Preweek Taxation

SAN BEDA COLLEGE OF LAW
CENTRALIZED BAR OPERATIONS 2001

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P R E W E E K
T A X A T I O N
1. Municipality X enacted an ordinance which imposes an occupation tax upon
owners of fishponds. The validity of the ordinance is bein challened on the
round that it constitutes double taxation because the fishpond is already sub!ect to
land tax. "s the ordinance valid#
$%&, the ordinance is valid. There is no direct duplicate taxation in the case at bar
because the purposes of the two (2) taxes are different. The objective of the land tax is to
impose a charge on the ownership of the property, while the occupation tax is intended to
impose a burden upon owners of fishponds for engaging in that line of business. (People
v. Mendares, 97 PHIL 158)
'. A (eed of &ale of )eal *roperty was ac+nowleded before a ,otary *ublic and
was presented to the )eister of (eeds for reistration. The said official re-uired
the payment and affixture of two .'/ documentary stamps0 one for the deed of sale
and another for the ac+nowledment. "s the said re-uirement aainst the principle
of double taxation# 1hy#
Considering that in the problem the eed of !ale is a document separate and distinct
from the ac"nowledgment, there can be no double taxation as there are two objects of
taxation. #urthermore, even if the documents are considered as one, there will still be no
double taxation in the strict sense since the re$uirements do not fall under the concept of
double taxation. There will only be double taxation if the %egistrar does not re$uire the
same re$uirements from others who will register the same "ind of documents.
2. 3im Ton0 owner of the 4reeman5s &eafood 1harf )estaurant0 borrowed from his
friend *it 6acson * 207770777. The said amount would finance his newly ac-uired
8olvo car which he would be usin while oin to wor+. Their verbal areement
provided an annual interest of '9:.
a. ;ould the interest paid on such loan be deducted from <ross "ncome as an
expense#
,=. The amount of interest on indebtedness paid or incurred within a taxable year
must be incurred in connection with the taxpayer&s business to be allowed as a deduction
from 'ross (ncome.
b. <rantin that it was necessary in connection with the taxpayers business0 could
the deduction be allowed#
(t depends if the interest is legally due on the indebtedness. ) payment of interest
verbally agreed upon by the taxpayer and the lender will not be deductible since an
agreement to pay interest must be in writing, otherwise it is void under Art. 1956 of the
Civil Code.
TAXATION *
9. ;an interest paid on delin-uent taxes be deductible#
$%&. The interest on taxes can be considered as interest on indebtedness. )lthough
taxes already due are not the same as debts, they are however obligations that may be
considered as debts.
>. Mr. 8aleriano0 a car repair shop owner0 borrowed *> million from Allied ?an+ in '777
with annual interest of '1: to finance e-uipment needed in his shop.
a. ;an Mr. 8aleriano yearly deduct the whole '1: interest as an expense#
$%&, provided it will be reduced by +,- of his interest income subject to final tax.
b. "n case he failed to deduct the '1: interest from his ross income in '7770 does
he still have any other recourse#
$%&. The taxpayer has an option of either deducting the same as an interest expense
for the taxable year or capitali.ing the interest payment to increase the value of the asset
in which depreciation expense can be allowed.
@. Mr. Auc+y Tan0 a stoc+holder of *,?0 borrowed from the said ban+ *>107770777
with an interest amountin to *107770777 to ac-uire a pac+ain e-uipment for his
tobacco business. *,? decided to deduct in advance the interest of *107770777.
a. ;an Mr. Tan claim as a deduction the interest expense for that taxable year#
(t depends on whether /r. Tang has more than 01- interest at 234. (# he does, the
interest cannot be claimed as a deduction from gross income, the transaction being
between related parties (Sec. 34 (B) (2)(b) in relation to Sec. 36 (B) of the NIC).
'ranting that /r. Tang has a lesser e$uity interest at 234, the interest cannot be
deducted all together. (f he is reporting income on the cash basis, the interest shall be
allowed as a deduction in the year the indebtedness is paid. (f the indebtedness is payable
in periodic amorti.ations, the amount of interest which corresponds to the amount of the
principal amorti.ed or paid during the year shall be allowed as deduction in such taxable
year.
b. 1ould your answer be the same if it was his uncle who lent the money to Mr.
Tan#
,=. They are not related parties under Sec. 36B. The members of the family shall
include only the taxpayer&s brothers and sisters ( whether by the whole blood or half5
blood), spouse, ancestors, and lineal descendants.
B. Mysti+a bouht '>0777 shares of <lobe Telecom at *1'7 per share in 1CC2. ;ome
'7710 the value of said shares increased to ''7 per share. ;an the *177 per share
increase in value be assessed for income tax purposes#
,=. )s a general %ule, a mere increase in the value of property is not income for tax
purposes but merely an unreali.ed increase in capital. 3o income is derived by the owner
until after the actual sale or other disposition of the property in excess of its original cost.
There is however an exception which applies only to depreciable properties. 6ven if
there is no sale or disposition, if by reason of appraisal, the cost of depreciable property is
increased and the appraised value is used as the new tax base for purposes of computing
TAXATION 2
the allowable depreciation, the difference between the original cost and the appraised
value is taxable under the economic5benefit theory.
D. "s an award for damaes arisin from breach of contract considered taxable
income#
(t is considered as taxable income to the extent that such damages constitute a loss of
anticipated profits and non5taxable income to the extent that the same represent a return of
capital or investment.
C. 3arlo0 a nonEresident citiFen0 wor+s as a cashier in "&%TA,0 Thailand. Ge receives a
monthly income of 9777 baht .90D77 pesos/ from his employer for the services
rendered.
a. "s the salary received by 3arlo sub!ect to withholdin tax#
b. 1hat are the re-uisites for withholdin tax on waes#
a. ,=. The withholding tax on wages does not apply to foreign sourced income of a
non5resident citi.en. (t applies only to wages or income derived from sources within the
2hilippines.
b. The re$uisites are7
*) there must exist an employer5employee relationship8
2) there must be payment (actual or constructive) of wages for services rendered8
and,
+) there must be a payroll period.
17. (ue to economic reverses0 X$H ;o. *hil. retrenched some of its employees
numberin >7 in all. =ne of the retrenched employees was A0 a 9> year old
machinist who had been in the employ of the company for > years. Ge was iven by
the company *>70777 as his separation pay. 1ould the amount received by A be
sub!ect to withholdin tax on compensation#
,=. )ny amount received by an official or employee or by his heirs from the employer
due to death, sic"ness or other physical disability or for any cause beyond the control of
said official or employee such as retrenchment, redundancy, or cessation of business are
exempt from withholding tax on compensation. )mounts received by reason of involuntary
separation remain exempt from income tax even if the official or employee, at the time of
separation has rendered less than *1 years of service and9or is below 01 years of age.
11. ;arrie0 a 4ilipino composer has !ust received *'70777 as royalties for her
outstandin composition Maalaala Mo 3aya0 )I? version. &he then later invested
said amount to X ;orp.0 a domestic corporation enaed in manufacturin by
buyin 1777 shares thereof. Aast 6anuary0 the company sent a * >0777 che-ue to
;arrie as cash dividends.
a. 1hat income in the above problem isJare sub!ect to final withholdin tax#
b. <ive five income payments which are sub!ect to final withholdin tax.
a. The income payments of Carrie which are subject to final withholding tax are the
royalties on musical compositions and the cash dividends actually received from a
domestic corporation.
b. *) %oyalties on boo"s, as well as other literary wor"s and musical compositions8
2) (nterest income received by a resident individual taxpayer from a depository
ban" under the #oreign Currency eposit !ystem8
+) (nterest income from long5term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
TAXATION +
prescribed by the 4!2 which was pre5terminated by the holder before the 0
th
year8
:) Cash and9or property dividends actually or constructively received from a
domestic corporation, joint stoc" company, insurance or mutual fund companies
or on the share of an individual partner in the distributable net income after tax
of a partnership except general professional partnership) or on the share of an
individual in the net income after tax of an association, a joint account or a joint
venture or consortium of which he is a member or a co5venturer.
1'. (ante )ivero was rushed to Ma+ati Medical ;enter last niht because of difficulty in
breathin while doin a sexy scene with coEstar de )ossi. (r. XXX then ave )ivero
proper medication at once. 4ive minutes later0 )ivero ot up in bed and went bac+
immediately to the set of *urple ?oo+. Ge tendered his payment directly with (r.
XXX as he was very happy of his instant recovery.
a. "s the income received by (r. XXX sub!ect to creditable withholdin tax#
b. 1ill the answer be the same if (r. XXX waived his professional fees#
c. <ive at least 2 income payments sub!ect to creditable withholdin tax.
d. 1ho are the persons re-uired to deduct and withhold for purposes of the
creditable tax#
a. $%&. )ny amount collected for and paid to medical practitioners by hospitals and
clinics or paid directly to the medical practitioners by patients who were admitted and
confined to such ;ospitals or Clinics are income payments subject to creditable
withholding tax.
b. ,=. The withholding tax prescribed by the Code shall not apply when no
professional fee has been charged by the medical practitioner and paid by his patient.
c. *) 2rofessional fees, talent fees for services rendered by individuals8
2) 2rofessional fees, talent fees for services of taxable juridical persons8
+) %entals8
:) Cinematographic film rentals and other payments8
0) (ncome payments to certain contractors. etc.
d. *) (n general, any juridical person, whether or not engaged in trade or business8
2) )n individual, with respect to payments made in connection with his trade or
business. ;owever, insofar as taxable sale, exchange or transfer of real
property is concerned, individual buyers who are not engaged in trade or
business are also constituted as withholding agents8
+) )ll government offices including government5owned or controlled5 corporations,
as well as provincial, city and municipal governments.
12. A0 a professional 4ilipino dancer residin in %rmita0 was employed by 6A= as dancer
in her new MT8 (ance Mix '771. Ge receives his salary wee+ly from 6H0 an
authoriFed representative of 6A= in the *hilippines.
a. "s the salary received by A sub!ect to withholdin tax#
b. 1hat does compensation income constitute#
a. $%&. %emuneration for services performed outside the 2hilippines by a resident
citi.en for a domestic or a resident foreign corporation or partnership, or for a non5resident
foreign corporation or partnership, or for a non5resident individual not engaged in trade or
business in the 2hilippines shall be treated as compensation which is subject to tax.
b. The name by which the remuneration for services is designated is immaterial.
Thus, salaries, wages, emoluments and honoraria, allowances, commissions8 fees
including director&s fees, if the director is, at the same time, an employee of the
employer9corporation8 taxable bonuses and fringe benefits except those which are subject
TAXATION :
to the fringe benefits tax8 taxable pensions and retirement pay8 and other income of a
similar nature constitute compensation income.
19. a. "s the priFe of 1 Million pesos awarded by the )eaders (iest sub!ect to final
tax#
b. 1ho is responsible for withholdin the tax#
a. $%&. 2ri.es are subject to final tax except those amounting to *1,111 pesos or
less (subject to normal rate) and from 2C!< and =otto winnings (tax exempt).
b. The responsibility of withholding the tax rests primarily on the payor as withholding
agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the
deficiency tax shall be collected from the payor9withholding agent. The payee is not
re$uired to file an income tax return for this particular income.
1>. A0 a ran+ and file employee of *; ;orp. Manila was sent by the latter to its newly
opened branch in ?atanas. *; provided a free board and lodin at the second
floor of said establishment valued at *B77.77 for him to serve as overseer of *;5s
property especially durin nihttime. 4ree meal of *27.77 per day was li+ewise
iven when the employer discovered that most of the wor+ers were buyin food
from nearby restaurants which have unsanitary facilities. &hould the value of the
free lodin and meal be included as part of the employees ross income#
The value of the free lodging is not part of )&s compensation income because of the
application of the >convenience of the employer rule?. The following however must be
present7
a. (t must be furnished in the employer&s premises8 and,
b. 6mployee is re$uired to accept such lodging as a condition of his employment.
The value of the free meal forms part of the employees& gross income. The free meal
is not furnished by the employer for its convenience (i.e. to ma"e the employees available
for wor" during the meal period).
1@. A0 an employee of ?A,3E3= wor+s continuously from CK77 AM to 9K77*M daily.
Gis wor+ demands that whenever necessary he must render service even durin
lunch brea+ from 1'K77 nn to 1K77 pm. As such the company ives A meal coupons
worth 227 pesos and a sac+ of rice every month.
a. (o the meal coupons and the sac+ of rice form part of A5s compensation sub!ect
to withholdin tax#
b. 1hat are de minimis benefits# <ive examples thereof.
a. /eal coupons worth 2++1 a month given by a ban" need not be included as
compensation subject to withholding tax since they are given for the convenience of the
employer. The same is true with the subsidi.ed cost of one sac" of rice a month. )s
ban"ing hours are continuous from @711)/ to :711 2/, ban" personnel are re$uired to
render service as may be necessary even during lunch brea".
b. e minimis benefits refer to facilities or privileges furnished or offered by an
employer to his employees which are of relatively small value and are intended promote
the health, goodwill, contentment, or efficiency of his employees. They are not subject to
fringe benefit tax.
The following are considered as de minimis benefits7 moneti.ed unused vacation leave
credits of employees not exceeding *1 days during the year8 medical cash allowance to
dependents of employees not exceeding 2A01 per semester or 2*20 per month8 rice
subsidy of 2+01 per month granted by an employer to his employees8 uniforms given to
employees by the employer8 medical benefits given to the employees8 laundry allowance of
2*01 per month etc.
TAXATION 0
1B. ;apt. &uod is a member of A4*. Aside from his salary0 the overnment ives him
free meals and livin -uarters inside the camp. Are these benefits included as
compensation#
,=. )ll these benefits are given for the convenience of the employer. ;ousing
privilege and meal allowance of military officials of the )#2 consisting of officials of the
2hilippine )rmy, 2hilippine 3avy and 2hilippine )ir #orce shall not be treated as taxable
fringe benefits. This is in accordance with the policy that the !tate shall provide its soldiers
with necessary $uarters which are within or accessible from the military camp so that they
can be readily on call to meet the exigencies of the military service.
1D. A?;0 a nonEstoc+0 nonEprofit oraniFation operatin exclusively to promote social
welfare0 derives the followin items of income durin the taxable yearK
a. Assessment due from the membersL
b. )entals from small stallsL and
c. *ar+in fees
"s A?; exempt from payin income taxes on the above items#
)4C is exempt from paying tax only on income received by it as a non5stoc", non5profit
entity. ;ence its exemption extends only to the assessment dues paid by its members.
Bith respect to the rentals and par"ing fees, it is liable to pay income taxes thereon
pursuant to the last paragraph of Sec. 3! of the "a# Code (CIR vs YMCA R. No.
1!"#"$, O%&. 1", 1998).
1C. 1hen is there international double taxation# %numerate the remedies which a
taxpayer may avail to lessen the impact of international double taxation.
(nternational double taxation arises when there is a multiple tax situs ma"ing an income or
activity taxable by more than one taxing jurisdiction. The remedies against international
double taxation are7
a. %eciprocal exemption8
b. )llowance of tax reduction8 and
c. )llowance of tax credit for foreign taxes.
'7. <abriel0 a painter0 was as+ed to paint a replica of the Mona Aisa. Ge was to be paid
*20777.77. Thereafter <abriel ratuitously assined his rihts under the contract to
his friend 3arlo. 3arlo later on collected the *20777.77. "s the *20777.77 taxable to
<abriel#
$%&. The 2+,111.11 is taxable to 'abriel as income derived by him from the practice
of his profession. Bhen he donated the same to Carlo, who accepted the same by
collecting the amount, 'abriel li"ewise may be subject to donor&s tax if his net gifts for the
calendar year exceed 2*11,111.11 (Sec. 99(a)$ NIC of 199%).
'1. A0 an architect owes0 H0 a businessman0 the sum of *170777.77. H enaed the
services of A to remodel his residence. The value of the services rendered by A is
*1770777.77. Accordinly0 H cancelled the debt of A after payin the latter
*1770777.77. "s the amount condoned considered income sub!ect to tax#
$%&. Bhen D pays ) 2*11,111.11 then the same is considered income from the
exercise of )&s profession because of the physical receipt of money. The amount of
2*1,111.11 condoned is considered as a gift because the cancellation was without
consideration.(Sec. 52 ev. e&'.No. 2)
TAXATION E
''. "s there any specific constitutional provision violated if a tax law contravenes any of
the principles of sound tax system#
The principles of sound taxation are not intended to ma"e tax laws valid but merely to
ma"e them resonant to ade$uacy, justice and convenience. 'enerally, therefore, a
violation of those principles will not render a tax measure invalid, except perhaps when the
principle of theoretical justice is contravened to the extent that the particular tax law may
no longer be >e$uitable? as mandated under Sec. 2((1)$ Art. )I of the 2hilippines
Constitution.
'2. a. May the national overnment impose a tax on local overnments#
b. May the local overnment impose a tax on the national overnment#
a. There is no prohibition, constitutional or inherent in taxation, against the imposition
of taxes by the !tate on its political subdivisions. )ccordingly, although it would be
unusual, the national government can validly impose taxes on local governments.
b. (n M%C'llo%( vs. Mar)land, the doctrine that >the power to tax involves the power
to destroy? was, among other reasons, used to support the holding that states of the union
are prohibited from taxing the F.!. #ederal 'overnment. (f, indeed, taxation involves the
power to destroy, then it cannot be exercised on the which the taxing authority has no
power to destroy. espite then the absence of any explicit statutory or constitutional
prohibition, local governments may not impose any "ind of tax on the national government.
'9. "n order to encourae investment0 a law was passed exemptin aliens who invest at
least fifty million pesos in the *hilippines from all taxes0 national or local0 except
income tax. Ms. ;hie ma+es such an investment and she desires to see+
employment in the *hilippines0 particularly in the ;ity of Ma+ati. &ubse-uently the
;ity of Ma+ati made her pay a fee of five thousand pesos for the issuance of a
Mayor5s permit re-uired for aliens see+in employment within the city. &hould Ms.
;hie pay the said Mayor5s permit#
$%&. The tax exemption of /s. Chie relates only to his investment. Tax exemptions
are to be construed strictly against the grantee, and unless otherwise explicit in the law,
the exception must be deemed to relate only, in this instance, to the investment.
'>. The *hilippine ?ible &ociety .*?&/ contended that the 8alue Added Tax .8AT/
infrines on the freedom of reliion clause as it imposes sales and use tax on the
sale of reliious materials. "s the contention proper# 1hy#
,=. The #reedom of %eligion clause does not prohibit imposing a generally applicable
sales and use tax on the sale of religious materials by a religious organi.ation.
'@. A taxpayer -uestioned the validity of a law imposin a *177.77 tax for the support of
the public educational system. Ge assailed that he does not send any of his children
to public schools. "s his contention proper#
,=. )n individual need not derive direct benefits from the tax because the paramount
consideration is the welfare of the greater portion of the population. The legislature has the
right to select the subject of taxation because of the lifeblood doctrine, so long as there is
valid classification.
'B. *ilipinas ;ompany is a domestic corporation which is enaed in the business of
exportin *hilippine handicrafts. "n order to boost its business0 it enaed an
TAXATION A
American corporation to loo+ for customers in the Mnited &tates and to sell its
products to those customers. *ilipinas ;ompany will pay the American corporation
a commission on the volume of sales in the Mnited &tates. *ilipinas ;ompany also
entered into an areement with the same American corporation whereby the latter
will render technical assistance to *ilipinas ;ompany to enable it to meet
international export standards for which the corporation will receive a royalty fee.
&tate whether the royalties and the commission payable to the American
corporation are sub!ect to *hilippine tax. %xplain.
The royalties are subject to 2hilippine income tax. They are considered as income from
sources within the 2hilippines, hence subject to income tax even if received by a non5
resident foreign corporation. <n the other hand, the commissions being earned from
activities outside the 2hilippines are not subject to tax.
'D. &t. *eter5s Gospital is a charitable institution offerin free hospital services. "t also
admits payEpatients. The income derived from said payEpatients is devoted to the
improvement of the charity wards of the hospital. The ?") is now assessin said
hospital for payment of income tax from income received from admission of payE
patients. )ule on the case.
The admission of pay5patients does not detract from the charitable character of a
hospital, if all of its funds are devoted >exclusively for the maintenance of the institution? as
a >public charity?. (n other words, >where rendering charity as its primary object, and the
funds derived from the payments made by patients who are able to pay are devoted to the
benevolent purposes of the institution, the mere fact that a profit has been made will not
deprive the hospital of its benevolent character?.
'C. Atty. 3itten suffered a heart attac+ renderin her unfit to dischare her duties as
leal counsel of 1aters ;orporation. &he thereafter applied for terminal leave. Atty.
3itten received an amount by way of commutation of her accumulated leave credits
as a result of her compulsory retirement or terminal leave pay. "s said amount
sub!ect to tax#
,=. Terminal leave is applied for by an employee or officer who retires, resigns, or is
separated from the service through no fault of his own. !ince terminal leave is applied for
by an officer or an employee who has already severed connection with his employer and is
no longer wor"ing, then it follows that the terminal leave pay, which is the cash value of his
accumulated leave credits, is no longer compensation for services rendered. (t cannot be
viewed as a salary. !aid amount falls within the enumerated exclusions from gross
income and is therefore not subject to tax.
27. 1hat are the conditions necessary to exempt retirement benefits from income tax#
Fnder A 491%, retirement benefits are exempt from income tax if the following
conditions are present7
a. The retiring official or employee has been in the service of the same employer for
the last ten years8
b. ;e is not less than fifty years old at the time of his retirement8 and
c. The official or employee avails of the benefits only once8 and
d. Fnder even*e e&*lation 2+9(, the private benefit plan is approved by the 4(%.
21. Are employees of private firms entitled to retirement benefits# "s it sub!ect to
income tax#
A %641 grants retirement benefits to employees of private firms if the following
conditions concur7
TAXATION ,
a. The firm has no private retirement trust plan8 and
b. The retiring officer or employee is at least E1 yrs old.
The retirement benefits received under the foregoing conditions are exclusions, and
therefore exempt from income tax.
2'. X ;orp.0 a ;anadian based forein corporation0 was hired by *inoy &oap "nc. The
former bein an environmentalist expert and a shareholder in the latter was hired to
conduct tests as to the effect of the latter5s product to the environment and to ma+e
improvements thereon. As such0 *inoy soap areed to pay X corp. a cash dividend
of * > Million for such services to be conducted for a period of ' months.
a. (efine andJor explain the nature of a disuised dividend under the income tax
law.
b. "s there a disuised dividend in the present case#
a. There is a disguised dividend when a dividend (whether cash or stoc"s) is given to
a shareholder not as a return on investment but as payment for services rendered. (t is
taxable as part of compensation income or income derived from self5employment or
exercise of a profession, but not as passive income. The income is given in the guise of a
dividend in order to avail of a lower tax rate.
b. $%&. ) disguised dividend includes the amount paid by a domestic corporation to
a nonresident foreign corporation for services rendered by the latter to the former, when
the amount paid exceeds the value of the services rendered.
22. Mr. ;orpus borrowed *170777.77 from his friend Mr. Aacson payable in one year
without interest. 1hen the loan became due0 Mr. ;orpus told Mr. Aacson that he
was unable to pay because of business reverses. Mr. Aacson too+ pity on Mr.
;orpus and condoned the loan. Mr. ;orpus was solvent at the time he borrowed the
*170777.77 and at the time the loan was condoned.
(id Mr. ;orpus derive any income from the cancellation or condonation of his
indebtedness# %xplain.
,=. The cancellation or condonation of /r. Corpus& indebtedness was not in
exchange for services he rendered to /r. =acson. !ince there was no consideration, the
cancellation may be considered as a gift which is an exclusion from gross income.
29. (ue to business reverses0 3awawa ;orp. offered a voluntary redundancy proram
under which an employee who offered to resin would be iven separation pay
e-uivalent to 2 months basic salary for every year of service. A accepted the offer
and received *2770777.77 as separation pay under the proram. The firm adopted
another redundancy proram where various unprofitable departments were closed.
As a result0 ? was separated from the service. Ge also received *2770777.77 as
separation pay.
1ill the separation pay of A and ? be sub!ect to tax#
)&s separation pay will be subject to tax because of the voluntary action on his part.
;e may, however, avail of the tax5free retirement provided that he is 01 years or over, that
he has rendered at least *1 years of service with Cawawa Corp., and that he has not
previously availed of the tax5free retirement.
4&s separation pay will not be subject to tax because he was separated for a reason
beyond his control.
2>. Mr. Ador wor+s for a construction firm in &audi Arabia. Ge comes home for
vacation once every two years for a period of ' months. Ge earns an annual salary
TAXATION @
of N'>0777.77. Ge also derives an income of *1'0777.77 annually from the rental of
his apartment in Manila.
a. To what classification of taxpayers does Mr. Ador belon#
b. 1hat part of his earnins should be considered as ross income for income tax
purposes#
a. /r. )dor is a non5resident citi.en, he being an overseas contract wor"er. ;e wor"s
and derives income abroad and his employment re$uires him to be thereat most of the
time during the taxable year.
b. <nly the income derived from the rentals of his apartment should form part of /r.
)dor&s gross income. Fnder the 3(%C, an individual citi.en wor"ing and deriving income
abroad as an overseas contract wor"er is taxable only on income received within the
2hilippines.
2@. =n April '>0 1CC>0 Mr. ;hua filed his income tax return for his 1CC9 income and paid
the tax due thereon. "n 1CC@0 Mr. ;hua hired a ;*A to prepare his income tax return.
Ge was informed by the latter that he made an overpayment in his income tax return
filed in 1CC>. ;onse-uently0 Mr. ;hua filed a written claim for refund of tax
erroneously collected with the ?") ;ommissioner on (ecember 1>0 1CC@. =n April
'70 1CCB0 without any decision yet by the ?") ;ommissioner0 Mr. ;hua filed in the
;ourt of Tax Appeals a petition for review on his claim for refund of tax erroneously
collected. (id the ;ourt of Tax Appeals ac-uire !urisdiction over the petition for
review of Mr. ;hua#
$%&. Bhile the 4(% Commissioner has not yet rendered a decision on said claim for
refund, the prescriptive period of two years within which a claim for refund of taxes
erroneously collected maybe filed is about to expire on )pril 20, *@@A and the failure of the
Commissioner to act on the claim for refund is tantamount to denial of taxpayer&s claim,
hence appealable to the Court of Tax )ppeals. The reason is that the taxpayer is subject to
the same two5year period to appeal to the CT), which is also rec"oned from the date of
payment pursuant to A 1125.
2B. ?asilio filed a suit for in!unction before the )T; in order to en!oin the <overnment
from collectin taxes from his businesses. The &olicitor <eneral arued that such
in!unction cannot prosper because of the leal principle that no court can issue an
in!unction aainst the collection of taxes. "s the &olicitor <eneral5s contention
correct# "s there an instance when such in!unction can prosper#
$%&. This is the general rule, the basis of which is the =ifeblood Theory. !uch
collection may only be suspended by means of an injunction issued by the Court of Tax
)ppeals during the pendency of the appeal in aid of its appellate jurisdiction. The collection
of the tax and the corresponding prescriptive period thereon may be suspended only if
there is proof that the collection of the tax will jeopardi.e the interests of the 'overnment
and9or the taxpayer, upon deposit of the amount of tax to be collected or upon filing of a
surety bond by the taxpayer which is not more than double the amount of tax sought to be
collected, and upon a showing that such appeal is not frivolous and dilatory.
2D. 6uan received an assessment of his income tax from the ?") on 4ebruary D0 1CCD.
Thereafter0 6uan filed a petition for reconsideration with the ?") on 4ebruary 1D0
1CCD. (ocuments supportin the petition were filed with the ?") on 4ebruary 'D0
1CCD. The ?") denied the said petition0 which decision was received by 6uan on
March 110 1CCD. 6uan filed a second re-uest for reconsideration. This time the ?")
revised the assessment. 6uan received the revised assessment on April '0 1CCD.
1hen is the last day for 6uan to appeal to the ;ourt of Tax Appeals#
TAXATION *1
Guan has until /ay 2, *@@, to file an appeal to the Court of Tax )ppeals. The
appealable decision is the revised assessment.
2C. Marcelo was assessed for taxes by the ?") in 1CCD. Thereafter0 he filed an
administrative protest with the ?") -uestionin the same. (urin the pendency of
the protest0 the <overnment filed a criminal action aainst Marcelo for filin a
fraudulent return. Marcelo souht the dismissal of the criminal action on the round
that the filin of the latter was premature in view of the pendin administrative
protest. "s Marcelo5s contention tenable#
,=. The criminal action is legally proper. Bhat is involved here in the criminal action is
not the collection of taxes where the assessment of the Commissioner of (nternal %evenue
may be reviewed by the Court of Tax )ppeals but a criminal prosecution for violations of
the 3ational (nternal %evenue Code which is within the cogni.ance of the %egional Trial
Court. Bhile there can be no civil action to enforce collection before the assessment
procedures in the Code have been followed, there is no re$uirement for the precise
computation and assessment of the tax before there can be a criminal prosecution. The
protest of the taxpayer against the assessment cannot stop his prosecution for violation of
the 3ational (nternal %evenue Code *+n,a- vs. Hon. C's., Ma) $#, 198#/.
97. A law was enacted imposin a tax on manufacturers of coconut oil0 the proceeds of
which were to be used exclusively for the protection and promotion of the coconut
industry0 namelyL to improve the wor+in conditions in coconut mills and to conduct
research on the use of coconut oil for motor fuel. &ome of the manufacturers of
coconut oil challene the validity of the law0 contendin that the tax is to be used for
a private purpose and0 therefore0 the law violates the rule that public revenues shall
not be appropriated for anythin but for a public purpose. (ecide with reasons.
The law is valid under the stated circumstances. Taxation is for a public purpose when
the proceeds of the tax are used not only to support the existence of the !tate but li"ewise
for some recogni.ed objects of government or directly to promote the welfare of the
community. )n intendment of the law to protect and promote the coconut industry may be
considered as properly embraced within such organi.ed objects of government along with
li"e objectives as promoting social justice, the e$uitable distribution of wealth, economic
progress, public welfare and similar goals or purposes.
91. A new law ranted tax amnesty to those who had not paid income taxes for a certain
year. Those who had paid their income taxes for the said year assailed the decree
as violative of the constitutional uaranty on uniformity of taxation and for bein
tantamount to class leislation0 since the law did not provide for the refund of taxes
to those who had already paid them. 1ould you sustain the ob!ection#
,=, ( will not sustain the objection. >Fniformity? in taxation, re$uiring all subjects or
objects of taxation similarly situated to be treated ali"e, does not disallow a classification of
such objects or subjects as long as the standards used therefor are not arbitrary, and
germane to the intendment of the law, and are substantial .Peps.0Cola 1o&&l.n, Co. o2
&(e P(.l. vs. C.&) o2 1'&'an, !" 3CRA79/. These tests obviously met in the situation
stated in the problem.
9'. Mr. X inherited from his mother several tracts of land located in &ta.Ana0 Manila.
1hen the mother was still alive0 she had the parcels subdivided into 'C lots0 'D of
which were allocated to the occupants who had a lease contract with her0 while the
'C
th
lot was not leased to any person because of its very low elevation and
+an+on were planted therein. Mpon ainin possession thereof0 he sold the 'D
lots. "n 1CCD and 1CCC0 Mr. X reported his income from the sale of lots as capital
ains. 1as Mr. correct# (ecide with reasons.
TAXATION **
The sale of several lots which formed part of the rental business of /r. H cannot be
characteri.ed as sale of non5capital assets. Bhen /r. H inherited the parcels of land,
transferred to him was not merely the duty to respect the terms of any contract thereon, but
the correlative right to receive and enjoy the fruits of the business and property as well.
Fnder !ec. +@ Tax Code, the term >Capital )ssets? means property held by the taxpayer
whether or not connected with his trade or business 6HC62T7
a. stoc" in trade or other property included in the taxpayer&s inventory
b. property primarily for sale to customers in the ordinary course of his trade or
business
c. property used in the trade and business of the taxpayer subject to depreciation
allowance
d. real property used in trade or business.
;ence, in the sale or exchange of the above5mentioned properties, a gain or loss
resulting therefrom is an ordinary gain or loss. The transaction is not subject to capital
gains tax.
92. The ?")5s assessment is usually embodied in a demand letter or in a ?") form
+nown as assessment notice. "f the issue dates are anterior to the date of actual
release or mailin of the demand andJor notice0 when does the prescriptive period
start#
(t is not the issue date of demand and9or notice that is the rec"oning point in
prescription but rather it is the date when the demand letter is released, mailed or sent to
the taxpayer that constitutes an actual assessment. *Rep'-l.% vs. 4e '56an, 5 3CRA
99#/
99. ,in My and Mac My are partners. "n the year 1CCC0 they incurred a net loss of
*1@70777. The allowable deductions included accounts written off amountin to
*'70777. "n the year '7770 their business earned a net income of *27707770 includin
a bad debt recovery of *@0777. "s the *@0777 taxable#
,=. )ccording to the 6$uitable octrine of Tax 4enefit, a recovery of bad debts
previously deducted from gross income constitutes taxable income only if in the year the
account was written off, the deduction resulted in a tax benefit. (n the given problem, the
2E,111 did not result in any tax benefit in the year it was written off i.e. in *@@@ since even
assuming that the 2E,111 was not deducted, there would still be a net loss of 2*0:,111.
9>. =n April '70 1CCD0 Mando )oas filed his income tax return plus the
correspondin penalty. After a year0 he discovered that the penalty he paid was
excessive. =n 4ebruary C0 '7770 he filed a claim for refund with the ?"). =n May '0
'777 the ?") denied his claim0 but Mando was notified only on May 1@0 '777. =n
6une B0 '7770 he appealed the case to the ;TA. ;an his appeal prosper#

,=. The law re$uires that the appeal to the CT) should be made within +1 days from
receipt of denial by the 4(% A,( within two years after the payment of the tax or penalty.
(n the given problem, while the appeal to the CT) was made within +1 days from receipt of
the notice of denial by the 4(%, it was filed beyond the two5year period from date of
payment. The law uses the conjunctive >and?, thus both re$uisites must concur. /ando
should not have waited for the decision of the 4(%, and should have treated its inaction as
e$uivalent to denial of the claim. ;e could immediately file an appeal to the CT) even
without the denial so as not to defeat his claim by the lapse of the two5year prescriptive
period.
TAXATION *2
2001 CENTRALIZED BAR OPERATIONS
Executive Committee
RHODALYN MONTEMAYOR,
MARICAR MARQUEZ,
LORALAINE SINGSON,
RAFAEL OCAMPO JR.,
ERNESTO ISIP JR.,
MARIA FLORITA CRUZ,
DIANNE AQUINO,
JONATHAN ABAS,
Over-all Ca!r"er#$%
Over-all &!'e Ca!r(&C-A'a)e*!'#
&!'e Ca!r Se're+ar!a+
&!'e Ca!r F!%a%'e
&!'e Ca!r EDP
A##+. &!'e Ca!r ,$r EDP
A##+. &!'e Ca!r ,$r Se're+ar!a+
A##+. &!'e Ca!r ,$r F!%a%'e
Subject Chai!e"o#"
JOSE PANGANIBAN JR.,
JUBERT JAY ANDRION,
ZULEI-A LOPEZ,
ERIC RECALDE,
MARICRIS PAHATE,
NICEFORO A&ILA JR.,
&ERONICA LLADOC,
DERELA DE&ERA,
P$l!+!'al La.
La/$r La.
C!v!l La.
Ta0a+!$% La.
Cr!*!%al La.
C$**er'!al La.
Re*e)!al La.
Le1al E+!'# a%) F$r*#
LABOR LA$ CO%%ITTEE
ERIC RECALDE,
&OLTAIRE
BAUTISTA,
Ca!r"er#$%
EDP

SPECIAL T&AN'S TO(
ATTY. NICASIO CABANEIRO
T(a& .n All T(.n,s od Ma) 1e lor.2.ed7
TAXATION *+

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CENTRALIZED BAR OPERATIONS 2001

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