CIR vs. Fortune Tobacco Corporation, [G.R. Nos.

167274-75, July 21, 2008]

Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under several brands.
Prior to January 1, 1997, Section 142 of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex D of
R.A. No. 4280 prescribed the cigarette brands tax classification rates based on their net retail price. On January 1, 1997,
R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also provides that: (1) the
excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be
lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated
therein shall be increased by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based on its
average retail price as of October 1, 1996, as set forth in Annex D shall remain in force until revised by Congress.

The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99
added the qualification that the new specific tax rate xxx shall not be lower than the excise tax that is actually being paid
prior to January 1, 2000. In effect, it provided that the 12% tax increase must be based on the excise tax actually being
paid prior to January 1, 2000 and not on their actual net retail price.

FTC filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month of January 2000
and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by
providing the aforesaid qualification. In this petition, petitioner CIR alleges that the literal interpretation given by the CTA
and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the
transition period, which is contrary to the legislative intent to raise revenue.

Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market as outlined in Section
145 of the 1997 Tax Code?

Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the next 3 years from
the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from
each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is
to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000.

Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective
on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower
than that collected prior to this date.

The qualification added by RR No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid
at the end of the 3-year transition period and the specific tax under Section 145, as increased by 12%a situation not
supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant
or modify the law, but must remain consistent with the law they intend to carry out.

Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad valorem system to
the specific tax system in the Code is likewise meant to promote fair competition among the players in the industries
concerned and to ensure an equitable distribution of the tax burden.

CIR vs. HANTEX TRADING CO., INC.
G.R. No. 136975; March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products, it
imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file an
Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of
the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of
the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had
imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a
subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products
Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the certified copies of the
respondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption
Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan.
The case was submitted to the CTA which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of
the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly
authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR
investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax
for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of
Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and
enforcement. Among such powers are those provided in paragraph (b), which provides that Failure to submit required
returns, statements, reports and other documents. When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable. This provision applies when the Commissioner of Internal Revenue undertakes to perform her
administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file
one, or to amend a return already filed in the BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as
amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales.
Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from
other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data,
document and information secured from government offices or agencies, such as the SEC, the Central Bank of the
Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under
Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in
making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere
machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered
as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer.

Companies exempt from zero-rate tax.

BPI v CIR
G.R No. 139786O; ctober 17, 2005

Facts: The BIR issued an Assessment for a deficiency of Documentary Stamp Tax (DST). The petitioner filed a protest letter,
requesting for reconsideration with BIR however the latter did not reply. Instead, BIR issued a warrant for distraint/levy
against petitioner BPI. The petitioner did not hear from BIR until September 11, 1997 when then Commissioner Liwayway
Vinzons-Chado, denied its request for reconsideration. Subsequently, the petitioner filed a petition for review with the
CTA, raising the defense of prescription. The CTA denied the petition and held that the period of prescription had not yet
prescribed nonetheless, it held that the petitioner was not liable for the deficiency of DST. On appeal, the CA reversed the
ruling of CTA on the issue of DST tax and held that the petitioner was indeed liable for DST.

Issue: Whether or not the right of the respondent to collect from petitioner BPIis barred by prescription?

Held : Yes, the Court ruled that the period to collect has already prescribed. The BIR has three years, counted from the date
of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to
assess a national internal revenue tax or to begin a court proceeding or the collection thereof without an assessment. In
case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR
validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has
another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint,
levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the
assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.

In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter
suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing
view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the running of the
prescriptive period for collection of the deficiency DST assessed against petitioner BPI.

The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be
construed liberally in his favor.

LUCAS ADAMSON vs. COURT OF APPEALS- Deficiency Tax Assessment

FACTS:
A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their
sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department of
Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal prosecution
for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or
consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.
ISSUES:
(1) Dis the CIR issue an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment?
(3) Does the CTA have jurisdiction on the case?

HELD:
(1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not
addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for
payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an affidavit
of the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal informations.

(2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such
tax may be begun without assessment considering that upon investigation of the examiners of the BIR, there was a
preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the transactions. The Tax
Code is clear that the remedies may proceed simultaneously.

(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the jurisdiction
of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction within the
prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability of the
Petitioners, the CTA has no jurisdiction.

BPI V. CIR
On October 20, 1989, the Bureau of Internal Revenue (BIR) issued a formal assessment notice (FAN) against the Bank of
the Philippine Islands (BPI). The FAN demanded BPI to pay P28k in taxes. In November 1989, BPI filed a protest however
the protest did not specify if it was a request for reconsideration or a reinvestigation. The BIR did not reply on
the protest but on October 15, 1992 (four days before the expiration of the period to collect or 1095 days [3 years]after
issuance of FAN on 10/20/1989), the Commissioner of Internal Revenue (CIR) issued a warrant of distraint/levy against
BPI for the satisfaction of the assessed tax. The warrant was served to BPI on October 23, 1992 (four days after period has
prescribed). In September 1997, the CIR finally sent a letter to BPI advising the latter that its protest is denied.

ISSUE:

1. Whether or not the filing of the protest by BPI suspended the running of the prescriptive period.
2. Whether or not the governments right to collect the assessed tax has prescribed.

HELD:

No. The protest did not indicate whether BPI was asking for a reconsideration or a reinvestigation but since BPI did not
adduce additional evidence, it should be treated as a request for reconsideration. Under the tax code, a request for
reconsideration does not suspend the running of the prescriptive period. Even assuming that the protest is a request for
reinvestigation, the same did not toll the running of the prescriptive period because the CIR failed to show proof that the
request has been granted and that a reinvestigation has been actually conducted. In fact, BPI never heard from the BIR not
until the CIR decided the protest in September 1997 5 years after the protest has been filed.
Yes. When it comes to collection, even though the warrant for distraint/levy was issued within the prescriptive period, it is
required that the same should be served upon the taxpayer within the prescriptive period. This is because it is upon the
service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer,
and the resolute intention of the BIR to collect the tax assessed. In the case at bar, BPI received the warrant 4 days after the
expiration of the prescriptive period hence, the right to collect has already prescribed.

EVIDENCE IN TAX ASSESSMENTS; MACHINE COPIES OF RECORDS/ DOCUMENTS HAVE NO PROBATIVE VALUE

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC
G.R. No. 136975. March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic products, it
imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file an
Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of
the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of
the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had
imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a
subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products
Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the certified copies of the
respondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption
Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan.
The case was submitted to the CTA which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of
the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly
authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR
investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax
for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of
Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and
enforcement. Among such powers are those provided in paragraph (b), which provides that Failure to submit required
returns, statements, reports and other documents. When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable. This provision applies when the Commissioner of Internal Revenue undertakes to perform her
administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file
one, or to amend a return already filed in the BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as
amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales.
Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from
other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data,
document and information secured from government offices or agencies, such as the SEC, the Central Bank of the
Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under
Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in
making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere
machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered
as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer.

Companies exempt from zero-rate tax

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. vs. EXECUTIVE SECRETARY- Minimum Corporate
Income Tax

FACTS:
CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as
it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of
real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and
capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per
transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real
properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the
CWT is being levied upon real estate enterprises but not on other enterprises, more particularly those in the
manufacturing sector.

ISSUE:
Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as
ordinary assets unconstitutional?

HELD:
NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT 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.
Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the
law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can
suspend the imposition of MCIT in justifiable instances.

The regulations on CWT did not shift the tax base of a real estate business income tax from net income to GSP or FMV of
the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on
the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified
as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors
reasonably known to the buyer in connection with the performance of the duties as a withholding agent.
Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry
is, by itself, a class on its own and can be validly treated different from other businesses.

CIR vs. Isabela Cultural Corporation

Facts: Isabela Cultural Corporation (ICC), a domestic corporation received an assessment notice for deficiency income tax
and expanded withholding tax from BIR. It arose from the disallowance of ICCs claimed expense for professional and
security services paid by ICC; as well as the alleged understatement of interest income on the three promissory notes due
from Realty Investment Inc. The deficiency expanded withholding tax was allegedly due to the failure of ICC to withhold
1% e-withholding tax on its claimed deduction for security services.

ICC sought a reconsideration of the assessments. Having received a final notice of assessment, it brought the case to CTA,
which held that it is unappealable, since the final notice is not a decision. CTAs ruling was reversed by CA, which was
sustained by SC, and case was remanded to CTA. CTA rendered a decision in favor of ICC. It ruled that the deductions for
professional and security services were properly claimed, it said that even if services were rendered in 1984 or 1985, the
amount is not yet determined at that time. Hence it is a proper deduction in 1986. It likewise found that it is the BIR which
overstate the interest income, when it applied compounding absent any stipulation.

Petitioner appealed to CA, which affirmed CTA, hence the petition.

Issue: Whether or not the expenses for professional and security services are deductible.

Held: No. One of the requisites for the deductibility of ordinary and necessary expenses is that it must have been paid or
incurred during the taxable year. This requisite is dependent on the method of accounting of the taxpayer. In the case at
bar, ICC is using the accrual method of accounting. Hence, under this method, an expense is recognized when it is incurred.
Under a Revenue Audit Memorandum, when the method of accounting is accrual, expenses not being claimed as
deductions by a taxpayer in the current year when they are incurred cannot be claimed in the succeeding year.

The accrual of income and expense is permitted when the all-events test has been met. This test requires: 1) fixing of a
right to income or liability to pay; and 2) the availability of the reasonable accurate determination of such income or
liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at
its disposal the information necessary to compute the amount with reasonable accuracy.

From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be expected to
have reasonably known the retainer fees charged by the firm. They cannot give as an excuse the delayed billing, since it
could have inquired into the amount of their obligation and reasonably determine the amount.

CIR v. General Foods

Facts:
Respondent corporation General Foods (Phils), which is engaged in the manufacture of Tang, Calumet and Kool-Aid,
filed its income tax return for the fiscal year ending February 1985 and claimed as deduction, among other business
expenses, P9,461,246 for media advertising for Tang.
The Commissioner disallowed 50% of the deduction claimed and assessed deficiency income taxes of P2,635,141.42
against General Foods, prompting the latter to file an MR which was denied.
General Foods later on filed a petition for review at CA, which reversed and set aside an earlier decision by CTA dismissing
the companys appeal.

Issue:
W/N the subject media advertising expense for Tang was ordinary and necessary expense fully deductible under the
NIRC

Held:
No. Tax exemptions must be construed in stricissimi juris against the taxpayer and liberally in favor of the taxing authority,
and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law.
Deductions for income taxes partake of the nature of tax exemptions; hence, if tax exemptions are strictly construed, then
deductions must also be strictly construed.
To be deductible from gross income, the subject advertising expense must comply with the following requisites: (a) the
expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have
been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts,
records or other pertinent papers.
While the subject advertising expense was paid or incurred within the corresponding taxable year and was incurred in
carrying on a trade or business, hence necessary, the parties views conflict as to whether or not it was ordinary. To be
deductible, an advertising expense should not only be necessary but also ordinary.
The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed the two
conditions set by U.S. jurisprudence: first, reasonableness of the amount incurred and second, the amount incurred must
not be a capital outlay to create goodwill for the product and/or private respondents business. Otherwise, the expense
must be considered a capital expenditure to be spread out over a reasonable time.
There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an advertising expense. There
being no hard and fast rule on the matter, the right to a deduction depends on a number of factors such as but not limited
to: the type and size of business in which the taxpayer is engaged; the volume and amount of its net earnings; the nature of
the expenditure itself; the intention of the taxpayer and the general economic conditions. It is the interplay of these, among
other factors and properly weighed, that will yield a proper evaluation.
The Court finds the subject expense for the advertisement of a single product to be inordinately large. Therefore, even if it
is necessary, it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or use of services and
(2) advertising designed to stimulate the future sale of merchandise or use of services. The second type involves
expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the taxpayers trade or business
or for the industry or profession of which the taxpayer is a member. If the expenditures are for the advertising of the first
kind, then, except as to the question of the reasonableness of amount, there is no doubt such expenditures are deductible
as business expenses. If, however, the expenditures are for advertising of the second kind, then normally they should be
spread out over a reasonable period of time.
The companys media advertising expense for the promotion of a single product is doubtlessly unreasonable considering it
comprises almost one-half of the companys entire claim for marketing expenses for that year under review.Petition
granted, judgment reversed and set aside.

COMMISSIONER VS. JAVIER- Claim of Right Doctrine
Claim of right doctrine or doctrine of ownership, command or control- In this case, Javier is not liable for fraud penalty
because the income he received is not yet a taxable gain since it is still under litigation.

FACTS:

1977: Victoria Javier, wife of Javier-respondent, received $999k from Prudential Bank remitted by her sister Dolores
through Mellon Bank in US.
Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against Javier claiming that its remittance of $1M was
a clerical error and should have been $1k only and praying that the excess be returned on the ground that the Javiers are
just trustees of an implied trust for the benefit of Mellon Bank.
CFI charged Javier with estafa alleging that they misappropriated and converted it to their own personal use.
A year after, Javier filed his Income Tax Return for 1977 and stating in the footnote that the taxpayer was recipient of
some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation
The Commissioner of Internal Revenue wrote a letter to Javier demanding him to pay taxes for the deficiency, due to the
remittance.
Javier replied to the Commissioner and said that he will pay the deficiency but denied that he had any undeclared income
for 1977 and requested that the assessment of 1977 be made to await final court decision on the case filed against him for
filing an allegedly fraudulent return.
Commissioner replied that the amount of Mellon Banks erroneous remittance which you were able to dispose is
definitely taxable and the Commissioner imposed a 50% fraud penalty on Javier.

ISSUE: Whether or not Javier is liable for the 50% penalty.

HELD: No.

The court held that there was no actual and intentional fraud through willful and deliberate misleading of the BIR in the
case. Javier even noted that the taxpayer was recipient of some money received abroad which he presumed to be a gift but
turned out to be an error and is now subject of litigation
(the ff are not expressly written in the case, in fact the doctrine I just found it elsewhere but this is relevant to the topic
rather than the issue in the case)
o Claim of right doctrine- a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the
absence of a definite and unconditional obligation to return or repay.
o In this case, the remittance was not a taxable gain, since it is still under litigation and there is a chance that Javier might
have the obligation to return it. It will only become taxable once the case has been settled because by then whatever
amount that will be rewarded, Javier has a claim of right over it.

CIR v. Javier
In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa.
Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself.
Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently, Ventosa only
sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1 Million.
Meanwhile, Javier filed his income tax return. In his return, he place a footnote which states:

Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error
and is now subject of litigation.
The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR also
imposed a 50% penalty against Javier as the CIR deemed Javiers return as a fraudulent return.

ISSUE: Whether or not Javier is liable to pay the 50% penalty.

HELD: No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such
fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that does
not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the
return. Javiers notation on his income tax return can be considered as a mere mistake of fact or law but not fraud. Such
notation was practically an invitation for investigation and that Javier had literally laid his cards on the table. The
government was never defrauded because by such notation, Javier opened himself for investigation.
It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting
of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.

BANCO FILIPINO vs. CA Case Digest
BANCO FILIPINO vs. COURT OF APPEALS
332 SCRA 241

FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and
Mortgage bank in the amount of Php.107,946.00 as evidenced by the Promissory Note executed by the spouses in favor
of the said bank. To secure payment of said loans, the spouses executed Real Estate Mortgages in favor of the appellants
(Banco Filipino) over their parcels of land. The appellee spouses failed to pay their monthly amortization to appellant. On
September 2, 1985 the appellees filed a complaint for Annulment of the Loan Contracts, Foreclosure Sale with
Prohibitory and Injunction which was granted by the RTC. Petitioners appealed to the Court of Appeals, but the CA
affirmed the decision of the RTC.

ISSUE: Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30,
1978 and the filing of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription

RULING: The court held that the petition is unmeritorious. Petitioners claim that the action of the private respondents
have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action
where there is no special provision which ordains otherwise shall be counted from the day they may be brought. Thus the
period of prescription of any cause of action is reckoned only from the date of the cause of action accrued. The period
should not be made to retroact to the date of the execution of the contract, but from the date they received the statement
of account showing the increased rate of interest, for it was only from the moment that they discovered the petitioners
unilateral increase thereof.

Banco Filipino Savings and Mortgage Bank vs. CA

Facts: On Dec. 20, 1993, Santiago (Isabela) Memorial Park(SANTIAGO)filed a complaint for redemption and specific
performance against Banco Filipino (BANK). SANTIAGO alleged that the BANK foreclosed the mortgage and became the
highestbidder in the sale. The Certicate of Sale was inscribed at the back of the TCT on Jan. 21, 1991. On Aug. 6, 1991,
SANTIAGO offered to repurchase the property at P700k which was the start of negotiation between the 2. SANTIAGO was
given up to the end of March 1992 to negotiate and make special arrangement for any satisfactory plan of payment for the
redemption. On Jan. 23, 1992, the Deputy Liquidator directed SANTIAGO to remit at least P50k to the BANK to manifest its
willingness to redeem. On Jan. 20, 1993, SANTIAGO increased its offer to P1M.But the BANK demanded P5.8M.

Issue: Whether or not SANTIAGO can redeem the property.

Held: NO. SANTIAGO has no cause of action for redemption against petitioner. The right of redemption should be
exercised within the specified time limit, which is one year from the date ofregistration of the certificate of sale. The
redemptioner should make an actual tender in good faith of the full amount of the purchase price. In case of disagreement
over the redemption price, the redemptioner may preserve his right of redemption through judicial action which in every
case must be filed within the one-year period of redemption. The filing of the court action to enforce redemption, being
equivalent to a formal offer to redeem, would have the effectof preserving his redemptive rights and freezing the
expiration of the one-year period. In this case, the period of redemption expired on Jan. 21, 1992. The complaint was filed
on Dec. 20, 1992. SANTIAGO should have filed the complaint before Jan. 21, 1992.

Moreover, while the complaint alleges that SANTIAGO made an offer to redeem the subject property within the period of
redemption, it is not alleged in the complaint that there was an actual tender of payment of the redemption price as
required by the rules. It was alleged that SANTIAGO merely made an offer of P700k as redemption price, which however,
as stated in complaint, the redemption money was the total bank claim of P925,448.17 plus lawful interest and other
allowable expenses incident to the foreclosure proceedings. Thus, the offer was even very much lower than the price paid
by petitioner as the highest bidder in the auction sale.

Also, there was no categorical allegation in the complaint that the original period of redemption had been extended.
Assuming arguendo that the period for redemption had been extended, i.e., up to end of March 1992, still private
respondent failed to exercise its right within said period.

Banco Filipino Savings and Mortgage Bank v CA (334 SCRA 305)
Certiorari under Rule 65 is proper if a tribunal, board or officer exercising judicial/quasi-judicial functions acted without
or in excess of jurisdiction or with grave abuse of discretion and that there is no appeal or plain, speedy and adequate
remedy in the ordinary course of law. The abuse of discretion must be so patent and gross as to amount to an evasion of
positive duty. It seeks to correct errors of jurisdiction. Also certiorari is not allowed when a party to a case fails to appeal a
judgment despite the availability of that remedy.
On the other hand, Rule 45 as a petition for review seeks to correct errors of judgment which include errors of procedure
or mistakes in the courts findings. All errors committed in the exercise of such jurisdiction are merely errors of judgment.

FACTS:
Banco Fil sold to Tala Realty 4 lots in Iloilo. Tala then leased the properties back to Banco Fil for a monthly rental of
P21,000 for a period of 20 years. Tala demanded payment for rentals but Banco Fil failed to comply with their obligation
so Tala filed numerous ejectment suits against Banco Fil. Incidentally, Banco Fil also filed 16 other complaints for recovery
of real property to which Tala filed a Motion to Dismiss (MtD). The trial court granted the MtD and denied Banco Fils
Motion for Reconsideration.
Banco Fil, instead of filing an appeal, filed a petition for certiorari with the CA under Rule 65 alleging that the trial court
acted with grave abuse of discretion because it did not comply with the constitutional mandate on the form for decisions.
CA dismissed the certiorari stating that Rule 65 may be granted only when theres no appeal or plain, speedy and adequate
remedy in the course of law.
Banco Fil received the copy of the CAs decision and filed a Motion for Reconsideration to which the CA again denied.
Banco Fil filed another petition for certiorari under Rule 65 this time with the SC.

ISSUE:
Whether appeal to SC under Rule 65 is proper.

HELD:
NO. SC immediately dismissed petition for the violation of the basic rules of Remedial Law. The proper remedy from the
CAs adverse resolutions to the SC is an ordinary appeal via petition for review under Rule 45.
Certiorari under Rule 65 is proper if a tribunal, board or officer exercising judicial/quasi-judicial functions acted without
or in excess of jurisdiction or with grave abuse of discretion and that there is no appeal or plain, speedy and adequate
remedy in the ordinary course of law. The abuse of discretion must be so patent and gross as to amount to an evasion of
positive duty. It seeks to correct errors of jurisdiction. Also certiorari is not allowed when a party to a case fails to appeal a
judgment despite the availability of that remedy.
On the other hand, Rule 45 as a petition for review seeks to correct errors of judgment which include errors of procedure
or mistakes in the courts findings. All errors committed in the exercise of such jurisdiction are merely errors of judgment.
In the case, Banco Fils allegations that the CA committed grave abuse of discretion were only bare allegations since Banco
Fil even admitted that the CA labored out a 33-page rationale on the decision of their case, thus, the CA did not commit any
grave abuse of discretion.
Note that, the remedies of appeal and certiorari are mutually exclusive and not alternative or successive. Hence, the
availability to Banco Fil of the remedy under Rule 45 effectively foreclosed its right to resort to a petition for certiorari
under Rule 65.
Also note that certiorari cannot be used as a substitute for the lapsed or lost remedy of appeal. In the case, Banco Fils
recourse under Rule 65 cannot be taken, because when it filed a petition for certiorari to the SC, the reglementary period
for filing a petition for review under Rule 45 to the CA had already lapsed.

CIR v. Kudos Metal Corp.
In April 1999, Kudos Metal Corporation (KMC) filed its annual income tax return (ITR). In September 1999, the Bureau of
Internal Revenue (BIR) advised KMC that it will be subjected to a tax audit. In September 2000, a subpoena duces tecum
was issued against KMC but the latter failed to comply. In December 2001, about 4 months before the expiration of the
government to make an assessment (April 2002), Nelia Pasco, accountant of KMC, executed a waiver of the statute of
limitations (SOL) in favor of BIR. A tax audit then ensued. In February 2003, another such waiver was executed by Pasco.
The audit continued. Finally, in September 2003 more than three years from the filing of KMC of its ITR, a formal
assessment notice (FAN) was issued by the Commissioner of Internal Revenue (CIR) demanding KMC to pay P25 million in
taxes.

KMC protested the FAN on the ground that it was issued beyond the prescriptive period; that it was issued beyond the
prescriptive period because there was no valid waiver of the SOL (in particular, the first waiver) because Pasco was not
authorized by KMC to execute the same; that even if Pasco is authorized, the same is still void because it did not indicate
the acceptance date of the BIR; that a copy of the waiver was not furnished to KMC.
The CIR argued that KMC is already in estoppel because it acquiesced or it allowed the audit conducted by the BIR after the
two waivers executed by Pasco.

ISSUE: Whether or not KMC is in estoppels.

HELD: No. Apparently, Pasco was not authorized by KMC to execute the waiver. Even if KMC allowed the subsequent tax
audit after such waiver it did not bar KMC to raise the issue of prescription. This is reinforced by the fact that the waiver is
infirm because of the lack of the date of acceptance as well as the fact that a copy thereof was not furnished to KMC. These
two are among the requirements provided for by Section 222 of the National Internal Revenue Code (NIRC) as to a valid
waiver of the SOL. The provisions in Section 222 of NIRC provides for a detailed procedure that must be strictly followed
by the BIR in order that the taxpayer will have a valid waiver. The BIR cannot now hide behind the doctrine of estoppel to
cover its failure to comply with the law.

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION- Waiver of the Statute of Limitations

FACTS:
CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the Statute of Limitations was executed on
December 2001. The CTA issued a Resolution canceling the assessment notices issued against Petitioner for having been
issued beyond the prescriptive period as the waiver purportedly failed to (a) have the valid officer execute the same (i.e.,
only the Assistant Commissioner signed it and not the CIR); (b) the date of acceptance was not indicated; (c) the fact of
receipt by the taxpayer was not indicated in the original copy.
ISSUE:
Has the CIRs right to assess prescribed?

HELD:
YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give effect to
Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no
notarized written authority in favor of the signatory for the company; (b) there is no stated date of acceptance by the
Commissioner or his representative; and (c) the fact of the receipt of the copy was not indicated in the original waivers.

Neither can it be said that by merely executing the waiver the taxpayer is already estopped from disputing an action by the
CIR beyond the statutory 3-year period since the exception under the Suyoc case (i.e., when the delays were due to
taxpayers acts) does not apply.

Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by authorized officer of taxpayer and
BIR; (iv) notarized; (v) fact of receipt must be indicated in the copies.

G.R. No. 178087 : May 5, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. KUDOS METAL CORPORATION, Respondent
Facts: Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. (BIR) served upon
respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR
issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondents President,
Mr. Chan Ching Bio, in a letter dated October 20, 2000.
Respondent accountant, executed two Waiver of the Defense of Prescription.
BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a
Formal Letter of Demand with Assessment Notices for taxable year 1998.
Respondent challenged the assessments by filing its Protest on Various Tax Assessments on December 3, 2003 and its
Legal Arguments and Documents in Support of Protests against Various Assessments on February 2, 2004.
BIR rendered a final Decision on the matter, requesting the immediate payment of the Respondents tax liabilities.
Respondent filed a Petition for Review with the CTA. CTA cancelled the assessment notices issued against respondent for
having been issued beyond the prescriptive period.
Petitioner moved for reconsideration but the CTA Second Division denied the motion. On appeal, the CTA En Banc affirmed
the cancellation of the assessment notices. Petitioner sought reconsideration but the same was unavailing.
Issue:WHETHER THE CTA ERRED IN RULING THAT THE GOVT. RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT
PRESCRIBED.

Held: Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal
revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of
filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is
no longer valid and effective. Exceptions however are provided under Section 222 of the NIRC.
The waivers executed by respondents accountant did not extend the period within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims
that the period was extended by the two waivers executed by respondents accountant.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period.
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is no showing that
respondent made any request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of
taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly
follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined,
is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and
should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage,
or to extend beyond them requirements of the transactions in which they originate.24 Simply put, the doctrine of estoppel
must be sparingly applied.

CIR vs. CA , G.R. No. 95022 207 Scra 487

Petitioner, seeks a reversal of the Decision of respondent CA, dated Aug. 27, 1990, in CA-G.R. SP No. 20426, entitled
"Commissioner of Internal Revenue vs. GCL Retirement Plan, represented by its Trustee-Director and the Court of Tax
Appeals," which affirmed the Decision of the latter Court, dated 15 December 1986, in Case No. 3888, ordering a refund, in
the sum of P11,302.19, to the GCL Retirement Plan representing the withholding tax on income from money market
placements and purchase of treasury bills, imposed pursuant to Presidential Decree No. 1959.
There is no dispute with respect to the facts. Private Respondent, GCL Retirement Plan (GCL, for brevity) is an employees'
trust maintained by the employer, GCL Inc., to provide retirement, pension, disability and death benefits to its employees.
The Plan as submitted was approved and qualified as exempt from income tax by Petitioner Commissioner of Internal
Revenue in accordance with Rep. Act No. 4917.

ISSUE: Are schools retained earnings tax-exempt?

RULING:
Yes. GCL Plan was qualified as exempt from income tax by the CIR in accordance with Rep. Act. 4917. The tax-exemption
privilege of employees' trusts, as distinguished from any other kind of property held in trust, springs from Section 56(b)
(now 53[b]) of the Tax Code, The tax imposed by this Title shall not apply to employee's trust which forms part of a
pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees . . . And rightly
so, by virtue of the raison de'etre behind the creation of employees' trusts. Employees' trusts or benefit plans normally
provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement,
death, sickness, or disability. It provides security against certain hazards to which members of the Plan may be exposed. It
is an independent and additional source of protection for the working group. What is more, it is established for their
exclusive benefit and for no other purpose.
It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those
earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out
of the trust fund. This would run afoul of the very intendment of the law. There can be no denying either that the final
withholding tax is collected from income in respect of which employees' trusts are declared exempt (Sec. 56 [b], now 53
[b], Tax Code). The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by requiring its payment at the source. If an
employees' trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain percentage
of that income which it is not supposed to pay in the first place.