G.R. No. 198756.

January 13, 2015

Banco de Oro vs. Republic

Facts:
This is a petition for certiorari, prohibition and/or mandamus filed by petitioners
under Rule 65 of the Rules of Court.

The case involves the proper tax treatment of the discount or interest income
arising from the P35 billion worth of 10-year zero-coupon treasury bonds issued
by the Bureau of Treasury. The Commissioner of Internal Revenue issued
BIR Ruling No. 370-2011 (2011 BIR Ruling), declaring that the PEACe Bonds
being deposit substitutes are subject to the 20% final withholding tax. Pursuant to
this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a
20% final tax from the face value of the PEACe Bonds upon their payment at
maturity on October 18, 2011.

Petitioners contend that the retroactive application of the 2011 BIR Ruling without
prior notice to them was in violation of their property rights, right to due process,
as well as Sec 246 of the 197 NIRC. And that Commissioner of Internal Revenue
Revenue gravely and seriously abused her discretion in the exercise of her rule
making power.

Respondents argue that petitioners' direct resort to this court to challenge the 2011
BIR Ruling violates the doctrines of exhaustion of administrative remedies and
hierarchy of courts, resulting in a lack of cause of action that justifies the dismissal
of the petition.

Issue: Whether or not doctrine of hierarchy of courts was violated by the BIR and
acted outside its jurisdiction in connection with the 2011 BIR Ruling.

Ruling:

Yes. The Court agreed with the respondents that the jurisdiction to review the
rulings of the Commissioner of Internal Revenue pertains to the Court of Tax
Appeals. In exceptional cases, however, this court entertained direct recourse to
it when "dictated by public welfare and the advancement of public policy, or
demanded by the broader interest of justice, or the orders complained of were
found to be patent nullities, or the appeal was considered as clearly an
inappropriate remedy."

Non-compliance with the rules on exhaustion of administrative remedies and

hierarchy of courts had been rendered moot by this court's issuance of the
temporary restraining order enjoining the implementation of the 2011 BIR Ruling.
The temporary restraining order effectively recognized the urgency and necessity
of direct resort to this court.