payments must be
clearly shown and based on language in the law too plain to be mistaken." 20 Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax exemption, 21 it must be
construed strictissimi Juris against the grantee. Hence, petitioner's claim of refund on the basis of the
specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be
mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression of
a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that
the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioner's
claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher
rates which were nonexistent at the time of its enactment, this Coure cannot presume otherwise. A
legislative lacuna cannot be filled by judicial fiat. 22
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of Appeals and Atlas
Consolidated Mining and Development
Corporation 23 (the second Atlas case), the CIR contended that the refund should be based on Sections 1
and 2 of RA 1435, not Sections 153 and 156 of the NIRC of 1977. In categorically ruling that Private
Respondent Atlas Consolidated Mining and Development Corporation was entitled to a refund based on
Sections 1 and 2 of RA 1435, the Court, through Mr. Justice Hilario G. Davide, Jr., reiterated our
pronouncement in Commissioner of Internal Revenue vs. Rio Tuba Nickel and Mining Corporation:
Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in
the Rio Tuba case sets forth the controlling doctrine. In that Resolution, we stated:
Since the private respondent's claim for refund covers specific taxes paid from 1980 to
July 1983 then we find that the private respondent is entitled to a refund. It should be
made clear, however, that Rio Tuba is not entitled to the whole amount it claims as
refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer
based on the rates specified by Sections 1 and 2 of R.A. No. 1435 but on the
increased rates mandated under Sections 153 and 156 of the National Internal
Revenue Code of 1977. We note however, that the latter law does not specifically
provide for a refund to these mining and lumber companies of specific taxes paid on
manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held
that the authorized partial refund under Section 5 of R.A. No. 1435 partakes of the
nature of a tax exemption and therefore cannot be allowed unless granted in the most
explicit and categorical language. Since the grant of refund privileges must be strictly
construed against the taxpayer, the basis for the refund shall be the amounts deemed
paid under Sections 1 and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The
private respondent's CLAIM for REFUND is GRANTED, computed on the basis of the
amounts deemed paid under Sections 1 and 2 of R.A. No. 1435, without interest. 24
We rule, therefore, that since Atlas's claims for refund cover specific taxes paid before
1985, it should be granted the refund based on the rates specified by Sections 1 and 2
of R.A. No. 1435 and not on the increased rates under Sections 153 and 156 of the
Tax Code of 1977, provided the claims are not yet barred by prescription. (Emphasis
supplied.)
Insular Lumber Co. and First Atlas Case
 Not Inconsistent With Rio Tuba
and Second Atlas Case
Petitioner argues that the applicable jurisprudence in this case should be Commissioner of Internal
Revenue vs. Atlas Consolidated and Mining Corp. (the first Atlas case), an unsigned resolution,
and Insular Lumber Co. vs. Court of Tax Appeals, an en banc decision. 25 Petitioner also asks the Court to
take a "second look" at Rio Tuba and the second Atlas case, both decided by Divisions, in view
of Insular which was decided en banc. Petitioner posits that "[I]n view of the similarity of the situation of
herein petitioner with Insular Lumber Company (claimant in Insular Lumber) and Rio Tuba Nickel Mining
Corporation (claimant in Rio Tuba), a dilemma has been created as to whether or not Insular Lumber,
which has been decided by the Honorable Court en banc, or Rio Tuba, which was decided only [by] the
Third Division of the Honorable Court, should
apply." 26
We find no conflict between these two pairs of cases. Neither Insular Lumber Co. nor the first Atlas case
ruled on the issue of whether the refund privilege under Section 5 should be computed based on the
specific tax deemed paid under Sections 1 and 2 of RA 1435, regardless of what was actually paid under
the increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products purchased in the
year 1963, when the increased rates under the NIRC of 1977 were nor yet in effect. Thus, the issue now
before us did not exist at the time, since the applicable rates were still those prescribed under Sections 1
and 2 of RA 1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant was entitled to the
refund under Section 5, notwithstanding its failure to pay any additional tax under a municipal or city
ordinance. Although Atlas purchased petroleum products in the years, 1976 to 1978 when the rates had
already been changed, the Court did not decide or make any pronouncement on the issue in that case.
Clearly, it is impossible for these two decisions to clash with our pronouncement in Rio Tuba and second
Atlas case, in which we ruled that the refund granted be computed on the basis of the amounts deemed
paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for petitioner's invocation of the
constitutional proscription that "no doctrine or principle of law laid down by the Court in a decision
rendered en banc or in division may be modified or reversed except by the Court sitting en banc. 27
Finally, petitioner asserts that "equity and justice demand that the computation of the tax refunds be based
on actual amounts paid under Sections 153 and 156 of the NIRC." 28 We disagree. According to an
eminent authority on taxation, "there is no tax exemption solely on the, ground of equity." 29
WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
8. FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF
THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.
DECISION
TORRES, JR., J.:
In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the petition
assails the Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where
the said court held:
"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax
assessment, are already final and (u)nappealable -and- the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal
Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other
tax remedies instituted by the government.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari
with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the former President of
the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in
estate taxes, are still unresolved, the latter issue being now before this Court for resolution. Specifically,
petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the
respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his
father, despite the pendency of the proceedings on probate of the will of the late president, which is
docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993,
seeking to -
I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993,
issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the
Auction of the real properties covered by Notices of Sale.
 After the parties had pleaded their case, the Court of Appeals rendered its Decision [2] on November
29, 1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner and
the estate of the deceased President Marcos have already become final and unappealable, and may thus
be enforced by the summary remedy of levying upon the properties of the late President, as was done by
the respondent Commissioner of Internal Revenue.
"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari
with prayer for Restraining Order and Injunction.
No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE
PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S
ALLEGED WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL
PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF
THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE
AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE
TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND
UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN
THE PETITION. INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME
FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS
COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY
CONSIDERED THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:
(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue
Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's ownership or interests in
several properties (both personal and real) make the total value of his estate, and the consequent
estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents
assessment of the estate tax and their issuance of the Notices of Levy and Sale are premature,
confiscatory and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served
with copies of the Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such,
petitioner was never given an opportunity to contest the Notices in violation of his right to due
process of law.
C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT
MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO
PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER
TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S
AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED DEFICIENCY ESTATE
AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:
"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of
the tax liabilities and obligations of the late president, as well as that of his family, associates and
"cronies". Said audit team concluded its investigation with a Memorandum dated July 26, 1991. The
investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an
estate tax returns [sic], as well as several income tax returns covering the years 1982 to 1986, -all in
violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of
Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in relation
to Section 252- a & b) of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return
for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to
1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to
1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-
002464 (against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00
Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax
assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts
of P149,551.70 and P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3)
Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner
Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos;
and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax
assessments were all personally and constructively served on August 26, 1991 and September 12, 1991
upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at No.
204 Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his last known address
at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the
Petition). Thereafter, Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o
petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a conference, was
furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of
the late president, within 30 days from service of said assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against
certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income
taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the
deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax
remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code
(NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling
the attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting
the interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the late president -
copies of the aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda
Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio
Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban
City. The public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There
being no bidder, the lots were declared forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and
prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of
preliminary injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood
of the government and should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be
achieved."[3]
Whether or not the proper avenues of assessment and collection of the said tax obligations were
taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure for the
enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos[4] is
specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant
to present a claim before the probate court so that said court may order the administrator to pay the
amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any other means.
Petitioner goes further, submitting that the probate court is not precluded from denying a request by
the government for the immediate payment of taxes, and should order the payment of the same only within
the period fixed by the probate court for the payment of all the debts of the decedent. In this regard,
petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67
Phil 502), where it was held that:
"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803),
relied upon by the petitioner-appellant is good authority on the proposition that the court having control
over the administration proceedings has jurisdiction to entertain the claim presented by the government for
taxes due and to order the administrator to pay the tax should it find that the assessment was proper, and
that the tax was legal, due and collectible. And the rule laid down in that case must be understood in
relation to the case of Collector of Customs vs. Haygood, supra., as to the procedure to be followed in a
given case by the government to effectuate the collection of the tax. Categorically stated, where during the
pendency of judicial administration over the estate of a deceased person a claim for taxes is presented by
the government, the court has the authority to order payment by the administrator; but, in the same way
that it has authority to order payment or satisfaction, it also has the negative authority to deny the
same. While there are cases where courts are required to perform certain duties mandatory and ministerial
in character, the function of the court in a case of the present character is not one of them; and here, the
court cannot be an organism endowed with latitude of judgment in one direction, and converted into a
mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the
same. According to the respondent, claims for payment of estate and income taxes due and assessed
after the death of the decedent need not be presented in the form of a claim against the estate. These can
and should be paid immediately. The probate court is not the government agency to decide whether an
estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate court is a
court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with impunity by
the very parties invoking its authority.
In testament to this, it has been held that it is within the jurisdiction of the probate court to approve
the sale of properties of a deceased person by his prospective heirs before final adjudication; [5] to
determine who are the heirs of the decedent; [6] the recognition of a natural child;[7] the status of a woman
claiming to be the legal wife of the decedent;[8] the legality of disinheritance of an heir by the testator;[9] and
to pass upon the validity of a waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent,
estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed
will of the deceased.
The nature of the process of estate tax collection has been described as follows:
"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an incident to the complete settlement of an estate, and,
under some statutes, it is made the duty of the probate court to make the amount of the inheritance tax a
part of the final decree of distribution of the estate. It is not against the property of decedent, nor is it a
claim against the estate as such, but it is against the interest or property right which the heir, legatee,
devisee, etc., has in the property formerly held by decedent. Further, under some statutes, it has been held
that it is not a suit or controversy between the parties, nor is it an adversary proceeding between the state
and the person who owes the tax on the inheritance. However, under other statutes it has been held that
the hearing and determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding in rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is executive in character,
as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this:
"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall
comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and
the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power conferred to it by this
Code or other laws."
Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the
government. Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.
"Taxes assessed against the estate of a deceased person, after administration is opened, need not be
submitted to the committee on claims in the ordinary course of administration. In the exercise of its control
over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes
have been assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the
estate's properties.
"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the
heirs even after the distribution of the properties of the decedent. They are exempted from the application
of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the
inheritance."[13]
"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance
received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It
cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the
properties allegedly owned by the late President, on the ground that it was required to seek first the
probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes,
before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden
not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention
that it is the probate court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should
have been pursued through the proper administrative and judicial avenues provided for by law.
Section 229 of the NIRC tells us how:
"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation in such form and manner as may be prescribed by implementing regulations within (30)
days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely affected by
the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
said decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D.
1773)"
Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the
same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties
left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken
by the Government, collection thereof may have been done in violation of the law. Thus, the manner and
method in which the latter is enforced may be questioned separately, and irrespective of the finality of the
former, because the Government does not have the unbridled discretion to enforce collection without
regard to the clear provision of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing
Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos
properties, were issued beyond the allowed period, and are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of
said assessments were still issued by respondents well beyond the period mandated in Revenue
Memorandum Circular No. 38-68. These Notices of Levy were issued only on 22 February 1993 and 20
May 1993 when at least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property were first issued by
respondents, the latter should have complied with Revenue Memorandum Circular No. 38-68 and issued
these Notices of Levy not earlier than three (3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had until 12 March 1992 (the last day of the sixth
month) within which to issue these Notices of Levy. The Notices of Levy, having been issued beyond the
period allowed by law, are thus void and of no effect."[15]
We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code. The deficiency tax assessment,
having already become final, executory, and demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:
"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a) In the case of
a false or fraudulent return with intent to evade 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 (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
xxx
(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may
be collected by distraint or levy or by a proceeding in court within three years following the assessment of
the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case
of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any
tax so assessed may be collected by levy upon real property within three years following the assessment
of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default
as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the assessment should have been
pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal
revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his estate, and
the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and
oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which
were filed by the government to question the ownership and interests of the late President in real and
personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether
the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were
among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to
how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases
involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total assessment
of P23,292,607,638.00, stating that this amount deviates from the findings of the Department of Justice's
Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to determine the amount
of taxes due upon the subject estate, but the Bureau of Internal Revenue [16] whose determinations and
assessments are presumed correct and made in good faith. [17] The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment
will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining
party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment
will justify the judicial affirmance of said assessment. [18] In this instance, petitioner has not pointed out one
single provision in the Memorandum of the Special Audit Team which gave rise to the questioned
assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly
on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot
supply the basis for the charge of impropriety of the assessments made.
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 course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a well-ordered society. The
subject tax assessments having become final, executory and enforceable, the same can no longer be
contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a
lost appeal or remedy.[19] This judicial policy becomes more pronounced in view of the absence of sufficient
attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.
"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts
and circumstances, as well as evidences, that there was sufficient, constructive and/or actual notice of
assessments, levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his
mother Mrs. Imelda Marcos.
Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at
the latter's last known address, on August 26, 1991 and September 12, 1991, as well as the notices of
assessment personally given to the caretaker of petitioner also at his last known address on September
12, 1991 - the subsequent notices given thereafter could no longer be ignored as they were sent at a time
when petitioner was already here in the Philippines, and at a place where said notices would surely be
called to petitioner's attention, and received by responsible persons of sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner,
at his office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp.
207-210, Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting
Mrs. Marcos to a conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean
Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were also served upon Mrs. Imelda
Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law
Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices, petitioner never lifted a finger to
protest the assessments, (upon which the Levy and sale of properties were based), nor appealed the
same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that
petitioner continuously ignored said Notices despite several opportunities given him to file a protest and to
thereafter appeal to the Court of Tax Appeals, - the tax assessments subject of this case, upon which the
levy and sale of properties were based, could no longer be contested (directly or indirectly) via this instant
petition for certiorari."[20]
Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties should
have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as
heir of the deceased. In the same vein, in the matter of income tax delinquency of the late president and
his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction
of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC,
which pertinently states:
"xxx
...Levy shall be effected by writing upon said certificate a description of the property upon which levy is
made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds
of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent
from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on
April 12, 1993 at his office at the Batasang Pambansa. [21] We cannot therefore, countenance petitioner's
insistence that he was denied due process. Where there was an opportunity to raise objections to
government action, and such opportunity was disregarded, for no justifiable reason, the party claiming
oppression then becomes the oppressor of the orderly functions of government. He who comes to court
must come with clean hands.Otherwise, he not only taints his name, but ridicules the very structure of
established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court
of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.
SO ORDERED.
9. G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed and
Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS,
ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting
Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his
capacity as City Assessor of Manila, respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of
Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board
of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976 decision
of the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose
Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City Assessor of
Manila" upholding the classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo
and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants.
Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On
July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its
effectivity, an increase in monthly rentals of dwelling units or of lands on which another's dwelling is
located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an
increase in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article
1673 of the Civil Code for two years from its effectivity thereby disallowing the ejectment of lessees upon
the expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree No. 20
amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00
and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a
definite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and
from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the
value of the subject properties based on the schedule of market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They
averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which the City Assessor adopted
(Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the assessments valid,
holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments appear
to be in accordance with the base schedule of market values and of the base schedule of
building unit values, as approved by the Secretary of Finance, the cases should be, as they are
hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1wphi1 They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties. Respondent City
Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of the
real property situated in the same vicinity where the subject properties of petitioners are located. To better
appreciate the locational and physical features of the land, the Board of Hearing Commissioners
conducted an ocular inspection with the presence of two representatives of the City Assessor prior to the
healing of the case. Neither the owners nor their authorized representatives were present during the said
ocular inspection despite proper notices served them. It was found that certain parcels of land were below
street level and were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion
of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266,
the appealed Decision is modified by allowing a 20% reduction in their respective market values
and applying therein the assessment level of 30% to arrive at the corresponding assessed
value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH"
METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in disregarding
the effect of the restrictions imposed by P.D. 20 on the market value of the properties affected, respondent
Assessor of the City of Manila unlawfully and unjustifiably set increased new assessed values at levels so
high and successive that the resulting annual real estate taxes would admittedly exceed the sum total of
the yearly rentals paid or payable by the dweller tenants under P.D. 20. Hence, petitioners protested
against the levels of the values assigned to their properties as revised and increased on the ground that
they were arbitrarily excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-
A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the
income approach is used in determining land values in some vicinities, it maintains that when income is
affected by some sort of price control, the same is rejected in the consideration and study of land values as
in the case of properties affected by the Rent Control Law for they do not project the true market value in
the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales Approach" on
the ground that the value estimate of the properties predicated upon prices paid in actual, market
transactions would be a uniform and a more credible standards to use especially in case of mass appraisal
of properties (Ibid.). Otherwise stated, public respondents would have this Court completely ignore the
effects of the restrictions of P.D. No. 20 on the market value of properties within its coverage. In any event,
it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are generally
acceptable methods of appraisal for taxation purposes (The Law on Transfer and Business Taxation by
Hector S. De Leon, 1988 Edition). However, it is conceded that the propriety of one as against the other
would of course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club,
Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and must
exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same
class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation
required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition).
Thus, the need to examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive
when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government.
But for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it
does property rights, both the due process and equal protection clauses of the Constitution may properly
be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth
to the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." The web
or unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes
pen, thus: "The power to tax is not the power to destroy while this Court sits. So it is in the Philippines "
(Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA
439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is where it can be shown to amount to confiscation of
property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different both in the privileges conferred and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated
with the market value of properties not so covered. The former has naturally a much lesser market value in
view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject properties
under the "comparable sales approach" were presented by the public respondents, namely: (1) that the
sale must represent a bonafide arm's length transaction between a willing seller and a willing buyer and (2)
the property must be comparable property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the time in question, there were
hardly any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis
for the conclusion that these properties were comparable with other residential properties not burdened by
P.D. 20. Neither can the given circumstances be nonchalantly dismissed by public respondents as
imposed under distressed conditions clearly implying that the same were merely temporary in character. At
this point in time, the falsity of such premises cannot be more convincingly demonstrated by the fact that
the law has existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is the
promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al.,
158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social
justice should not now be penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents
are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of Manila and the
City Assessor of Manila are ordered to make a new assessment by the income approach method to
guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
10. [G.R. No. 112024. January 28, 1999]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Resolution[1] of the Court of Appeals dated September 22,
1993, affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of the
petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The Decision of
the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby
AFFIRMED in toto.
SO ORDERED.[4]
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the amount
of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim
for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood
automatically credited the same to the succeeding year. The petition for review is dismissed for lack of
merit.
SO ORDERED.[5]
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of
1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by
applying PBComs tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax
Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1, 615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns
for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no
income tax liability. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a
net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in
1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a
tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their
lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted
a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications vs. Commissioner of Internal
Revenue.
The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit
for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax
Payments Made 5,016,954.00 ---
Tax Withheld at Source 282,795.50 234,077.69
Excess Tax Payments P5,299,749.50*============= P234,077.69==============
=
*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo difference was
noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of
petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed
beyond the two-year reglementary period provided for by law. The petitioners claim for refund in 1986
amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by
PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTAs decision but the same
was denied due course for lack of merit.[6]
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the
Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTAs
resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the formal assurances of BIR in
RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the
refund/tax credit of its 1985-86 excess quarterly income tax payments -- can be prejudiced
by the subsequent BIR rejection, applied retroactively, of its assurances in RMC No. 7-85
that the prescriptive period for the refund/tax credit of excess quarterly income tax
payments is not two years but ten (10).[7]
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied
PBComs claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere
speculation, without proof, that there were taxes due in 1987 and that PBCom availed of
tax-crediting that year.[8]
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea
for tax refund or tax credits on the ground of prescription, despite petitioners reliance on RMC No. 7-85,
changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying
on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states
that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and
that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten
(10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME
TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT
RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
xxxxxxxxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which
provide:
xxxxxxxxx
It has been observed, however, that because of the excess tax payments, corporations file claims for
recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of
payment, in accordance with Sections 292 and 295 of the National Internal Revenue Code. It is obvious
that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or
tax credit.
It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions
of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the overpaid
income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax
returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has
promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in
processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly
of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is
granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in
order to preserve the right to claim refund or tax credit within the two-year period. As already stated,
actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid
under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering
that it is an obligation created by law (Article 1144 of the Civil Code).[9] (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of
Tax Appeals[10] petitioner claims that rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held
that the government is precluded from adopting a position inconsistent with one previously taken where
injustice would result therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this
rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification,
or reversal will be prejudicial to the taxpayers except in the following cases:
a) where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-
year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is
reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15
following the close of the calendar year. As precedents, respondent Commissioner cited cases which
adhered to this principle, to wit: ACCRA Investments Corp. vs. Court of Appeals, et al.,
[11]
and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al..[12] Respondent Commissioner also
states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was
supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the
court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA
on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to
petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary
to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. [13] Due process
of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be
so because it is upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible.[14]
From the same perspective, claims for refund or tax credit should be exercised within the time fixed
by law because the BIR being an administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or
illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of
Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The
two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return
and final payment of the tax for the year.
 In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,[15] this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present
case, this date is April 16, 1984, and two years from this date would be April 16, 1986. x x x As we have
earlier said in the TMX Sales case, Sections 68,[16] 69,[17] and 70[18] on Quarterly Corporate Income Tax
Payment and Section 321 should be considered in conjunction with it.[19]
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular created
a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the
sense of more specific and less general interpretations of tax laws) which are issued from time to time by
the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute
by the executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be
erroneous.[20] Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement.[21]
In the case of People vs. Lim,[22] it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is
contrary to the provisions and spirit of Act. No. 4003 as amended, because whereas the prohibition
prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO
No. 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy
between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of
Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason
that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the
latter. x x x In this connection, the attention of the technical men in the offices of Department Heads who
draft rules and regulation is called to the importance and necessity of closely following the terms and
provisions of the law which they intended to implement, this to avoid any possible misunderstanding or
confusion as in the present case.[23]
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of
its officials or agents.[24] As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued
by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony
with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his
interpretation could not be given weight for to do so would, in effect, amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is
estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of
payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or
tax credit and the corresponding petition for review within the two-year prescription period, and that the
lengthening of the period of limitation on refund from two to ten years would be adverse to public policy
and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of
the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the
Commissioner of Internal Revenue who denied petitioners claim of refund or tax credit. Rather, it was the
Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85
issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of
harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot
be given weight for to do so would in effect amend the statute.[25]
Article 8 of the Civil Code [26] recognizes judicial decisions, applying or interpreting statutes as part of
the legal system of the country. But administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial
action. For there are no vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the Government in estoppel to correct
or overrule the same.[27] Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue
is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and
not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi
juris against the taxpayer.[28]
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming
CTAs decision denying its claim for refund of P 234,077.69 (tax overpaid in 1986), based on mere
speculation, without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC[29] (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or final corporate income tax
return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit
for the succeeding taxable year.To ease the administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the Court of Tax Appeals, after
examining the adjusted final corporate annual income tax return for taxable year 1986, found out that
petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987
annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that
petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can
no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.[30]
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as
specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must
respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to
controvert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no
showing of gross error or abuse on their part to disturb our reliance thereon. [31]
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from
is AFFIRMED, with COSTS against the petitioner.
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently,
per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed against Philippine
Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:

SO ORDERED. 1953
11. G.R. No. L-22074 April 30, 1965 Gross premium per investigation . . . . . . . . . . P768,580.00

Withholding tax due thereon at 24% . . . . . . . . P184,459.00

THE PHILIPPINE GUARANTY CO., INC., petitioner,
vs. 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Compromise for non-filing of withholding
100.00
Josue H. Gustilo and Ramirez and Ortigas for petitioner. income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00
BENGZON, J.P., J.: ==========

1954
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio Gross premium per investigation . . . . . . . . . . P780.880.68
Compaia de Seguros, La Union y El Fenix Espaol, Overseas Assurance Corp., Ltd., Socieded Anonima
de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss Withholding tax due thereon at 24% . . . . . . . . P184,411.00
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to
cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the 25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00
Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks
Compromise for non-filing of withholding
insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the 100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
foreign reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which
was signed by both parties in Switzerland.
TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of ==========
Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required to
keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry therein
was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not recovered Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded
from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest was
agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the denied and it appealed to the Court of Tax Appeals.
Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Conflicts and/or
differences between the parties under the reinsurance contracts were to be arbitrated in Manila. Philippine On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall be construed by
the laws of the Philippines.
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is
hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes for
reinsurers the following premiums: the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs against
petitioner.
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71

1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the
foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from sources
within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did
they have office here.
The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in
the Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced
simultaneously with the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in
such register bound the foreign resinsurers, localizing in the Philippines the actual cession of the risks and
premiums and assumption of the reinsurance undertaking by the foreign reinsurers. Taxes on premiums
imposed by Section 259 of the Tax Code for the privilege of doing insurance business in the Philippines
were payable by the foreign reinsurers when the same were not recoverable from the original assured. The
foreign reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums,
in consideration for administration and management by the latter of the affairs of the former in the
Philippines in regard to their reinsurance activities here. Disputes and differences between the parties
were subject to arbitration in the City of Manila. All the reinsurance contracts, except that with Swiss
Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by
the foreign reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc. and Swiss
Reinsurance Company was signed by both parties in Switzerland, the same specifically provided that its
provision shall be construed according to the laws of the Philippines, thereby manifesting a clear intention
of the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the
income.1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances.
Such undertaking, as explained above, took place in the Philippines. These insurance premiums,
therefore, came from sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of activity. Business should
not be continuity and progression of transactions 2 while activity may consist of only a single transaction.
An activity may occur outside the place of business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the
activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not
the place of business but the place of activity that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not an
all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be treated
as income from sources within the Philippines but it does not require that other kinds of income should not
be considered likewise.1wph1.t
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary
burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's territory,
and facilities and protection which a government is supposed to provide. Considering that the reinsurance
premiums in question were afforded protection by the government and the recipient foreign reinsurers
exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should
share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal
Revenue requiring no withholding of the tax due on the reinsurance premiums in question relieved it of the
duty to pay the corresponding withholding tax thereon. This defense of petitioner may free if from the
payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it
certainly would not exculpate if from liability to pay such withholding tax The Government is not estopped
from collecting taxes by the mistakes or errors of its agents.3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code, suffice
it to state that this question has already been answered in the affirmative in Alexander Howden & Co., Ltd.
vs. Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually remitted
to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to
its foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines and
not having any office or place of business therein, there shall be deducted and withheld at the
source in the same manner and upon the same items as is provided in Section fifty-three a tax
equal to twenty-four per centum thereof, and such tax shall be returned and paid in the same
manner and subject to the same conditions as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and general copartnerships
(compaias colectivas), in what ever capacity acting, including lessees or mortgagors of real or
personal property, trustees acting in any trust capacity, executors, administrators, receivers,
conservators, fiduciaries, employers, and all officers and employees of the Government of the
Philippines having the control, receipt, custody, disposal, or payment of interest, dividends,
rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income of any nonresident
alien individual, not engaged in trade or business within the Philippines and not having any office
or place of business therein, shall (except in the case provided for in subsection [a] of this
section) deduct and withhold from such annual or periodical gains, profits, and income a tax
equal to twelve per centum thereof: Provided That no deductions or withholding shall be
 required in the case of dividends paid by a foreign corporation unless (1) such corporation is
engaged in trade or business within the Philippines or has an office or place of business therein,
and (2) more than eighty-five per centum of the gross income of such corporation for the three-
year period ending with the close of its taxable year preceding the declaration of such dividends
(or for such part of such period as the corporation has been in existence)was derived from
sources within the Philippines as determined under the provisions of section thirty-
seven: Provided, further, That the Collector of Internal Revenue may authorize such tax to be
deducted and withheld from the interest upon any securities the owners of which are not known
to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in determining the
amount to be withheld. According, in computing the withholding tax due on the reinsurance premium in
question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered
to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a total
amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the amount of
P375,345.00 is not paid within 30 days from the date this judgement becomes final, there shall be
collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from the date
of delinquency to the date of payment, provided that the maximum amount that may be collected as
interest shall not exceed the amount corresponding to a period of three (3) years. With costs againsts
petitioner.
12. PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.
DECISION
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975[1] affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated
March 16, 1995[2] ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period
from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until
fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total
amount of P123,821,982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX
DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
------------------- ----------------- ----------------- ---------------------
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
========== ========== =========== ===========[3]
In a letter dated August 20, 1992,[4] Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991
in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be
applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992, [6] found no merit in Philexs position. Since
these pending claims have not yet been established or determined with certainty, it follows that no legal
compensation can take place. Hence, he BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input credit/refund against its
exercise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. [7] In the
course of the proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount
of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively
lowered the latters tax obligation of P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance
of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been determined (PARAS,
Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of
the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A.
Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-
off against the unliquidated claim which Petitioner conceived to exist in its favor (see Compaia General de
Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34).[8]
 Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract.[9] The dispositive portion of the CTA decision[10] provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6,
1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-
G.R. CV No. 36975.[11] Nonetheless, on April 8, 1996, the Court of Appeals affirmed the Court of Tax
Appeals observation. The pertinent portion of which reads:[12]
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated
March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July
11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed
as follows:[14]
Period Covered By Tax Credit Certificate Date Of Issue Amount
Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities [15] since both had already become due and demandable, as well as fully
liquidated;[16] hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other.[17] There is a material distinction between a tax and debt. Debts are
due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign
capacity.[18] We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, [19] we categorically held
that taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. The collection of tax cannot await the
results of a lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit,[20] which reiterated that:
x x x a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.
Further, Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even
though the refund has not yet been approved by the Commissioner,[21] is no longer without any support in
statutory law.
It is important to note that the premise of our ruling in the aforementioned case was anchored on
Section 51(d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code
of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was
omitted.[22] Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise liabilities within the
prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. [23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.[24]Evidently, to countenance Philexs whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has
a pending tax claim for refund or credit against the government which has not yet been granted. It must be
noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. [25] Hence,
a tax does not depend upon the consent of the taxpayer. [26] If any payer can defer the payment of taxes by
raising the defense that it still has a pending claim for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because
he has a claim against the government or that the collection of the tax is contingent on the result of the
lawsuit it filed against the government.[27] Moreover, Philex's theory that would automatically apply its VAT
input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax liabilities.
 Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is
immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax
Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to
waive the collection thereof.[28] The same cannot be condoned for flimsy reasons, [29] similar to the one
advanced by Philex in justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e) [30] of the National Internal Revenue Code
of 1977, which requires the refund of input taxes within 60 days, [31] when it took five years for the latter to
grant its tax claim for VAT input credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof
to establish the factual basis of his or her claim for tax credit or refund, [33] however, once the claimant has
submitted all the required documents, it is the function of the BIR to assess these documents with
purposeful dispatch. After all, since taxpayers owe honesty to government it is but just that government
render fair service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious
with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice
requires the speedy refund of wrongly-held taxes. [35] Fair dealing and nothing less, is expected by the
taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax
Appeals:[36]
"The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collectot kill the 'hen that lays the golden egg.' And, in the order to maintain the
general public's trust and confidence in the Government this power must be used justly and not
treacherously."
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect of its
agents and officers. Nowhere is this more true than in the field of taxation. [37] Again, while we understand
Philex's predicament, it must be stressed that the same is not valid reason for the non- payment of its tax
liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public servants or
employees especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claims for refund, the latter can seek
judicial remedy before the Court of Tax Appeals in the manner prescribed by law. [38] Second, if the inaction
can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can
also be availed of.
Article 27 of the Civil Code provides:
"Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an action for damages and other relief
against the latter, without prejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
"xxx xxx xxx
(c) wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties.[39] In no uncertain terms must we stress that every public employee or
servant must strive to render service to the people with utmost diligence and efficiency. Insolence and
delay have no place in government service. The BIR, being the government collecting arm, must and
should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it
wishes to remain true to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors
wrong.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into
his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
13. G.R. No. L-12353 September 30, 1960
NORTH CAMARINES LUMBER CO., INC., petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Miguel San Jose and A.B. Christi for petitioner.
Assistant Solicitor General Jose P. Alejandro and Atty. S. D. Paredes for respondent.
PARAS, C.J.:
This is an appeal from the resolution of the Court of Tax Appeals dismissing the petition for review filed by
the petitioner for lack of jurisdiction to try it on the merits, the same having been filed beyond the 30-day
period fixed in Section 11 of Republic Act No. 1125.
The petitioner, North Camarines Lumber Co., Inc., is a domestic corporation engaged in the lumber
business. On June 19, 1951 and July 31, 1951, it sold a total of 2,164,863 board feet of logs to the
General Lumber Co., Inc., with the agreement that the latter would assume responsibility for the payment
of the sales tax thereon in the amount of P7,768.51. After being consulted on the matter, the respondent
Collector of Internal Revenue, in his letters dated June 18, 1951 and August 6, 1951, advised the petitioner
that he was interposing no objection to the arrangement, provided the General Lumber Co., Inc., would file
the corresponding bonds to cover the sales tax liabilities.
The General Lumber Co., Inc., complied with the condition. In view, however, of its failure and that of the As the petitioner had consumed thirty-three days, its appeal was clearly filed out of time. It is argued,
surety to pay the tax liabilities, the respondent Collector, in his letter dated August 30, 1955, required the however, that in computing the 30-day period fixed in Section 11 of Republic Act No. 1125, the letter of the
petitioner to pay the total amount of P9,598.72 as sales tax and incidental penalties in the sale of logs to respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be
the General Lumber Co., Inc. Although the date of receipt by petitioner of this letter does not appeal in the considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30,
records, it may be presumed to be September 9, 1955, when the petitioner addressed a letter to the 1955.
respondent Collector, which was received on September 12, 1955, wherein the petitioner acknowledged
receipt of the letter of demand and at the same time requested for the reconsideration of the assessment.
This contention is untenable. We cannot countenance that theory that would make the commencement of
This was denied by the respondent Collector in his letter of December 8, 1955, received by the petitioner
the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to
on January 5, 1956. The respondent Collector having denied the second request for reconsideration in his
put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure
letter dated January 30, 1956, which the petitioner received on February 16, 1956, the latter, on March 13,
would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and
1956, filed a petition for review with the Court of Tax Appeals. The Court, after a preliminary hearing on
their prompt and certain availability an imperious need." (Bull vs. U.S. 295, U.S. 247).
respondent Collector's motion to dismiss, ruled that, as the petition was filed beyond the 30-day period
prescribed by Section 11 of Republic Act No. 1125, it has no jurisdiction to try the same. Accordingly, the
case was dismissed. WHEREFORE, the resolution appealed from is affirmed, with costs. 3m 3 so ordered.

In contending that the Court of Tax Appeals erred, the petitioner points out that Section 7, and not Section 14. G.R. No. L-7859 December 22, 1955
11, of Republic Act No. 1125 confers and determines the jurisdiction of the respondent court, and that
Section 11 refers merely to the prescriptive period for filing appeals.
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
While the petitioner is correct as to the attribute of Section 7, it should be remembered that, for the vs.
respondent court to have jurisdiction over any case, the party seeking redress must first invoke its exercise J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
in the manner and within the time prescribed by the law. Thus Section 7, which enumerates the specific
cases falling within the jurisdiction of the Court of Tax Appeals must be read together with Section 11,
which fixes the time for invoking said jurisdiction.1awphl.nt Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and
Solicitor Felicisimo R. Rosete for appellee.
There is no question that petitioner's case is covered by Section 7 and, therefore, comes within the
jurisdiction of the respondent court. But we said jurisdiction invoked by the petitioner within the period
prescribed by Section 11?

The respondent court ruled that the time consumed by the petitioner in perfecting its appeal after REYES, J.B L., J.:
deducting the time during which the period for appeal was suspended by a pending request for
reconsideration is as follows: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
From September 9, 1955, presumed date of receipt of decision, to September
12, 1955, the filing of request for 3 Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the
reconsideration ................................................................ days threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-
From January 5, 1956, presumed date of receipt of denial of reconsideration, McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the
to January 9, 1956, the filing of the second request for 4 national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by
reconsideration ................................................................ days the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality
From February 16, 1956, receipt of denial of second request for of the loss of its preferential position in the United States market and the imposition of the export taxes."
reconsideration, to March 13, 1956, the filing of petition for 26
review ................................................................ days In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of
sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or
Total ................................................................ 33 persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
days consideration, on lease or otherwise
 a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following objectives, as
may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the United States market, and ultimately to insure
its continued existence notwithstanding the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field so that all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment of
the next regular session of the National Assembly, make the necessary disbursements from the
fund herein created (1) for the establishment and operation of sugar experiment station or
stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal
sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate
higher yielding varieties of sugar cane more adaptable to different district conditions in the
Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and
for the utilization of excess cane lands, and (g) on other problems the solution of which would
help rehabilitate and stabilize the industry, and (2) for the improvement of living and working
conditions in sugar mills and sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and allocation of said funds to carry out
the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund
herein created of the necessary amount or amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively,
which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court
(Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act
No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore
quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an
exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police
power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among
its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853;
Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play,
subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of
the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation may be made the implement of the state's police
power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1,
80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited
from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at
p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries are also in need of similar protection;
that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in
Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there are other instances to which it might have
been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the
evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products
and solution of allied problems, as well as to the improvements of living and working conditions in sugar
mills or plantations, without any part of such money being channeled directly to private persons,
constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91
L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
15. G.R. No. L-23645 October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his
capacity as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity
as Acting Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act
2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for
the period from August nineteen to September thirty every year the printing and issue of semi-
postal stamps of different denominations with face value showing the regular postage charge
plus the additional amount of five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided,
That no such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative
orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All
these administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5 +
5" centavos and another at "10 + 5" centavos, will soon be released for use by the public on their
mails to be posted during the same period starting with the year 1958.
xxx xxx xxx
During the period from August 19 to September 30 each year starting in 1958, no mail matter of
whatever class, and whether domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears at
least one such semi-postal stamp showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of
postage meters, each piece of such mail shall bear at least one such semi-postal stamp if
posted during the period above stated starting with the year 1958, in addition to being charged
the usual postage prescribed by existing regulations. In the case of business reply envelopes
and cards mailed during said period, such stamp should be collected from the addressees at the
time of delivery. Mails entitled to franking privilege like those from the office of the President,
members of Congress, and other offices to which such privilege has been granted, shall each
also bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail
boxes without the required semi-postal stamp, shall be returned to the sender, if known, with a
notation calling for the affixing of such stamp. If the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege
which are not exempted from the payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash, for which official receipt
(General Form No. 13, A) shall be issued, instead of affixing the semi-postal stamp in the
manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of
five centavos for the Philippine Tuberculosis Society shall be collected on each separately-
addressed piece of second-class mail matter, and the total sum thus collected shall be entered
in the same official receipt to be issued for the postage at the second-class rate. In making such
entry, the total number of pieces of second-class mail posted shall be stated, thus: "Total charge
for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from the
postage in both of the official receipt and the Record of Collections.
 2. First-class and third-class mail permits. Mails to be posted without postage affixed under
permits issued by this Bureau shall each be charged the usual postage, in addition to the five-
centavo extra charge intended for said society. The total extra charge thus received shall be
entered in the same official receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered
mail permit issued by this Bureau, the extra charge of five centavos for said society shall be
collected in cash and an official receipt issued for the total sum thus received, in the manner
indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes
to holders of business reply permits, the five-centavo charge intended for said society shall be
collected in cash on each reply card or envelope delivered, in addition to the required postage
which may also be paid in cash. An official receipt shall be issued for the total postage and total
extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons
entitled to the franking privilege under existing laws may pay in cash such extra charge intended
for said society, instead of affixing the semi-postal stamps to their mails, provided that such
mails are presented at the post-office window, where the five-centavo extra charge for said
society shall be collected on each piece of such mail matter. In such case, an official receipt
shall be issued for the total sum thus collected, in the manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window
shall be affixed with the necessary semi-postal stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as
amended, exempts "copies of periodical publications received for mailing under any class of mail matter,
including newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in
San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy
Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to
the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders
issued, contending that it violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional;
hence this appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a breach of the
statute. While conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp
was a violation of Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the
action on the ground that under section 6 of Rule 64 of the Rules of Court, "If before the final termination of
the case a breach or violation of ... a statute ... should take place, the action may thereupon be converted
into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or
violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule,
which allows the court to treat an action for declaratory relief as an ordinary action, applies only if the
breach or violation occurs after the filing of the action but before the termination thereof. 3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this
action, then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be
converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a
breach of the statute because the statute appears to be addressed only to postal authorities. The statute, it
is true, in terms provides that "no mail matter shall be accepted in the mails unless it bears such semi-
postal stamps." It does not follow, however, that only postal authorities can be guilty of violating it by
accepting mails without the payment of the anti-TB stamp. It is obvious that they can be guilty of violating
the statute only if there are people who use the mails without paying for the additional anti-TB stamp. Just
as in bribery the mere offer constitutes a breach of the law, so in the matter of the anti-TB stamp the mere
attempt to use the mails without the stamp constitutes a violation of the statute. It is not required that the
mail be accepted by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was
filed not only with respect to the letter which he mailed on September 15, 1963, but also with regard to any
other mail that he might send in the future. Thus, in his complaint, the petitioner prayed that due course be
given to "other mails without the semi-postal stamps which he may deliver for mailing ... if any, during the
period covered by Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to
other mailers which bear the required postage, without collection of additional charge of five centavos
prescribed by the same Republic Act." As one whose mail was returned, the petitioner is certainly
interested in a ruling on the validity of the statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically
the claim is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed
the rest of the population and that even among postal patrons the statute discriminatorily grants exemption
to newspapers while Administrative Order 9 of the respondent Postmaster General grants a similar
exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid
upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled
against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and
to grant exemptions.4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is
said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom
in classification.6 The reason for this is that traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is
that statutory classification of mail users must bear some reasonable relationship to the end sought to be
attained, and that absent such relationship the selection of mail users is constitutionally impermissible.
This is altogether a different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by
the legislation and its purpose is undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the classification imposed is
based upon some standard capable of reasonable comprehension, be that standard based upon
ability to produce revenue or some other legitimate distinction, equal protection of the law has
been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at
441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580
(1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration
that it sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise
legislation must be sought in the legislature. Now, the classification of mail users is not without any reason.
It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the
allocation of the tax burden, Congress must have concluded that the contribution to the anti-TB fund can
be assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled
principle of law that "consideration of practical administrative convenience and cost in the administration of
tax laws afford adequate ground for imposing a tax on a well recognized and defined class."9 In the case of
the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the
legislature to select mail users as subjects of the tax is the relative ease and convenienceof collecting the
tax through the post offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty
of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users
were already a class by themselves even before the enactment of the statue and all that the legislature did
was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no
more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences
that exist in fact is living law; to disregard [them] and concentrate on some abstract identities is lifeless
logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been
thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy
the law and administrative officials have sanctioned an invidious discrimination offensive to the
Constitution. The application of the lower courts theory would require all mail users to be taxed, a
conclusion that is hardly tenable in the light of differences in status of mail users. The Constitution does not
require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order
to foster what it conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the
amendment introduced by Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity
from taxation. The State cannot be taxed without its consent and such consent, being in derogation of its
sovereignty, is to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General,
which lists the various offices and instrumentalities of the Government exempt from the payment of the
anti-TB stamp, is but a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of
other diseases which, it is said, are equally a menace to public health. But it is never a requirement of
equal protection that all evils of the same genus be eradicated or none at all.13 As this Court has had
occasion to say, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public
purpose as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule
of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means
benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to
which the taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in
an organized society, established and safeguarded by the devotion of taxes to public purposes. Any other
view would preclude the levying of taxes except as they are used to compensate for the burden on those
who pay them and would involve the abandonment of the most fundamental principle of government
that it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered.
We have said that considerations of administrative convenience and cost afford an adequate ground for
classification. The same considerations may induce the legislature to impose a flat tax which in effect is a
charge for the transaction, operating equally on all persons within the class regardless of the amount
involved.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of
two cents on every $100 face value of stock transferred:
 One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again equality
in this sense has to yield to practical considerations and usage. There must be a fixed and
indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is equality.
When the taxes on two sales are equal, the same number of shares is sold in each case; that is
to say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many others, illustrate the necessity and
practice of sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit
of the Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the
Solicitor General points out, the Society is not really the beneficiary but only the agency through which the
State acts in carrying out what is essentially a public function. The money is treated as a special fund and
as such need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to
issue administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower
court invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of
legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of
mail matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge
may be paid in cash instead of the purchase of the anti-TB stamp. It further states that mails deposited
during the period August 19 to September 30 of each year in mail boxes without the stamp should be
returned to the sender, if known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of
anti-TB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of
the undertaking. The authority given to the Postmaster General to raise funds through the mails must be
liberally construed, consistent with the principle that where the end is required the appropriate means are
given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional
charge but also that of the regular postage. In the case of business reply cards, for instance, it is obvious
that to require mailers to affix the anti-TB stamp on their cards would be to make them pay much more
because the cards likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB
stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such
semi-postal stamp" is a declaration that such mail matter is nonmailable within the meaning of section
1952 of the Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of
the law for the guidance of postal officials and employees. As for Administrative Order 9, we have already
said that in listing the offices and entities of the Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established principle, namely, that the Government is
exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement
as to costs.
16. G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical practitioner, a
public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf and in behalf of
other professionals practising in the City of Manila who may desire to join it." Object of the suit is the
annulment of Ordinance No. 3398 of the City of Manila together with the provision of the Manila charter
authorizing it and the refund of taxes collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July 25,
1950, imposes a municipal occupation tax on persons exercising various professions in the city and
penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by imprisonment of not
more than six months, or by both such fine and imprisonment in the discretion of the court." Among the
professions taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to paragraph
(1) of section 18 of the Revised Charter of the City of Manila (as amended by Republic Act No. 409), which
empowers the Municipal Board of said city to impose a municipal occupation tax, not to exceed P50 per
annum, on persons engaged in the various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit for the purpose already stated. The lower court upheld the
validity of the provision of law authorizing the enactment of the ordinance but declared the ordinance itself
illegal and void on the ground that the penalty there in provided for non-payment of the tax was not legally
authorized. From this decision both parties appealed to this Court, and the only question they have
presented for our determination is whether this ruling is correct or not, for though the decision is silent on
the refund of taxes paid plaintiffs make no assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the imposition of
the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the
very section that authorizes the enactment of this tax ordinance (section 18 of the Manila Charter) in
express terms also empowers the Municipal Board "to fix penalties for the violation of ordinances which
shall not exceed to(sic) two hundred pesos fine or six months" imprisonment, or both such fine and
imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is
illegal and void because it imposes a penalty not authorized by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the professions
to which they respectively belong have been singled out for the imposition of this municipal occupation tax;
and in any event, the Legislature may, in its discretion, select what occupations shall be taxed, and in the
exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the others
untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while the law has
authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered
cities, not to mention municipalities. We do not think it is for the courts to judge what particular cities or
municipalities should be empowered to impose occupation taxes in addition to those imposed by the
National Government. That matter is peculiarly within the domain of the political departments and the
courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with a
population and volume of trade many times that of any other Philippine city or municipality, Manila, no
doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within
a class in that while professionals with offices in Manila have to pay the tax, outsiders who have no offices
in the city but practice their profession therein are not subject to the tax. Plaintiffs make a distinction that is
not found in the ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing"
in the City of Manila naturally any one of the occupations named, but does not say that such person
must have his office in Manila. What constitutes exercise or pursuit of a profession in the city is a matter of
judicial determination. The argument against double taxation may not be invoked where one tax is
imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes
be exacted with respect to the same occupation, calling or activity by both the state and the political
subdivisions thereof. (51 Am. Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance No.
3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the provision of
the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.