Doctrines in Taxation

- Set-off of Taxes

Domingo vs Garlitos (8 SCRA 443)

FACTS:

In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order
of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and
penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for
execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution
is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of
inheritance taxes be deducted from the Government’s indebtedness to the Estate.

ISSUE:

Whether a tax and a debt may be compensated.

HELD:

The court having jurisdiction of the Estate had found that the claim of the Estate against the
Government has been recognized and an amount of P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have already become overdue
and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law,
in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount.

Republic vs Ericta and Sampaguita Pictures G.R No. L-35238

FACTS:

The Philippine Government pursuant to R.A. No. 304, as amended by R.A. No. 800 issued “back pay
certificates”. The Treasurer of the Philippines was empowered to receive applications for back pay and
to issue in favor of the applicant’s certificates of indebtedness redeemable by the Government within 10
years for the amounts determined to be justly due them.

Sampaguita Pictures came to incur an obligation for percentage, withholding and amusement taxes in
the amount of P10,268.41 in favor of the Republic of the Philippines. In satisfaction thereof (together
with another obligation of the same nature due from Vera-Perez Corporation, Pictures, Inc.),
Sampaguita tendered and delivered to the Office of the Municipal Treasurer of Bocaue, Bulacan sixteen
back pay negotiable certificates of indebtedness in the aggregate sum of P16,763.60. However, the
Assistant Regional Director of the BIR wrote to Vera-Perez Corporation advising that the acceptance of
the Negotiable Certificates of Indebtedness was erroneous and the payment was invalid because said
certificates were not acceptable as payments in accordance with the provisions of General Circular No.
V-289. No one acted on the said letter so the Solicitor General brought suit in behalf of the Republic of
the Philippines. The trial court dismissed both the complaint and the counterclaim. Hence, this appeal
filed by the Solicitor General.

ISSUE:

WON payment is void since Sampaguita is only a mere assignee of the certificates.

HELD:

No. Payment is not void. Sampaguita as assignee of the certificates of indebtedness, had “succeeded to
the original rights of the holders thereof,” and was therefore authorized to demand payment by the
Republic of the indebtedness thereby represented.

Even if the Solicitor General points out, “there is no certainty when the certificates are actually
redeemable” because the say “that they are redeemable… within ten years from the date of issuance”,
there can be no question that after the lapse of ten (10) years from the declared date of redeemability,
payment of the indebtedness was already eligible. The Trial Court was saying in effect that while
judgment should be rendered in favor of the Republic against Sampaguita for unpaid taxes in the
amount of P10,268.41, judgment ought at the same time to issue for Sampaguita commanding the
payment to it by the Republic of the same sum, representing the face value of the certificates of
indebtedness assigned to it and recovery of which it had specifically prayed in its counterclaim.

Petition is Denied.

Commissioner vs Esso Standard Eastern, Inc. G.R Nos. 28502-03

FACTS:

Respondent overpaid its 1959 income tax by P221,033.00. It was granted a tax credit by the
Commissioner accordingly on 1964. However, ESSOs payment of its income tax for 1960 was found to be
short by P367,994.00. The Commissioner (of Internal Revenue) wrote to ESSO demanding payment of
the deficiency tax, together with interest thereon for the period from 1961 to 1964. ESSO paid under
protest the amount alleged to be due, including the interest as reckoned by the Commissioner. It
protested the computation of interest, contending it was more than that properly due. It claimed that it
should not have been required to pay interest on the total amount of the deficiency tax, P367,994.00,
but only on the amount of P146,961.00—representing the difference between said deficiency,
P367,994.00, and ESSOs earlier overpayment of P221,033.00 (for which it had been granted a tax credit).
ESSO thus asked for a refund. The Internal Revenue Commissioner denied the claim for refund. ESSO
appealed to the Court of Tax Appeals which ordered payment to ESSO of its refund-claim representing
overpaid interest.
The Commissioner argued the tax credit of P221,033.00 was approved only on year 1964, it could not be
availed of in reduction of ESSOs earlier tax deficiency for the year 1960; as of that year, 1960, there was
as yet no tax credit to speak of, which would reduce the deficiency tax liability for 1960. In support of his
position, the Commissioner invokes the provisions of Section 51 of the Tax Code.

ISSUE:

Whether or not the interest on delinquency should be applied on the full tax deficiency of P367,994.00
despite the existence of overpayment in the amount of P221,033.00.

HELD:

NO. Petition was denied. Decision of CTA was affirmed.

The fact is that, as respondent Court of Tax Appeals has stressed, as early as 1960, the Government
already had in its hands the sum of P221,033.00 representing excess payment. Having been paid and
received by mistake, as petitioner Commissioner subsequently acknowledged, that sum unquestionably
belonged to ESSO, and the Government had the obligation to return it to ESSO. That acknowledgment of
the erroneous payment came some four (4) years afterwards in nowise negates or detracts from its
actuality. The obligation to return money mistakenly paid arises from the moment that payment is
made, and not from the time that the payee admits the obligation to reimburse. The obligation of the
payee to reimburse an amount paid to him results from the mistake, not from the payee’s confession of
the mistake or recognition of the obligation to reimburse.

A literal interpretation is to be rejected if it would be unjust or lead to absurd results. Statutes should
receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an
unjust or absurd conclusion.