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TAXATION CASES

Liwayway Vinzons-Chato vs Fortune Tobacco Corp. G.R. No. 141309, June 19, 2007
FACTS:
This is a case for damages under Article 32 of the Civil Code filed by Fortune against Liwayway as CIR.
On June 10, 1993, the legislature enacted RA 7654, which provided that locally manufactured cigarettes which are currently
classified and taxed at 55% shall be charged an ad valorem tax of “55% provided that the maximum tax shall not be less than Five
Pesos per pack.” Prior to effectivity of RA 7654, Liwayway issued a rule, reclassifying “Champion,” “Hope,” and “More” (all
manufactured by Fortune) as locally manufactured cigarettes bearing foreign brand subject to the 55% ad valorem tax. Thus, when
RA 7654 was passed, these cigarette brands were already covered.
In a case filed against Liwayway with the RTC, Fortune contended that the issuance of the rule violated its constitutional
right against deprivation of property without due process of law and the right to equal protection of the laws.
For her part, Liwayway contended in her motion to dismiss that respondent has no cause of action against her because she
issued RMC 37-93 in the performance of her official function and within the scope of her authority. She claimed that she acted
merely as an agent of the Republic and therefore the latter is the one responsible for her acts. She also contended that the
complaint states no cause of action for lack of allegation of malice or bad faith.
The order denying the motion to dismiss was elevated to the CA, who dismissed the case on the ground that under Article
32, liability may arise even if the defendant did not act with malice or bad faith.
Hence this appeal.

ISSUES:
Whether or not a public officer may be validly sued in his/her private capacity for acts done in connection with the
discharge of the functions of his/her office
Whether or not Article 32, NCC, should be applied instead of Sec. 38, Book I, Administrative Code

HELD:
On the first issue, the general rule is that a public officer is not liable for damages which a person may suffer arising from
the just performance of his official duties and within the scope of his assigned tasks. An officer who acts within his authority to
administer the affairs of the office which he/she heads is not liable for damages that may have been caused to another, as it would
virtually be a charge against the Republic, which is not amenable to judgment for monetary claims without its consent. However, a
public officer is by law not immune from damages in his/her personal capacity for acts done in bad faith which, being outside the
scope of his authority, are no longer protected by the mantle of immunity for official actions.
Specifically, under Sec. 38, Book I, Administrative Code, civil liability may arise where there is bad faith, malice, or gross
negligence on the part of a superior public officer. And, under Sec. 39 of the same Book, civil liability may arise where the
subordinate public officer’s act is characterized by willfulness or negligence. In Cojuangco, Jr. V. CA, a public officer who directly or
indirectly violates the constitutional rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his
acts were not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity for acts done in the
course of the performance of the functions of the office, where said public officer: (1) acted with malice, bad faith, or negligence; or
(2) where the public officer violated a constitutional right of the plaintiff.
On the second issue, SC ruled that the decisive provision is Article 32, it being a special law, which prevails over a general
law (the Administrative Code).
Article 32 was patterned after the “tort” in American law. A tort is a wrong, a tortious act which has been defined as the
commission or omission of an act by one, without right, whereby another receives some injury, directly or indirectly, in person,
property or reputation. There are cases in which it has been stated that civil liability in tort is determined by the conduct and not by
the mental state of the tortfeasor, and there are circumstances under which the motive of the defendant has been rendered
immaterial. The reason sometimes given for the rule is that otherwise, the mental attitude of the alleged wrongdoer, and not the act
itself, would determine whether the act was wrongful. Presence of good motive, or rather, the absence of an evil motive, does not
render lawful an act which is otherwise an invasion of another’s legal right; that is, liability in tort in not precluded by the fact that
defendant acted without evil intent.

Liwayway Vinzonz-Chato v. Fortune Tabacco Corporation GR No. 141398 December 23, 2008’
FACTS:
Prior to RA 7654, cigarette brands Champion, Hope, and More were considered local brands and were subjected to ad
valorem tax at the rate of 20-45% however, 2 days before RA 7654 took effect, then commissioner of internal revenue Liwayway
Vinzons-Chato (Liwayway) enacted RMC 37-93 (RMC) took effect which subjected the 3 cigarette brands to the effects of RA 7654
subjecting the goods to a 55% ad valorem Tax. BIR Deputy Commissioner Victor Deoferio, Jr. (Deoferio, Jr.) sent a telefax copy to
Fortune Tobacco (Fortune) and upon receiving it, they filed a motion for reconsideration for the recall of RMC. The same was denied
and in the same letter was demanded to pay an ad valorem tax deficiency worth P9,598,334.00 pesos to which they filed to be
reviewed with the Court of Tax appeals. The CTA deemed RMC to be defective, invalid, and unenforceable, thus enjoined Liwayway
from collecting the deficiency. The ruling was affirmed by the CA as RMC had fallen short of the requirements of a valid
administrative issuance. Do to the favorable decision and feeling aggrieved, Fortuen filed a complaint for damages was filed before
the RTC against Liwayway in her private capacity, to which she filed a motion to dismiss. RTC denied the motion to dismiss, to which
the CA affirmed, to which the SC also affirmed and remanded the case back to RTC. Liwayway filed a motion for reconsideration
which was then denied and then filed here motion before the SC.
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ISSUE:
Whether a public officer may be liable for damages in the performance of her duty Whether Fortune was deprived of due
process.

RULING:
NO, because according to the SC, there are 2 kinds of duties exercised by public officers. Duty to the public, where officers
whose duty is owing primarily to the public collectively, and duty to individuals where the duty to of a proper administration is
demanded of a public officer. As long as one is present, the public officer cannot be held liable for damages while in the
performance of duty.
The only exception to the rule is when the individual suffers a particular or special injury on account of the public officer’s
improper performance or non -performance of his public duty. Such an injury must be proven by evidence and not mere
assumptions. In relation to Art. 32 of the Civil Code, the principle may now translate into the rule that an individual can hold a public
officer personally liable for damages on account of an act or omission that violates a constitutional right only if it results in a
particular wrong or injury to the former, be it done in bad or good faith.
In the case at hand Fortune failed to prove such damages, and by only merely alleging that there was “financial and
business difficulties” is rather vague to be granted damages.
NO, Fortune was not denied due process because it had committed and error in in its argument and the remedy it seeks.
Fortune rests on the argument based on the Biven’s Action where a person may sue a public officer for damages due to flagrant and
unconstitutional abuses of administrative power. However, the SC held that a Biven’s action is only available if no other
remedies are present. In the case at hand, Fortune had the remedy of challenging the assessment administrative. lt and judicially,
and may sue the government for a tax refund.
Wherefore, premises considered, we GRANT petitoner’s motion for reconsideration of the June 19, 2007 Decision and DENY
respondent’s motion for reconsideration of the Juen 25, 2008 Resolution. Civil Case No. CV-97-341-MK, pending with the Regional
Trial Court of Marikina City, is DISMISSED.

CIR V PASCOR REALTY & DEV’T CORP et. Al GR No. 128315, June 29, 1999
Facts:
The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and
Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an
assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. The Commissioner filed a criminal complaint for
tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for
reconsideration on reinvestigation disputing the tax assessment and tax liability. The Commissioner denied private respondent’s
request for reconsideration/reinvestigation on the ground that no formal assessment has been issued which the latter elevated to
the CTA on a petition for review. The Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction denied by CTA
and ordered the Commissioner to file an answer. Instead of complying with the order of CTA, Commissioner filed a petition with the
CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue
officers and the endorsement of said report as assessment which may be appealed to the CTA. The CA sustained the CTA decision
and dismissed the petition.

Issues:
(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.
(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.
Held:
The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the
revenue regulations governing the protest assessments provide a specific definition or form of an assessment.
An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein
within a specific period. The revenue officer’s affidavit merely contained a computation of respondent’s tax liability. It did not state a
demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to
support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for
the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner
intended to file a criminal complaint for tax evasion, not to issue an assessment.
An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a
prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an
assessment, or to file a criminal case against the taxpayer, or to do both.

SY PO vs. CTA G.R. No. 81446; August 18, 1988

Facts:
Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged in the business of manufacture and sale of
compounded liquors. On the basis of a denunciation against SCWF allegedly "for tax evasion amounting to millions of pesos,
Secretary of Finance directed the Finance-BIR--NBI team to investigate.
On the basis of the team's report of investigation, the respondent Commissioner of Internal Revenue assessed Mr. Po Bien
Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for January 2,1964 to
January 19, 1972 in the amount of P5,595,003.68
Petitioner protested the deficiency assessments. The BIR recommended the reiteration of the assessments in view of the
taxpayer's persistent failure to present the books of accounts for examination.
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Issue: WON the assessments have valid and legal basis.

Held:
The law is specific and clear. The rule on “The Best Evidence Obtainable” applies when a tax report required by law for the
purpose of assessment is not available or when tax report is incomplete or fraudulent.
The tax assessment 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 irregularities in the performance of duties, an assessment duly made by the BIR examiner and
approved by his superior officers will not be disturbed. All presumptions are in favour of the correctness of tax assessments.

CIR vs. Enron Subic Power Corp GR No. 166387; January 19, 2009
Facts:
The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment
disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of
the assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations
for the assessment but must also justify their applicability to the factual milieu of the assessment.

Issue: Is the disputed assessment valid?

Held:
NO. The assessment is not valid. Although the revenue examiners discussed their findings with Respondent’s representative
during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioner’s Annex G, were not
sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and
not merely “notified” as was the requirement before) in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void. The use of the word “shall” indicates the mandatory nature of the requirement.

NEW

1. Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., G.R. No. 184823, 06 October 2010
FACTS
Respondent Aichi filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002, with the
petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center.On even date, respondent filed a Petition for Review with the CTA for the refund/credit of the
same input VAT. The CTA partially granted the petition. In a Motion for Reconsideration, petitioner argued that the simultaneous
filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC and a prior filing of an
administrative claim is a “condition precedent” before a judicial claim can be filed. The CTA En Banc affirmed the division ruling.

ISSUE:
Whether the respondent’s judicial and administrative claims for tax refund/credit were filed within the two-year
prescriptive period as provided in Sections 112(A) and 229 of the NIRC.

HELD: NO.
The two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on
September 30, 2004. Hence, respondent’s administrative claim was timely filed.The filing of the judicial claim was premature.
However, notwithstanding the timely filing of the administrative claim, [the Supreme Court is] constrained to deny respondent’s
claim for tax refund/credit for having been filed in violation of Section 112(D). Section 112(D) of the NIRC clearly provides that the
CIR has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],”
within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before
the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the
judicial claim with the CTA premature. The premature filing of respondent’s claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

2. CIR vs ISLAND GARMENT

Facts:
Island Garment was licensed and operating under RA 3137 or the Embroidery Law. It imports raw materials like textile
fabrics for manufacture into finished garments which it then exports back to its foreign suppliers. Under RA 3137, all importations of
textile fabrics received by Island Garment are exempt from duties and special import taxes. However, its net income as embroidery
contractor consisting of payments received from foreign suppliers is subject to income tax. Respondent was assessed with deficiency
taxes of Php335,787.93 and Php291,402.01 representing advance sales tax, for textiles allegedly sold in the local market instead of
being re-exported back to respondent corporation's foreign suppliers as finished goods. Respondent filed its protest and the hearing
officer of the Appellate Division of the BIR recommended canceling the assessments but the BIR Commissioner denied the protest
despite such recommendation.

Issue:
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1)W/N Island garment filed within 30 day period with CIR

2)W/N Island Garment is liable to pay

Held:
1) YES. The letter sent by Island Garment questioning the “mathematical computation” used by the Commissioner in its
letter dated 23 September 1969 was a valid motion for reconsideration because it raises new and valid issues and as stated in
Section 11 of Rep. Act No.1125, the period for the perfection of an appeal to the Court of Tax Appeals is thirty (30) days from receipt
of an adverse decision or ruling of the Commissioner of Internal Revenue, Collector of Customs or any provincial or city Board of
Assessment Appeals. the appealable decision is the letter of the petitioner dated 8 August 1969. The respondent corporation
received this letter on 23 September 1969, and, on 9 October 1969, or after the lapse of sixteen (16) days, the corporation filed the
written request for reconsideration, also dated 23 September 1969.

2)NO. Deficiency taxes was for the alleged over declared and unsupported exportations during 1962 & 1963.
Commissioner’s assessments were based on inferences and presumptions claiming that it was impossible for the respondent to re-
export in said boxes the total number pieces it claims to have manufactured. Assessments were made on mere approximations and
calculations. (basically Comm. was claiming that it was impossible to fit so much number of garment in so much number of boxes.)
Of importance here is the kind and nature of the garments manufactured and exported by petitioner. They consists, among others,
of ladies blouses, ladies pajamas, children's dresses, men's and boy's polo shirts and negligee, of different sizes and, of course,
consuming per piece varying number of yards of imported textiles. And by their very nature, these clothing apparels are generally
flimsy and can be compressed. The fact that a dozen of the same or similar finished garments consumes so much number of yards of
imported textiles and occupies a certain volume of space in a carton does not therefore provide a sufficient inference that a dozen
of other or different kind or kinds of finished apparels also consumes the same number of yards of imported textiles and occupies
the same volume of space inside the same carton.

3. Lascona Land Co. Inc. v. Commissioner of Internal Revenue, G.R. No. 171251, 05 March 2012
FACTS
The Commissioner of Internal Revenue (CIR) issued an assessment against Lascona Land Co., Inc. (Lascona) informing the
latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56. Consequently, on April 20, 1998, Lascona
filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue,
Revenue Region No. 8, Makati City. On April 12, 1999, Lascona appealed the decision before the CTA. Lascona alleged that the
Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period
rendered the assessment final and executory. The CIR, however, maintained that Lascona’s failure to timely file an appeal with the
CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC)
resulted to the finality of the assessment.

ISSUE
Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an
appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of
the NIRC.

HELD
NO.
[T]he Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from
date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days
after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. These options are
mutually exclusive and resort to one bars the application of the other.
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer
protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he
chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have
always contemplated a scenario where the CIR will decide on the protested assessment.

4. Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, 16 December 2004
FACTS
The Revenue District Office of the Bureau of Internal Revenue (BIR) issued Letter of Authority for Revenue Officer Federico
de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioner’s books of account and other accounting records for
internal revenue taxes. Revenue District Officer Jaime Concepcion invited petitioner to send a representative to an informal
conference for an opportunity to object and present documentary evidence relative to the proposed assessment. Petitioner’s
Comptroller, LorenzaTolentino, executed a “Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)”.
Records show that, it did not bear the date of acceptance, that petitioner was not furnished a copy of the waiver, and the waiver
was signed only by the Revenue District Officer. The tax liability exceeds One Million Pesos (P1,000,000.00).

ISSUE
Whether the waiver is in accordance with RMO No. 20-90 to validly extend the three-year prescriptive period under the
NIRC.
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HELD
NO.
The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or extended
and continued to run. Consequently, the Assessment/Demand was invalid because it was issued beyond the three (3) year period. In
the same manner, Warrant of Distraint and/or Levy which petitioner received thereafter is also null and void for having been issued
pursuant to an invalid assessment.
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation
contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it
will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security
against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. xxx Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such protection.
The waiver is also defective from the government side because it was signed only by a revenue district officer, not the
Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a
bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either
the Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One Million Pesos
(P1,000,000.00) and executed almost seven months before the expiration of the three-year prescription period. For this, RMO No.
20-90 requires the Commissioner of Internal Revenue to sign for the BIR.

Philippine Journalist, Inc. v. CIR G.R. No. 162852; December 16, 2004
Facts:
In 1995, the Bureau of Internal Revenue (BIR) issued Letter of Authority for two Revenue Officers to examine petitioner’s
books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994.
In 1997, petitioner’s Comptroller, executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)".
The document "waive[d] the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of
the NIRC and consent[ed] to the assessment and collection of taxes which may be found due after the examination at any time after
the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the
completion of the investigation.”
In 1998, Revenue Officer submitted his audit report recommending the issuance of an assessment and finding that
petitioner had deficiency taxes. Subsequently, the Assessment Division of the BIR issued Pre-Assessment Notices which informed
petitioner of the results of the investigation. Thus, BIR issued Assessment/Demand stating the deficiency taxes, inclusive of interest
and compromise penalty
On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S. Panganiban to the
petitioner to pay the assessment within ten (10) days from receipt of the letter. On November 10, 1999, a Final Notice Before
Seizure was issued by the same deputy commissioner giving the petitioner ten (10) days from receipt to pay. Petitioner received a
copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the tax
liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from receipt of the clarification within which
to reply.
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt of Tax
Assessment/Demand. Petitioner also contested that the assessment had no factual and legal basis. On March 28, 2000, a Warrant of
Distraint and/or Levy was received by the petitioner.
Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was amended on May 12, 2000. Petitioner
complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without
factual and legal bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive
period, is null and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same violates its
right to due process; and (e) that the grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance
of the writ of preliminary injunction.
CTA ruled in favor of PJI. It declared that the deficiency income, value-added and expanded withholding tax assessments
issued by the respondent against the petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the year 1994
ANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise, it declared that the Warrant of Distraint and/or Levy No. 33-
06-046 NULL and VOID.
On appeal CA ruled that Mere assessment notices which have become final after the lapse of the thirty (30)-day
reglementary period are not appealable. Thus, the CTA should not have entertained the petition at all. Also, it ruled that there is a
valid waiver thus the running of the prescriptive period is tolled.

Issues:
(1) whether or not CTA has jurisdiction over the issues in this case.
(2) Whether or not the Waiver of the Statute of Limitations is valid and binding on the petitioner

Held:
(1) No. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal
Revenue on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the
NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the
CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of
Limitations was validly effected.
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(2) No. As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997
is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date
between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became
unlimited in time, violating Section 222(b) of the NIRC.
The waiver document is being incomplete and defective, the three-year prescriptive period was not tolled or extended and
continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was
invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046
which petitioner received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment.

5. Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. 178087, 05 May 2010
FACTS
The CTA En Banc ruled for canceling the assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus: the waiver failed to indicate the date of acceptance. Such date
of acceptance is necessary to determine whether the acceptance was made within the prescriptive period; And, the fact of receipt
by the taxpayer of his file copy was not indicated on the original copy. The requirement to furnish the taxpayer with a copy of the
waiver is not only to give notice of the existence of the document but also of the acceptance by the BIR and the perfection of the
agreement. The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period was not tolled or
extended and continued to run.
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the two waivers executed by
respondent, through its accountant, effectively tolled or extended the period within which the assessment can be made. In disputing
the conclusion of the CTA that the waivers are invalid, petitioner claims that respondent is estopped from adopting a position
contrary to what it has previously taken. Petitioner insists that by acquiescing to the audit during the period specified in the waivers,
respondent led the government to believe that the “delay” in the process would not be utilized against it. Thus, respondent may no
longer repudiate the validity of the waivers and raise the issue of prescription.Respondent maintains that prescription had set in due
to the invalidity of the waivers executed by Pasco, who executed the same without any written authority from it, in clear violation of
RDAO No. 5-01.

ISSUE
Whether the belated assessment of the CIR is still valid and effective on the ground that respondent is already in estoppel.

HELD
NO.
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue
taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222 of the NIRC.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4,
1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of the waiver Due to the defects in
the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond
the three-year period and are void.

6. G.R. No. 175097 February 5, 2010 ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
Taxation – Exception to the Rules of Procedure Regarding Protest and Appeal

FACTS:
In April 2004, the Bureau of Internal Revenue (BIR) issued a preliminary assessment notice (PAN) to Allied Banking
Corporation (ABC) demanding payment of P50 million in taxes. ABC then filed a protest in May 2004. In July 2004, the BIR issued a
formal assessment notice (FAN). The FAN included a formal demand as well as this phrase:
xxx
This is our final decision based on investigation. If you disagree, you may appeal this final decision within thirty (30) days
from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.
ABC then appealed the FAN with the Court of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) then filed a
motion to dismiss on the ground that ABC did not exhaust all administrative remedies for failing to file a protest against the FAN.

ISSUE: Whether or not the CIR is correct.

HELD: No. It is true that a FAN is not appealable with the CTA. However, this case holds an exception. The wordings of the FAN
issued by the CIR made it appear that the FAN is actually the CIR’s final decision. It even advised ABC to file an appeal instead of filing
a protest. ABC cannot therefore be faulted for filing an appeal with the CTA instead of filing a protest with the CIR. The CIR as well as
his duly authorized representative must indicate clearly and unequivocally to the taxpayer whether an action constitutes a final
determination on a disputed assessment. Words must be carefully chosen in order to avoid any confusion that could adversely affect
the rights and interest of the taxpayer.

7. G.R. No. 185371 December 8, 2010 CIR vs METRO STAR SUPERAMA, INC.
 7

Taxation – Pre-Assessment Notice – Due Process Requirement

FACTS:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star Superama, Inc. In April
2002, after the audit review, the revenue district officer issued a formal assessment notice against Metro Star advising the latter that
it is liable to pay P292,874.16 in deficiency taxes. Metro Star assailed the issuance of the formal assessment notice as it averred that
due process was not observed when it was not issued a pre-assessment notice. Nevertheless, the Commissioner of Internal Revenue
authorized the issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in favor of Metro Star.
ISSUE: Whether or not due process was observed in the issuance of the formal assessment notice against Metro Star.
HELD: No. It is true that there is a presumption that the tax assessment was duly issued. However, this presumption is disregarded
if the taxpayer denies ever having received a tax assessment from the Bureau of Internal Revenue. In such cases, it is incumbent
upon the BIR to prove by competent evidence that such notice was indeed received by the addressee-taxpayer. The onus probandi
was shifted to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of mail. In the
case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR could have simply
presented the registry receipt or the certification from the postmaster that it mailed the pre-assessment notice, but failed. Neither
did it offer any explanation on why it failed to comply with the requirement of service of the pre-assessment notice. The Supreme
Court emphasized that the sending of a pre-assessment notice is part of the due process requirement in the issuance of a deficiency
tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But even so, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.

8. COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO vs. PRIMETOWN PROPERTY GROUP INC. G.R. No.
162155. August 28,2007

Facts:
On March 11, 1999, Gilbert Yap, the Vice President of Primetown (respondent), applied for refund of the income tax which
they have paid on 1997. According to Yap, the company accrued losses amounting to P/ 71,879,228. These losses enabled them to
be exempt from paying income tax, which respondent paid diligently. Respondent was therefore claiming a refund. Respondents
submitted requirements but the petitioners ignored their claim. On April 14, 2000, respondents filed a review in the Court of Tax
Appeals. The said Court, however, denied the petition stating that the petition was filed beyond the 2-year prescriptive period for
filing judicial claim for tax refund.
According to Sec 229 of the National Internal Revenue Code, “no suit or proceedings shall be filed after the expiration of 2-
yearsfrom the date of the payment of the tax regardless of any supervening cause that may arise after payment. Respondents paid
the last income tax return on April 14, 1998. Article 13 of the New Civil Code states that a year is considered 365 days; months 30
days; days 24-hours; and night from sunset to sunrise. Therefore, according to CTA, the date of filing a petition fell on the 731st day,
which is beyond the prescriptive period.

Issues:
Whether the two-year/730-day prescriptive period ends on April 13, 2000 or April 14, 2000 considering that the last
payment of tax was on April 14, 1998 and that year 2000 was a leap year.
Whether or not Article 13 of the New Civil Code be repealed by EO 292 Sec 31 Chap 8 Book 1 of the Administrative Code of
1987.

Ruling:
The Court ruled that when a subsequent law impliedly repeals a prior law, the new law shall apply. In the case at bar, Art 13
of the New Civil Code, which states that a year shall compose 365 days, shall be repealed by EO 292 Sec 31 of the Administrative
Code of 1987, which states that a year shall be composed of 12 months regardless of the number of days in a month. Therefore, the
two-year prescriptive period ends on April 14, 2000. Respondents filed petition on April 14, 2000 (which is the last day prescribed to
file a petition.

CIR v.Primetown, GR 162155, August 28, 2007

FACTS:
Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a refund or credit of income tax which Primetown paid
in 1997. He claimed that they are entitled for a refund because they suffered losses that year due to the increase of cost of labor and
materials, etc. However, despite the losses, they still paid their quarterly income tax and remitted creditable withholding tax from
real estate sales to BIR. Hence, they were claiming for a refund. On May 13, 1999, revenue officer Elizabeth Santos required
Primetown to submit additional documents to which Primetown complied with. However, its claim was not acted upon which
prompted it to file a petition for review in CTA on April 14, 2000. CTA dismissed the petition as it was filed beyonf the 2-year
prescriptive period for filing a judicial claim for tax refund according to Sec 229 of NIRC. According to CTA, the two-year period is
equivalent to 730 days pursuant to Art 13 of NCC. Since Primetown filed its final adjustment return on April 14, 1998 and that year
2000 was a leap year, the petition was filed 731 days after Primetown filed its final adjusted return. Hence, beyond the reglementary
period. Primetown appealed to CA. CA reversed the decision of CTA. Hence, this appeal.

ISSUE: W/N petition was filed within the two-year period

 8

HELD: Pursuant to EO 292 or the Administrative Code of 1987, a year shall be understood to be 12 calendar months. The SC
defined a calendar month as a month designated in the calendar without regard to the number of days it may contain. The court
held that Administrative Code of 1987 impliedly repealed Art 13 of NCC as the provisions are irreconcilable. Primetown is entitled for
the refund since it is filed within the 2-year reglementary period.

CIR v. Primetown Property Group GR 161155; August 28, 2007

Facts:
Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income tax
respondent’s paid in 1997.
The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a refund or credit
commenced on that date. According to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the filing of
judicial claims was equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition, which was filed 731 days
after respondent filed its final adjusted return, was filed beyond the reglementary period.
On appeal, the CA reversed and set aside the decision of the CTA. It ruled that Article 13 of the Civil Code did not
distinguish between a regular year and a leap year. According to the CA, even if the year 2000 was a leap year, the periods covered
by April 15, 1998 to April 14, 1999 and April 15, 1999 to April 14, 2000 should still be counted as 365 days each or a total of 730 days.
A statute which is clear and explicit shall be neither interpreted nor construed.

Issue: Whether or not the counting of the 2-year prescriptive period for filing claim of refund is governed by the Civil Code.

Held:
Counting of 2-year period for filing claim for refund is no longer in accordance with Art 13 of the Civil Code but under Sec 31
of EO 227 - The Administrative Code of 1987.
As between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which
states that a year is composed of 12 calendar months, it is the latter that must prevail being the more recent law, following the legal
maxim, Lex posteriori derogat priori.
In the case at bar, there are 24 calendar months in 2 years. For a Final Corporate ITR filed on Apr 14, 1998, the counting
should start from Apr 15, 1998 and end on Apr 14, 2000. The procedure is 1st month -Apr 15, 1998 to May 14, 1998 …. 24th month
- Mar 15, 2000 to Apr 14, 2000. National Marketing v. Tecson, 139 Phil 584 (1969) is no longer controlling. The 2-year period should
start to run from filing of the final adjusted return.
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month
from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period

9. Commissioner of Internal Revenue v Ayala Securities Corporation

Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25% surtax by the
Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioner’s decision and held that the
assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal Revenue
Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against the
right of the Commissioner to assess the surtax.

Issue:
Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:
No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express statutory
provision limiting such right or providing for its prescription. Hence, the collection of surtax is imprescriptible. The underlying
purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings instead of declaring and paying
dividends to its shareholders. SC reverses the ruling of the CTA.

Commissioner of Internal Revenue vs. Ayala Securities Corp. (GR L-29485, 21 November 1980)
Facts:
An assessment made on 21 February 1961 by the Commissioner of Internal Revenue against the Ayala Securities
Corporation (and received by the latter on 22 March 1961) in the sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal
year ending 30 September 1955. Raised before the Court of Tax Appeals, the tax court reversed the assessment of the 25% surtax
and interest in the amount of P758,687.04, and thereby cancelled and declared of no force and effect the assessment of the
Commissioner for 1955.
On 8 April 1976, the Supreme Court affirmed the decision of the Court of Tax Appeals and ruled that the assessment fell
under the 5-year prescriptive period provided in section 331 of the National Internal Revenue Code (NIRC) and that the assessment
 9

had, therefore, been made after the expiration of the said 5-year prescriptive period and was of no binding force and effect. The
Commissioner moved for reconsideration.
The Supreme Court set aside its decision of 8 April 1976, and rendered in lieu thereof another judgment ordering the
corporation to pay the assessment in the sum of P758,687.04 as 25% surtax on its unreasonably accumulated surplus, plus the 5%
surcharge and 1% monthly interest thereon, pursuant to section 51 (e) of the NIRC, as amended by RA 2343; with costs.

1. United Equipment & Supply Co. vs. CIR (CTA 1795, 30 October 1971)
The provisions of sections 331 and 332 of the National Internal Revenue Code for prescriptive periods of 5 and 10 years
after the filing of the return do not apply to the tax on the taxpayer’s unreasonably accumulated surplus under section 25 of the Tax
Code since no return is required to be filed by law or by regulation on such unduly accumulated surplus on earnings. The 25% surtax
is not subject to any statutory prescriptive period.

2. Section 331 NIRC; Period of limitation upon assessment and collection

Section 331 of the Revenue Code provides that “Except as provided in the succeeding section, internal revenue taxes shall
be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purpose of this section a return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on such last day; Provided, That this limitation shall not apply to cases
already investigated prior to the approval of this Code.

3. Section 331 applies to National Internal Revenue Taxes which requires the filing of returns
Section 331 applies to assessment of National Internal Revenue Taxes which requires the filing of returns. A return the filing
of which is necessary to start the running of the five-year period for making an assessment, must be one which is required for the
particular tax. Consequently, it has been held that the filing of an income tax return does not start the running of the statute of
limitation for assessment of the sales tax. (Butuan Sawmill, Inc. v. Court of Tax Appeals, G.R. No. L-20601, Feb. 28, 1966, 16 SCRA
277).

4. No return required for improperly accumulated surplus profits; Tax thereon imposed as a penalty
No return could have been filed, and the law could not possibly require, for obvious reasons, the filing of a return covering
unreasonable accumulation of corporate surplus profits. A tax imposed upon unreasonable accumulation of surplus is in the nature
of a penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law to compel a corporation to report
improper accumulation of surplus.

5. Section 332 NIRC; Exceptions as to period of limitation of assessment and collection of taxes
Section 332 provides that (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud, or omission. (b) Where before the expiration of the time prescribed in the
preceding section for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in
writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The
period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period
previously agreed upon. (c) Where the assessment of any internal revenue tax has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy by a proceeding in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner of
Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by
subsequent agreements in writing made before the expiration of the period previously agreed upon.

6. Section 332 applies to National Internal Revenue Taxes which requires the filing of returns
Section 332 has reference to national internal revenue taxes which require the filing of returns. This is Implied from the
provision that the ten-year period for assessment specified therein treats of the filing of a false or fraudulent return or of a failure to
file a return. There can be no failure or omission to file a return where no return is required to be filed by law or by regulations.

7. Right of government to assess is imprescriptible, in the absence of express statutory provision; Doctrine’s applicability to Section 25
NIRC
It is well settled limitations upon the right of the government to assess and collect taxes will not be presumed in the
absence of clear legislation to the contrary. The existence of a time limit beyond which the government may recover unpaid taxes is
purely dependent upon some express statutory provision, (51 Am. Jur. 867; 10 Mertens Law on Federal Income Taxation, par. 57.
02.). It follows that in the absence of express statutory provision, the right of the government to assess unpaid taxes is
imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner of Internal Revenue to assess the
tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be assessed at any time. In
fine, limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation
to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess
unpaid taxes, such right is imprescriptible.

8. Purpose of additional tax for a corporation’s improperly accumulated profits or surplus

The underlying purpose of the additional tax in question on a corporation’s improperly accumulated profits or surplus is as
set forth in the text of section 25 of the Tax Code itself to avoid the situation where a corporation unduly retains its surplus earnings
instead of declaring and paying dividends to its shareholders or members who would then have to pay the income tax due on such
dividends received by them.
 10

9. Corporation is a mere holding company through its mother company, a registered copartnership
consisting of family members
Ayala Securities Corporation is a mere holding company of its shareholders through its mother company, a registered co-
partnership then set up by the individual shareholders belonging to the same family. Said prima facie evidence and presumption set
up by the Tax Code is applied without having been adequately rebutted by the corporation.

10. Ayala Securities Corp. fall under Revenue Regulations 2

The Corporation falls under Revenue Regulation 2, implementing the provisions of the income tax law which provides on
holding and investment companies that “A corporation having practically no activities except holding property, and collecting the
income therefrom or investing therein shall be considered a holding company within the meaning of section 25.” (Section 20)

G.R. No. 210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY vs. THE SECRETARY OF FINANCE and THE COMMISSIONER
OF INTERNAL REVENUE
FACTS:
Petitioner Company (Philamlife) used to ownClass A shares in. (PhilamCare), representing 49.89% of the latter's outstanding
capital stock. In 2009, petitioner offered and sold its shareholdings in PhilamCare through competitive bidding based on the
prevailing exchange rate at the time of the sale, to STI Investments, Inc as the highest bidder.3
After the sale ,Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. Months later, petitioner was informed
that it needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. Petitioner requested a
ruling4 to confirm that the sale was not subject to donor’s tax, pointing out the following:
1. that the transaction cannot attract donor’s tax liability since there was no donative intent and,ergo, no taxable donation
2. that the shares were sold at their actual fair market value and at arm’s length;
3. that as long as the transaction conducted is at arm’s length––a sale for less than an adequate consideration is not
subject to donor’s tax;
4. and that donor’s tax does not apply to sale of shares sold in an open bidding process.

CIR denied Philamlife’s request through BIR Ruling No. 015-12. The Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under Section 99(B) of the
NIRC.Also BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored its claim, has already been revoked by Revenue
Memorandum Circular (RMC) No. 25-2011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No. 015-12. Secretary
affirmed the Commissioner’s assailed ruling in its entirety.9
CA dismissed the petition for lack of jurisdiction.ratiocinated that it is the Court of Tax Appeals which has jurisdiction over
the issues raised.
Philamlife eventually sought reconsideration but the CA maintained its earlier position. Hence, the instant recourse.

ISSUES
Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare attracts donor’s tax.
HELD:
The Court’s Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable donation under Sec. 100 of the
NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by the CIR
as bases for its unfavourable opinion. Clearly, the Petition involves an issue on the taxability of the transaction rather than a direct
attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11.
The price difference is subject to donor's tax
The absence of donative intent, if that be the case, does not exempt the sales of stock transaction from donor's tax since
Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift.1âwphi1 Thus, even if there is no actual donation, the difference in price is considered a
donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for determining the
"fair market value" of a sale of stocks. Such issuance was made pursuant to the Commissioner's power to interpret tax laws and to
promulgate rules and regulations for their implementation.

PhilAm LIFE vs. Secretary of Finance, G.R. No. 210987

FACTS:
Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the highest bidder. After the sale was
completed, Philam life applied for a tax clearance and was informed by BIR that there is a need to secure a BIR Ruling due to a
potential donor’s tax liability on the sold shares.

ISSUE on DONOR’S TAX:

W/N the sales of shares sold for less than an adequate consideration be subject to donor’s tax?
 11

PETITIONER’S CONTENTION:
The transaction cannot attract donor’s tax liability since there was no donative intent and, ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares were sold at their actual fair market value and at arm’s
length; that as long as the transaction conducted is at arm’s length––such that a bonafide business arrangement of the dealings is
done in the ordinary course of business––a sale for less than an adequate consideration is not subject to donor’s tax; and that
donor’s tax does not apply to sale of shares sold in an open bidding process.

CIR DENYING THE REQUEST:

Through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus sold was lower
than their book value based on the financial statements of Philam Care as of the end of 2008. The Commissioner held donor’s tax
became imposable on the price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC):
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where property, other than real property referred to in
Section 24(D), is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which
the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

RULING:
The price difference is subject to donor’s tax.
Petitioner’s substantive arguments are unavailing. The absence of donative intent, if that be the case, does not exempt the
sales of stock transaction from donor’s tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market
value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual donation, the
difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for determining the
“fair market value” of a sale of stocks. Such issuance was made pursuant to the Commissioner’s power to interpret tax laws and to
promulgate rules and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being applied retroactively in
contravention to Sec. 246 of the NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was already in force the
moment the NIRC was enacted.

ISSUE on TAX REMEDIES:

The issue that now arises is this––where does one seek immediate recourse from the adverse ruling of the Secretary of
Finance in its exercise of its power of review under Sec. 4?
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable donation under Sec. 100 of the
NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by the CIR
as bases for its unfavourable opinion. Clearly, the Petition involves an issue on the taxability of the transaction rather than a direct
attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition properly pertains to
the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a quandary on what
mode of appeal should be taken, to which court or agency it should be filed, and which case law should be followed.
Petitioner’s above submission is specious (erroneous).
CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is
within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain
transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the
applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR 06-08 and
RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to petitioner’s arguments.

Tax evasion vs. Tax avoidance

Tax avoidance and tax evasion are the two ways by which tax payers try to reduce the amount they have to pay to the
Bureau of Internal Revenue. While both these terms have the same objective, tax avoidance and tax evasion differ in the means by
which the purpose of paying lesser amount of tax is obtained.

What is tax avoidance?

This is the means by which tax payers try to reduce tax within the means allowed by law. Tax avoidance should me made in
good faith and at arms length, otherwise it will not be regarded as such.

What is an example of tax avoidance?

A good example of tax avoidance is the use of the depreciation method in claiming deductible expenses to lessen the
income tax.

What are the elements of tax evasion?

Tax evasion connotes the integration of three factors: (1) end to be achieved, i.e. the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is shown that the tax is due; (2) an accompanying state of mind
which is known as “evil,” in “bad faith,” “willful,” or “deliberate and not accidental”; and (3) a course of action or a failure of action
which is unlawful.
 12

What is tax evasion?

Tax evasion is the opposite of tax avoidance. Under this scheme, the taxpayer employs means outside the lawful means and
will merit the tax payer civil and even criminal sanctions for his fraudulent acts.

What is an example of tax evasion?

A simple example of this method is the understatement by the tax payer of his revenues in order to minimize or reduce the
taxes which will be imposed thereon. As an illustration, Mr. Salazar reported only Php1 million as his income when in truth he was
able to earn Php10 million.
The case of Commissioner of Internal Revenue vs. The Estate of Benigno P. Toda et al, decided by the Supreme Court on 14
September 2004, is illustrative of the concepts of tax evasion and tax avoidance. In the said case Cibeles Insurance Corporation (CIC)
authorized Benigno P. Toda, ?President and owner of 99.9% of its issued and outstanding capital stock to sell the Cibeles Building,
located in Ayala Avenue, to a certain Rafael Altonaga for Php100 million. The latter sold the building to RMI for Php200 million. This
transaction was evidenced by Deeds of Absolute Sale notarized by the same notary public on the same day.
The Court noted that Mr. Altonaga was a mere dummy and that the transaction was actually between CIC and RMI. CIC
sought to avoid the payment of corporate income tax on the additional Php100 million by changing the income from income
structure from corporate income tax to individual capital gain. Thus, the whole transaction was considered as tax evasion and not a
mere tax avoidance.