4. LA SUERTE CIGAR & CIGARETTE FACTORY vs.

COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE

G.R. No. 125346; November 11, 2014

FACTS:

Petitioners are domestic corporations engaged in the production and manufacture of cigars and
cigarettes. They import leaf tobacco from foreign sources and purchase locally produced leaf tobacco to be used
in the manufacture of cigars and cigarettes.

La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34 million pesos. La
Suerte protested invoking the Tax Code which allows the sale of stemmed leaf tobacco as raw material by one
manufacturer directly to another without payment of the excise tax. However, the CIR insisted that stemmed leaf
tobacco is subject to excise tax "unless there is an express grant of exemption from [the] payment of tax."

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR appealed to the
CA which reversed the CTA. The CIR invoked a revenue regulation (RR) which limits the exemption from payment
of specific tax on stemmed leaf tobacco to sales transactions between manufacturers classified as L-7 permittees.

ISSUES:
WON stemmed leaf tobacco subject to excise (specific) tax?

HELD:
Yes, excise taxes on domestic products shall be paid by the manufacturer or producer before[the] removal [of
those products] from the place of production." "It does not matter to what use the article[s] subject to tax is put;
the excise taxes are still due, even though the articles are removed merely for storage in some other place and are
not actually sold or consumed. The excise tax based on weight, volume capacity or any other physical unit of
measurement is referred to as “specific tax”.

When tobacco is harvested and processed either by hand or by machine, all its products become subject to specific
tax. Section 141 reveals the legislative policy to tax all forms of manufactured tobacco — in contrast to raw
tobacco leaves — including tobacco refuse or all other tobacco which has been cut, split, twisted, or pressed and is
capable of being smoked without further industrial processing.

Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially prepared tobacco. The
removal of the stem or midrib from the leaf tobacco makes the resulting stemmed leaf tobacco a prepared or
partially prepared tobacco.

Despite the differing definitions for "stemmed leaf tobacco" under revenue regulations, the onus of proving that
stemmed leaf tobacco is not subject to the specific tax lies with the cigarette manufacturers. Taxation is the rule,
exemption is the exception.

PEN:
The power of taxation is inherently legislative and may be imposed or revoked only by the legislature. This plenary
power of taxation cannot be delegated by Congress to any other branches of government or private persons,
unless its delegation is authorized by the Constitution itself.

However, it is well settled that the power to fill in the details and manner as to the enforcement and
administration of a law may be delegated to various specialized administrative agencies. The delegation of
legislative power has become the rule and its non-delegation the exception. The reason is the increasing
complexity of modern life and may technical fields of government functions coupled by growing inability of the
legislature to cope directly with the many problems demanding its attention.
5. De La Salle University of St, Benilde, Inc. vs. CIT
GR No. 202792, February 27, 2019

FACTS:

The petitioner is a non-stock, non-profit domestic corporation duly organized and existing under the laws of the
Philippines.

The Respondent, the CIR, has the power to decide, cancel, and abate tax liabilities pursuant to Section 204(B) of
the Tax Code.

Respondent issued two (2) Assessment Notices to the Petitioner. The notices have demand letters against
petitioner for deficiency income tax. The alleged deficiency income tax is in the amount of P122,414,521.70,
inclusive of interest and VAT in the amount of P2,752,228.54, inclusive of interest.

Petitioner Foundation claims that it remains as a tax exempt entity under Article XIV, Section 4, Paragraph 3 of the
1987 Constitution.

ISSUE:

WON the Petitioner Foundation has lost its tax exempt status under the 1987 Constitution

HELD:

The petition is meritorious.

No less than the 1987 Constitution expressly exempt all revenues and assets of (a)non-stock, non-profit
educational institutions from taxes; (b) provided that they are actually, directly and exclusively used for
educational purposes. This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code.

For the first requirement, there is no contest as both the parties have stipulated that petitioner Foundation is a
non-stock, non-profit educational institution.

In the instant case, petitioner Foundation firmly and adequately argued that none of its income inured to the
benefit of any officer or entity. Instead, its income has been actually, exclusively and directly used for performing
its purpose as an educational institution. Undoubtedly, petitioner Foundation has also proven this second
requisite.

A simple reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues
and income must have also been earned from educational activities or activities related to the purposes of an
educational institution. The phrase "all revenues" is unqualified by any reference to the source of revenues. Thus,
so long as the revenues and income are used actually, directly and exclusively for educational purposes, then said
revenues and income shall be exempt from taxes and duties.

Thus, the tax exempt status of petitioner Foundation under the 1987 Constitution is clear.

PEN
Educational institutions are tax exempt provided that (1) it is a non-stock, non-profit educational institutions and
(2) all revenues and income are used actually, directly and exclusively for educational purposes

6. Petitioner-Organizations vs. Executive Secretary

669 SCRA 49, April 10, 2012

FACTS:

The petitioner organizations in these cases represent coconut farmers on whom the burden of the coco-levies
attaches. It also primarily for their benefit that the levies were imposed. The individual petitioners, on the other
hand, join the petitioners as taxpayers.

On June 19, 1971 Congress enacted R.A. 6260 that established a Coconut Investment Fund (CI Fund) for the
development of the coconut industry through capital financing. Coconut farmers were to capitalize and administer
the Fund through the Coconut Investment Company (CIC) whose objective was, among others, to advance the
coconut farmers interests. For this purpose, the law imposed a levy ofP0.55on the coconut farmers first domestic
sale of every 100 kilograms of copra, or its equivalent, for which levy he was to get a receipt convertible into CIC
shares of stock.

In 1975 President Marcos enacted P.D. 755 which approved the acquisition of a commercial bank for the benefit of
the coconut farmersto enable such bank to promptly and efficiently realize the industry's credit policy.

In November 2000 then President Joseph Estrada issued Executive Order (E.O.) 312, establishing a Sagip Niyugan
Program which sought to provide immediate income supplement to coconut farmers and encourage the creation
of a sustainable local market demand for coconut oil and other coconut products.The Executive Order sought to
establish aP1-billion fund by disposing of assets acquired using coco-levy funds or assets of entities supported by
those funds.A committee was created to manage the fund under this program.A majority vote of its members
could engage the services of a reputable auditing firm to conduct periodic audits.

At about the same time, President Estrada issued E.O. 313, which created an irrevocable trust fund known as the
Coconut Trust Fund (the Trust Fund).This aimed to provide financial assistance to coconut farmers, to the coconut
industry, and to other agri-related programs.The shares of stock of SMC were to serve as the Trust Funds initial
capital.These shares were acquired with CII Funds and constituted approximately 27% of the outstanding capital
stock of SMC.E.O. 313 designated UCPB, through its Trust Department, as the Trust Funds trustee bank.The Trust
Fund Committee would administer, manage, and supervise the operations of the Trust Fund. The Committee
would designate an external auditor to do an annual audit or as often as needed but it may also request the
Commission on Audit (COA) to intervene.

On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the suspension of E.O.s 312 and
313.

ISSUE:
a. WON the coco-levy funds are public funds?

HELD:

Coco-levy funds are public funds. The Court was satisfied that the coco-levy funds were raised pursuant to law to
support a proper governmental purpose. They were raised with the use of the police and taxing powers of the
State for the benefit of the coconut industry and its farmers in general. The COA reviewed the use of the funds.
The BIR treated them as public funds and the very laws governing coconut levies recognize their public character.

The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be used for
public purpose.Taxes are enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty for the support of the government and for all its public needs. Here, the coco-levy funds
were imposed pursuant to law, namely, R.A. 6260 and P.D. 276.The funds were collected and managed by the PCA,
an independent government corporation directly under the President. And, as the respondent public officials
pointed out, the pertinent laws used the term levy, which means to tax, in describing the exaction.

R.A. 6260 and P.D. 276 did not raise money to boost the governments general funds but to provide means for the
rehabilitation and stabilization of a threatened industry, the coconut industry, which is so affected with public
interest as to be within the police power of the State. The funds sought to support the coconut industry, one of the
main economic backbones of the country, and to secure economic benefits for the coconut farmers and farm
workers.

PEN

Coco-levy funds are public funds. They were raised pursuant to law to support a proper governmental purpose and
with the use of the police and taxing powers of the State for the benefit of the coconut industry and its farmers in
general. Coco-levy funds are in the nature of taxes and can only be used for public purpose. Taxes are enforced
proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the
support of the government and for all its public needs.

Case No. 7

PBCom vs CIR, 302 SCRA 214

January 28, 1999

Facts:
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue (CIR) for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second quarters of 1985. On July 25, 1988, it also filed a claim
for refund of creditable taxes withheld by its lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69. Pending investigation by CIR, petitioner instituted a Petition for Review on November 18, 1988 before
the Court of Tax Appeals (CTA). In 1993, the CTA rendered a decision denying the request for a tax refund or credit
in the amount of P5,299,749.95 on the ground that it was filed beyond the two-year reglementary period. The
petitioner's 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. These pronouncements by the CTA
were affrmed in toto by the Court of Appeals (CA). Hence, this petition.

Petitioner argues that its claim for refund and tax credits are not yet barred by prescription relying in good faith on
the applicability of Revenue Memorandum Circular No. 7-85 stating 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 within (ten)
10 years under Art. 1414 of the Civil Code It further contends that in ABS-CBN vs CTA, 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.

Respondent argues that the two-year prescriptive period for filing tax cases is reckoned from the date of filing the
fiinal adjusted Income Tax Return (ITR), which is generally done on April 15 following the close of the calendar year.
In the petitioner’s case, since the final adjusted ITR 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. The CIR 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.

Issue:
1.Whether or not the 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.
2. Whether or not CA erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in
1986), based on mere speculation PBCom availed of the automatic tax credit in 1987.

Held:

1. No. Contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted
as it disregards the two-year prescriptive period set by law. 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 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.

2. No. As stated by respondent Court of Appeals, that 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 the two remedies of refund and tax credit are alternative. 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 thereo.

PEN

Revenue memorandum-circulars are considered administrative rulings 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. In short, admin issuances
are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency, the law
prevails over them.

Case No. 8

Commissioner of Internal Revenue vs. Maritime Shipping

238 SCRA 42

Facts:

On January 12, 1984, the Commissioner of Internal Revenue demanded payment from private respondent Maritime
Company of the Philippines of deficiency common carrier’s tax, fixed tax, 6% commercial broker’s tax, documentary
stamp tax, income tax and withholding tax totalling P17,284,882.45. The assessment became final and executory,
and with private respondent’s failure to pay the tax liabilities, the CIR issued warrants of distraint of personal
property and levy of real property which were duly served on January 23, 1985.
On April 16, 1985, a “receipt of goods, articles and things” was executed covering, among others, 6 barges as proof
of constructive distraint of property but the same was not signed by any representative of private respondent
because of the refusal of the persons actually in possession of the barges. It appeared, however, that 4 of the barges
constructively distrained were also levied upon by a deputy sheriff of Manila on July 20, 1985 and sold at public
auction to satisfy a judgment for unpaid wages and other benefits of employees of private respondent.

On September 4, 1985, CIR asked the Labor Arbiter (LA) to annul the sale and to enjoin the sheriff from disposing of
the proceeds of the sale or, in the alternative, to remit them to the Bureau of Internal Revenue so that the amount
could be applied to the payment of private respondent Maritime Company's tax liabilities. LA denied the motion on
the ground that the barges had not been validly placed under constructive distraint because the receipt of property
distrained had not been signed by the taxpayer as required by the NIRC. The LA likewise rejected petitioner's
contention that the government's claim for taxes was preferred under Art. 2247, in relation to Art. 2241(1) of the
Civil Code, on the ground that under this provisions only taxes and fees which are due on specific property enjoy
preference, whereas the taxes claimed by petitioner were not due on the four barges in question. NLRC affirmed the
LA’s decision. Hence, this petition.

Issue:

Whether or not the barges were validly placed under constructive distraint and proceeds thereof be applied for the
payment tax deficiency.

Held:

Yes. The case arose out of the same facts involved in another case of Republic v. Enriquez,8 in which the Supreme
Court, sustained the validity of the distraint of the same barges involved in the present case. There we found that
the "Receipt for Goods, Articles and Things Seized under Authority of the National Internal Revenue Code" covering
the six barges had been duly executed, with the Headquarters, First Coast Guard District, Farola Compound Binondo,
Manila acknowledging receipt of several barges. Apparently, what had been attached to the petitioner's motion filed
by the government with the LA in this case was a copy, not the original one showing the rubber stamp of the Coast
Guard and duly signed by its representative.

In addition, the record of the prior case also shows that on October 4, 1985, the Commissioner of the Internal
Revenue issued a "Notice of Seizure of Personal Property”, involving among others the subject 4 barges sold by the
sheriff, received by Atty. Redentor R. Melo in behalf of Maritime. It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches
not only from the service of the warrant of distraint of personal property but from the time the tax became due and
payable.

Neither is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect
to movable or immovable properties on which they are due. Article 110 of the Labor Code does not purport to create
a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code,
this tax claim must be given preference over any other claim of any other creditor, in respect of any and all properties
of the insolvent.

PEN

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant
predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable.
Case No. 9

Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue

GR No. 188550 August 13, 2013

Facts:

In accordance with National Internal Revenue Code (NIRC) of 1997, on October 21, 2003, the petitioner remitted to
the Bureau of Internal Revenue (BIR) the amount of Php 67,688,553.51, representing fifteen (15) percent of the
branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to the Deutsche Bank of
Germany (DB Germany) for 2002 and prior taxable years.

Believing that they made an overpayment of the BPRT, on October 4, 2005, the petitioner filed with the BIR Large
Taxpayers Assessment and Investigation Division an administrative claim for refund or a tax credit certificate
representing the alleged excess BPRT paid (amount of Php 22,562,851.17). The petitioners also requested from the
International Tax Affairs Division (ITAD) for a confirmation of its entitlement to a preferential tax rate of 10% under
the RP-Germany Tax Treaty.

Alleging the inaction of the BIR on the administrative claim, on October 18, 2005, the petitioner filed a petition for
review with the Court of Tax Appeals (CTA), reiterating its claim for refund or tax credit certificate representing the
alleged excess BPRT paid. CTA denied the claim, on the ground that application for tax treaty relief was not filed with
ITAD prior to the payment of BPRT, thereby violating the fifteen-day period mandated under Section III, paragraph
2 of the Revenue Memorandum Order No. 1-2000.

On appeal to the Supreme Court, petitioner argues that, considering that it has met all the conditions under Article
10 of the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000. The filing
of a tax treaty relief application is not a condition precedent to the availment of a preferential tax rate. Respondent
counters that the requirement of prior application under RMO No. 1-2000 is mandatory in character.

RMO No. 1-2000 was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules
and regulations for the effective implementation of the NIRC. Thus, courts cannot ignore administrative issuances
which partakes the nature of a statute and have in their favor a presumption of legality.

Issue: Whether or not the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the
benefit of a tax treaty.

Held: No. Our Constitution provides for adherence to the general principles of international law as part of the law of
the land. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by
them in good faith under the principle of pacta sunt servanda. More importantly, treaties have the force and effect
of law in this jurisdiction.

Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled
thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided
for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-
requisite for the availment of the benefits under said agreement. The obligation to comply with a tax treaty must
take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages foreign investors.
PEN

General principles of international law such as treaties are considered as part of the law of the land. These shall be
binding upon the parties must be performed by them in good faith. Laws and issuances must ensure that the
reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional
requirements that would negate the availment of the reliefs provided for under international agreements.

10. CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC.

vs.
THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO

G.R. No. 160756, March 9, 2010

FACTS:

Petitioner is an association of real estate developers and builders in the Philippines. It assails the validity of the
imposition of minimum corporate income tax (MCIT) on corporations and creditable withholding tax (CWT) on sales
of real properties classified as ordinary assets.

Petitioner argues that the MCIT violates the due process clause because it levies income tax even if there is no
realized gain. Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the
due process clause because, like the MCIT, the government collects income tax even when the net income has not
yet been determined. They contravene the equal protection clause as well because the CWT is being levied upon
real estate enterprises but not on other business enterprises, more particularly those in the manufacturing sector.

ISSUE:

Whether the imposition of the MCIT on domestic corporations and CWT on income from sales of real properties
classified as ordinary assets are unconstitutional.

RULING:

NO. MCIT is not violative of due process. The MCIT is imposed on gross income which is arrived at by deducting the
capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross
sales. Clearly, the capital is not being taxed. Furthermore, the MCIT is not an additional tax imposition. It is imposed
in lieu of the normal net income tax, and only if the normal income tax is suspiciously law. The MCIT merely
approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2%
and uses as the base the corporation’s gross income.

It is also stressed that the CWT is creditable against the tax due from the seller of the property at the end of the
taxable year. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is
taken that is not due so there is no confiscation of property repugnant to the constitutional guarantee of due
process. More importantly, the due process requirement applies to the power to tax. The CWT does not impose new
taxes nor does it increase taxes. It relates entirely to the method and time of payment. Petitioner, in insisting that
its industry should be treated similarly as manufacturing enterprises, fails to realize that what distinguishes the real
estate business from other manufacturing enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the number of transactions involved. The income from
the sale of a real property is bigger and its frequency of transaction limited, making it less cumbersome for the
parties to comply with the withholding tax scheme.
PEN:

The imposition of MCIT is not violative of due process. MCIT is imposed on gross income and not capital.
Thus, it is not arbitrary or confiscatory. It is not an additional tax imposition but is imposed in lieu of
normal net income tax and only if said tax is suspiciously law. Finally, there is no legal objection to a
broader tax base or taxable income resulting from the elimination of all deductible items and, at the same
time, reduction of the applicable tax rate. Inasmuch as deductions are a matter of legislative grace,
Congress has the power to condition, limit or deny deductions from gross income in order to arrive at the
net that it chooses to tax.

Moreover, imposition of CWT does not constitute a deprivation of property without due process because
seller may claim tax refund if net income is less than the taxes withheld. Practical problems in claiming tax
refund do not affect the constitutionality and validity of CWT as a method of collecting tax.

11. PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR)

vs.
THE BUREAU OF INTERNAL REVENUE (BIR),
G.R. No. 172087 March 15, 2011

FACTS:

PAGCOR was created pursuant to PD No. 1067-A2 on January 1, 1977. Simultaneous

to its creation, P.D. No. 1067-B3 was issued exempting PAGCOR from the payment of
any type of tax, except a franchise tax of five percent (5%) of the gross revenue.
Thereafter, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption.

To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No.
18696 was issued. PAGCOR's tax exemption was removed but it was later restored. On
January 1, 1998, the NIRC of 1997, provides that GOCCs shall pay corporate income tax,
except petitioner PAGCOR, the GSIS, SSS, PHIC, and the PCSO.

With the enactment of R.A. No. 933710, certain sections of the NIRC of 1997 were
amended particularly Section 27 (c) of the NIRC of 1997 by excluding PAGCOR from the
enumeration of GOCCs that are exempt from payment of corporate income tax.

Different groups came to this Court via petitions for certiorari and prohibition assailing the
validity and constitutionality of R.A. No. 9337.

Respondent BIR issued Revenue Regulations (RR) No. 16--2005,13 specifically

identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under
Section 108 of the National Internal Revenue Code of 1997, as amended by R.A. No.
9337.

ISSUE:
The main issue is whether or not PAGCOR is still exempt from corporate income tax and
VAT with the enactment of R.A. No. 9337.

RULING:

The petition is partly granted.

Provision in RA 9337 excluding petitioner PAGCOR from the enumeration of GOCCs

exempted from corporate income tax is valid and constitutional, while provision subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337.

Taxation is the rule and exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.
Exemptions must be shown to exist clearly and categorically, and supported by clear legal
provision. In this case, PAGCOR failed to prove that it is still exempt from the payment
of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section
27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the
exemption.

The legislative intent is to require PAGCOR to pay corporate income tax; hence, the
omission or removal of PAGCOR from exemption from the payment of corporate income
tax. It is a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar maxim
expressio unius est exclusio alterius.

PAGCOR was granted a franchise and under Section 11, Article XII of the Constitution,
PAGCOR’s franchise is subject to amendment, alteration or repeal by Congress such as
the amendment under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of
R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption
of PAGCOR from corporate income tax, which may affect any benefits to PAGCOR’s
transactions with private parties, is not violative of the non-impairment clause of the
Constitution.

In regards the imposition of 10% VAT, nowhere in R.A. No. 9337 is it provided that
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of
petitioner's exemption from the payment of corporate income tax, which was already
addressed above by this Court.

It is settled rule that in case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails, because the said rule or regulation
cannot go beyond the terms and provisions of the basic law. Therefore, RR cannot go
beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A.
No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR
No. 16-2005; hence, the said regulatory provision is hereby nullified.
PEN:

Tax exemptions can never be assumed. Legislative bodies have the power to grant tax
exemptions provided it will not be violative of the Constitution. In this case, there was no
violation of the equal protection clause because the exemption of PAGCOR from paying
corporate income tax was not based on a classification showing substantial distinctions
which make for real differences, but a grant of the request of PAGCOR to be exempt.
Thus, the amendment made by Congress is valid.

Moreover, RRs are merely administrative interpretations, In case of discrepancy between

the law and RR, the law shall prevail. RRs shall be issued in accordance with the law and
cannot go beyond the terms of the law.

12. COMMISSIONER OF INTERNAL REVENUE

vs.
ST. LUKE’S MEDICAL CENTER, INC.

G.R. No. 195909, September 26, 2012

FACTS:

St. Luke’s (respondent) is a hospital organized as a non-stock and non-profit organization.

Sometime in 2002, BIR assessed St. Luke’s deficiency taxes amounting to P76M for 1998
which was subsequently reduced to P63M during trial in the CTA. St. Luke’s protested
and filed an administrative protest with BIR but was not acted by the latter within the 180
period thus reaching to the CTA.

According to BIR, Section 27B of the NIRC imposing a 10% preferential tax rate applies
to St. Luke’s. Its reason is that it amends the exemption on non-profit hospitals and which
prevails over the exemption on income tax granted under Section 30 (E and G) for non-
stock, nonprofit charitable institution and civic organizations promoting social welfare. It
further claimed that St. Luke’s was actually operating for profit because only 13% came
from charitable purposes and that it had a total revenue of P1.73B from patient services
in 1998.

Meanwhile, St. Luke’s contended that its operating income only totaled P334 M (less the
operating expenses) and out of that P218M (65%) made up its free services and further
claimed that its income does not inure to the benefit of anyone. Furthermore, it argued
that it falls under the exception provided under Sec. 30 (E) and (G) of NIRC and making
of profit per se does not destroy its tax exemption.

CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30 and reiterated its
earlier fiding in another case identifying St. Luke’s as a charitable institution. CTA adopted
the test in Hospital de San Juan de Dios, Inc. v. Pasay City, which states that "a charitable
institution does not lose its charitable character and its consequent exemption from
taxation merely because recipients of its benefits who are able to pay are required to do
so, where funds derived in this manner are devoted to the charitable purposes of the
institution . . . ." (The generation of income from paying patients does not per se destroy
the charitable nature of St. Luke's.)

ISSUE:

WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B) of the NIRC which
imposes a 10% preferential rate.

RULING:

Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of the NIRC.

Under Sec. 30 (E) of the NIRC provides that a charitable institution must be: (1) non-stock
corporation or association; (2) ORGANIZED EXCLUSIVELY for charitable purposes; (3)
OPERATED EXCLUSIVELY for charitable purposes; (4) No part of its net income or asset
shall inure to the benefit of any member , officer or any person. Under the last paragraph
of Sec. 30 of the NIRC if a tax exempt charitable institution conducts "any" activity for
profit, such activity is NOT TAX EXEMPT even as its not-for-profit activities remain tax
exempt. It simply means that even if a charitable institution organized and operated
exclusively for charitable purposes is nevertheless allowed to engage in “activities
conducted for profit” without losing its tax exempt status for its no-for-profit activities.
However, as a consequence "income of whatever kind and character" of a charitable
institution "from any of its activities conducted for profit, regardless of the disposition made
of such income, shall be subject to tax." (Sec. 30, last par.). Therefore, services rendered
to paying patients are activities conducted for profit and thus taxable under Sec. 27 (B) of
the NIRC.
St. Luke's fails to meet the requirements under Section 30 (E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit
hospital under Section 27 (B) of the NIRC as long as it does not distribute any of its profits
to its members and such profits are reinvested pursuant to its corporate purposes. St.
Luke's, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10%
on its net income from its for-profit activities.

PEN:

A charitable institution organized and operated exclusively for charitable purposes shall
be tax exempt. However, any income received from any of its activities conducted for
profit, regardless of the disposition of such income shall be subject to tax.

In this case, the services rendered to paying patients are conducted for profit, thus taxable
but the organization remains tax exempt on income from its actual charitable activities.
 JOSE FERRER, JR. VS. CITY MAYOR HERBERT BAUTISTA
G.R NO. 210551 | 30 JUNE 2015
PERALTA, J.:

FACTS:
Respondent Quezon City Council enacted Ordinance No. SP-2095, S-2011 or Socialized Housing Tax
of Quezon City, which will collect 0.5% on the assessed value of land in excess of Php 100,000.00.
This shall accrue to the Socialized Housing Programs of the Quezon City Government. The special
assessment shall go to the General Fund under a special account to be established for the purpose.
The special assessment shall accrue to the General Fund under a special account to be established
for the purpose (i.e., programs and projects for low-cost housing and other mass dwellings). On
the other hand, Ordinance No. SP-2235, S-2013 on garbage collection places the rates of the
imposable fee dependent on the land or floor area and whether the payee is an occupant of a lot,
condominium, social housing project or apartment which shall be deposited solely and exclusively
in an earmarked special account under the general fund to be utilized for garbage
collections. Petitioner, a Quezon City property owner, questions the validity of the said ordinances.

ISSUES:
1. Whether the Socialized Housing Tax is valid.
2. Whether the ordinance on Garbage Fee violates the rule on double taxation.

RULING:
1. YES. The SHT is valid. The tax is within the power of Quezon City Government to impose. Cities
are allowed to exercise such other powers and discharge such other functions and responsibilities
if there is a lawful subject and a lawful method. Herein, the tax is not a pure exercise of taxing
power or merely to raise revenue; it is levied with a regulatory purpose. The levy is primarily in the
exercise of the police power for the general welfare of the entire city. It is greatly imbued with
public interest.

2. NO. The imposed Garbage Fee does not violate the rule on double taxation, but it violates the
rule on equality. The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge
fixed for the regulation of an activity. In Progressive Development Corporation v. Quezon City, the
Court declared that “if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax. Not being a tax, the contention that
the garbage fee under Ordinance No. SP-2235 violates the rule on double taxation must
necessarily fail. However, for the purpose of garbage collection, there is, in fact, no substantial
distinction between an occupant of a lot, on one hand, and an occupant of a unit in a
condominium, socialized housing project or apartment, thus, a similar schedule of fee is both just
and equitable. Therefore, the rates being charged by the ordinance are unjust and inequitable.

PEN:
LGUs are empowered to enact ordinances, approved resolutions and appropriate funds
for the general welfare of the city and its inhabitants. LGUs shall share with the national
government the responsibility to maintain balance within their territorial jurisdiction. The
SHT and garbage fee imposed by the QC government tax which are not pure exercise of
the taxing power or to merely raise revenue, but they are levied with regulatory purpose
for the general welfare of the people.

14. COMMISSIONER OF INTERNAL REVENUE V. YMCA

G.R. NO. 124043 | 14 OCTOBER 1998
PANGANIBAN, J.:
FACTS:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs
and activities that are beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.
YMCA earned income from leasing out a portion of its premises to small shop owners, like
restaurants and canteen operators, and from parking fees collected from non-members.
Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent
formally protested the assessment. In reply, the CIR denied the claims of YMCA.
ISSUE:
1. Whether or not the income derived from rentals of real property owned by YMCA are
subject to income tax.
2. Whether or not the YMCA is an educational institution within the purview of Article XIV,
Section 4, par.3 of the Constitution.
RULING:
1. YES. Income of whatever kind and character of non-stock non-profit 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 the NIRC. Rental
income derived by a tax-exempt organization from the lease of its properties, real or personal, is
not exempt from income taxation, even if such income is exclusively used for the accomplishment
of its objectives.
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.
Verba legis non est recedendum. 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.
2. This claim of the private respondent is without merit. Laws allowing tax exemption are
construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under
Article XIV, Section 4, par.3 of the Constitution, 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. Bare allegation alone that one is a non-stock,
non-profit educational institution is insufficient to justify its exemption from the payment of
income tax.

PEN:
Rental income derived by a tax-exempt organization, except for non-stock non-profit educational
institution, from the lease of its properties, real or personal, is not exempt from income taxation,
even if such income is exclusively used for the accomplishment of its objectives.

15. ASIA INTERNATIONAL AUCTIONEERS V. CIR

G.R. NO. 179115 | 26 SEPTEMBER 2012
PERLAS-BERNABE, J.:

FACTS:
AIA is engaged in the importation of used motor vehicles and heavy equipment which it sells to
the public through auction. Later, AIA received from the CIR a Formal Letter of Demand containing
an assessment for VAT and excise tax, a total amount of P 106,870,235.00, inclusive of penalties
and interest. AIA claimed that it filed a timely protest letter through registered mail and submitted
additional supporting documents. CIR’s failure to act on the protest prompted AIA to file a petition
for review before the Court of Tax Appeals. However, the CIR filed a motion to dismiss on the
ground of lack of jurisdiction since AIA’s failure to file its protest within the 30-day reglamentary
period rendered the assessment final and executory.

After trial, the CTA First Division ruled that there was no sufficient evidence to prove the receipt
of the protest letter by the CIR. AIA filed a motion for reconsideration but was denied; hence, this
petition for review. On 30 January 2008, AIA filed a Manifestation and Motion with Leave of the
Honorable Court to Defer or Suspend Further Proceedings since it availed of the Tax Amnesty
Program under Republic Act 9480, known as the Tax Amnesty Act of 2007.

On 5 February 2008, the BIR issued a Certification of Qualification stating that AIA “has availed and
qualified for Tax Amnesty for Taxable Year 2005 and Prior Years” pursuant to RA 9480. However,
the CIR contends that AIA is disqualified under Section 8 (a) of RA 9480 from availing itself of the
Tax Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes.
ISSUE:
Whether or not the contention of the CIR that AIA is disqualified from availing itself of the Tax
Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes.

HELD:
NO. Under Sec.8 (a) of the RA 9480 withholding agents with respect to their withholding tax
liabilities shall be disqualified to avail of the tax amnesty. In this case, AIA was not being assessed
as withholding agent that failed to withhold or remit the deficiency VAT and excise tax to the BIR
under relevant provisions of the Tax Code but as a taxpayer who is directly liable for the said taxes.

Hence, the argument that AIA is "deemed" a withholding agent for these deficiency taxes is
fallacious. Indirect taxes, like VAT and excise tax, are different from withholding taxes. To
distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof
can be shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. On the other hand, in case of withholding taxes,
the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden
of taxation is not shifted to the withholding agent who merely collects, by withholding, the tax due
from income payments to entities arising from certain transactions and remits the same to the
government. Due to this difference, the deficiency VAT and excise tax cannot be "deemed" as
withholding taxes merely because they constitute indirect taxes. Moreover, RA 9480 does not
exclude from its coverage taxpayers operating within special economic zones. Hence, AIA is
qualified to avail of the Tax Amnesty under RA 9480.

PEN:

Withholding tax is a direct tax, the imposition of which could not be shifted or passed to the withholding
agent who merely collects the tax due from the taxpayer. The withholding agent shall only pay to BIR the
withholding taxes collected from the taxpayer itself.

Indirect taxes, like VAT and excise tax, are different from withholding taxes. The burden can be shifted or
passed on to another person.

CASE NO. 16

CS GARMENT, INC. vs. CIR,

G.R. No. 182399 March 12, 2014

Facts:

CS Garment, Inc is a domestic corporation who received 5 formal

demand letters with Assessment Notices from the BIR Regional Office. The
petitioner filed a formal written protest with respondent. Court of Tax Appeals
2nd Division cancelled the respondent’s assessment against CS Garments
for deficiency expanded withholding taxes for CY 1998 and partially
cancelled the deficiency DST assessment. However, the Court upheld the
validity of the deficiency income tax assessments by subjecting the
disallowed expenses and a portion of the undeclared local sales to income
tax at the special rate of 5%. The remainder of undeclared local sales was
subjected to income tax at the rate of 34%. The Court found that total tax
liability of CS Garments amounted to P2,029,570.12, plus 20% delinquency
interest pursuant to Section 249(C) (3). Petitioner appealed to the CTA En
Banc. The latter affirmed the Decision and Resolution of the CTA 2nd Division.
While on appeal to the Supreme Court (SC), petitioner filed a Manifestation
and Motion stating that it had availed of the government’s tax amnesty
program of 2007.

Issue:

WON CS Garment, Inc. is already immune from paying the deficiency

taxes stated in the 1998 tax assessments of the CIR, as amended by the
CTA.

Held:

The Supreme Court held that neither the law nor the implementing
rules state that a court ruling that has not attained finality would preclude the
availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF
Order No. 29-07 are quite precise in declaring that "tax cases subject of final
and executory judgment by the courts" are the ones excepted from the
benefits of the law. RA 9480 is specifically clear that the exceptions to the
tax amnesty program include "tax cases subject of final and executory
judgment by the courts." The present case has not become final and
executory when the petitioner availed of the tax amnesty program While tax
amnesty, similar to a tax exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing authority, it is also a well-settled
doctrine that the rule-making power of administrative agencies cannot be
extended to amend or expand statutory requirements or to embrace matters
not originally encompassed by the law. Administrative regulations should
always be in accord with the provisions of the statute they seek to carry into
effect, and any resulting inconsistency shall be resolved in favor of the basic
law. The Court definitively declare that the exception "issues and cases
which were ruled by any court (even without finality) in favor of the BIR prior
to amnesty availment of the taxpayer" under BIR RMC 19-2008 is invalid, as
the exception goes beyond the scope of the provisions of the 2007 Tax
Amnesty Law.”